Agrib­ank comes to the party

The Sunday Mail (Zimbabwe) - - ANALYSIS & OPINION - Sam Mal­aba

AGRIB­ANK has launched three fa­cil­i­ties, namely the Ex­port Fa­cil­ity (US$50 mil­lion), the Hor­ti­cul­ture Fa­cil­ity (US$10 mil­lion) and Value Ad­di­tion/Busi­ness Link­ages Fa­cil­ity (US$10 mil­lion). The fa­cil­i­ties are be­ing of­fered in con­junc­tion with the Re­serve Bank of Zim­babwe as sup­port for pro­duc­tion of ex­ports, hor­ti­cul­ture crops, and for value ad­di­tion.

These are pro­duc­tive sec­tor fa­cil­i­ties suit­ably struc­tured to en­hance pro­duc­tion and vi­a­bil­ity of ex­porters, pro­duc­ers and farm­ers who are in those ven­tures.

The fa­cil­i­ties on of­fer have favourable terms, cov­er­ing both work­ing cap­i­tal and cap­i­tal ex­pen­di­ture re­quire­ments.

Spe­cific con­tri­bu­tions of the fa­cil­i­ties are as fol­lows:

Ex­port Fa­cil­ity: Ex­port­ing com­pa­nies have been fac­ing chal­lenges of com­pet­i­tive­ness in ex­port mar­kets, caused by a high pro­duc­tion cost base mainly due to the strong US dol­lar as well as high in­put costs.

One of the key driv­ers to their cost build-up has been the high cost of fi­nance.

The ex­port fa­cil­ity, at 7,5 per­cent per an­num of­fers highly com­pet­i­tive terms, which will go a long way in re­duc­ing the cost of pro­duc­tion and, there­fore, en­hance com­pet­i­tive­ness of our prod­ucts in ex­port mar­kets.

Agrib­ank is ex­cited to of­fer such sup­port to com­pa­nies and in­di­vid­u­als who are en­gag­ing in ac­tiv­i­ties that gen­er­ate for­eign cur­rency, par­tic­u­larly on the back of the cur­rent for­eign cur­rency short­ages.

Avail­ing such a fa­cil­ity to ex­porters will as­sist in grow­ing the coun­try’s ex­port base and gen­er­ate much-needed for­eign cur­rency.

Hor­ti­cul­ture Fa­cil­ity: To sup­port do­mes­tic pro­duc­tion of hor­ti­cul­ture prod­ucts. Gov­ern­ment in­tro­duced Statu­tory In­stru­ment 64 in June 2016 to sup­port do­mes­tic pro­duc­ers and in­dus­tries.

The mea­sure in­creased de­mand for lo­cal prod­ucts and ex­panded the mar­ket for lo­cal pro­duc­ers. This fa­cil­ity is com­ing in to en­hance pro­duc­tion ca­pac­ity of lo­cal pro­duc­ers in or­der to cover the gap cre­ated by im­port man­age­ment and cre­ate op­por­tu­ni­ties to in­crease hor­ti­cul­tural ex­ports.

Value Ad­di­tion Fa­cil­ity: En­sures pro­duc­ers in pro­duc­tive sec­tors are able to in­crease re­turn on their prod­ucts through value ad­di­tion. The fa­cil­ity fur­ther en­hances pro­duc­tion of these value-added prod­ucts as mar­kets are guar­an­teed through the sup­port pro­vided to off-tak­ers.

In ad­di­tion, the fa­cil­ity com­ple­ments other fa­cil­i­ties to cre­ate a com­plete value chain fi­nanc­ing scheme for pro­duc­tive sec­tors from pro­duc­tion to pro­cess­ing.

In line with its man­date, Agrib­ank has been ex­pand­ing sup­port for agri­cul­ture on a multi-track pro­gramme un­der var­i­ous ini­tia­tives tar­get­ing food se­cu­rity and value ad­di­tion, in­clud­ing sup­port for: small­holder tobacco grow­ers; sug­ar­cane farm­ers; ir­ri­ga­tion schemes; small­holder farm­ers; cat­tle pen fat­ten­ing; and live­stock ini­tia­tives.

The bank has fund­ing prod­ucts for small­holder farm­ers tar­get­ing strate­gic agri­cul­ture sub-sec­tors, in­clud­ing small­holder ir­ri­ga­tion schemes, sug­ar­cane farm­ers, tobacco farm­ers, Brazil­ian Mech­a­ni­sa­tion Pro­gramme ben­e­fi­cia­ries, soya farm­ers and potato farm­ers.

It is work­ing closely with small­holder sug­ar­cane pro­duc­ers in Chiredzi and Tri­an­gle, and is the big­gest fi­nancier of small­holder sug­ar­cane farm­ers in the Lowveld.

In ad­di­tion, the bank has stand­ing part­ner­ship ar­range­ments with ma­jor tobacco in­dus­try play­ers such as the Tobacco In­dus­try and Mar­ket­ing Board and Tobacco Re­search Board for the devel­op­ment of the tobacco in­dus­try, which is a ma­jor for­eign cur­rency earner.

Specif­i­cally, the bank en­tered into a strate­gic part­ner­ship with the TIMB to fi­nance the con­struc­tion of “rocket barns” as well as drip ir­ri­ga­tion for small­holder tobacco farm­ers.

It has also availed a fa­cil­ity to the TRB, and that fa­cil­ity is for work­ing cap­i­tal for group float seed bed train­ing.

Fur­ther­more, the bank is ex­pand­ing the strat­egy of fi­nanc­ing green mar­ket play­ers through­out the coun­try to in­crease their ca­pac­ity and their abil­ity to be more vi­able and sus­tain­able within the agri­cul­tural value chain.

Agrib­ank is al­ready es­tab­lished at Mbare Musika, Bin­dura, Chi­tung­wiza, Mutare (Sakubva), Nor­ton, Bu­l­awayo (Renk­ini), Chegutu, Chin­hoyi and Zvisha­vane.

The tar­get is to ex­pand to other fresh pro­duce mar­kets in all provin­cial cen­tres and other out­ly­ing ar­eas.

The bank is also work­ing on back­ward link­ages to fi­nance grow­ers and link them to fresh pro­duce farmer mar­kets.

It is also in en­gage­ment with devel­op­ment part­ners sup­port­ing agri­cul­ture value chain fa­cil­i­ties, and its thrust is to sup­port out-grower schemes with struc­tures and part­ner­ship ar­range­ments with off-tak­ers for value ad­di­tion of small­holder out­put.

Un­der that ar­range­ment, the bank has al­ready es­tab­lished part­ner­ships and is pro­vid­ing fund­ing for work­ing cap­i­tal and cap­i­tal ex­pen­di­ture to out-grow­ers who sup­ply agro-pro­ces­sors.

The ini­tia­tives are al­ready un­der­way for sup­port­ing tomato grow­ers un­der the part­ner­ship struc­tured be­tween the Agri­cul­tural and Ru­ral Devel­op­ment Author­ity and Sch­weppes Zim­babwe Limited’s sub­sidiary, Best Fruit Pro­ces­sors, on pro­cess­ing and value ad­di­tion of fruits.

Work is in progress for the bank to also repli­cate its sup­port for the Esigo­dini project in Mata­bele­land and as­sist farm­ers who will pro­vide in­put into the Esigo­dini Plant. In ad­di­tion, Agrib­ank is ne­go­ti­at­ing a num­ber of part­ner­ships with devel­op­ment part­ners in­volved with small­holder and ru­ral farm­ers sup­port pro­grammes.

The bank has sup­ported a num­ber of small­holder live­stock projects, in­clud­ing cat­tle pen fat­ten­ing and dairy farm­ers, as well as poul­try and pig­gery projects.

While Agrib­ank is look­ing for ap­pro­pri­ate long-term fund­ing for breed­ing, cur­rent fund­ing is fairly short-term, hence, the bias to­wards pen fat­ten­ing as well as pig­gery and poul­try.

State-sup­ported agri­cul­ture

His­tor­i­cally, Gov­ern­ment has al­ways in­sti­tuted mech­a­nisms for agri­cul­ture fi­nanc­ing.

Dur­ing the Agri­cul­ture Fi­nance Cor­po­ra­tion pe­riod, Gov­ern­ment availed dif­fer­ent tenures of agri­cul­ture fi­nanc­ing as fol­lows:

— Sea­sonal/short-term work­ing cap­i­tal fi­nanc­ing (one-two years);

— Medium-term fi­nanc­ing (three­five years); and

— Long-term fi­nanc­ing (over five years).

Post-In­de­pen­dence, dur­ing the first two decades, agri­cul­ture fi­nanc­ing was pre­dom­i­nantly un­der­taken by banks and the AFC, mo­bil­is­ing fi­nan­cial re­sources from both the do­mes­tic econ­omy and the donor com­mu­nity.

In ad­di­tion, the Gov­ern­ment through the PSIP pro­gramme also un­der­took ma­jor in­vest­ments in agri­cul­ture in­fra­struc­ture, in­clud­ing dam con­struc­tion and ir­ri­ga­tion devel­op­ment.

Since dol­lar­i­sa­tion, com­mer­cial bank fund­ing of agri­cul­ture has been grow­ing steadily every year, though this has re­mained in­ad­e­quate in light of the huge fund­ing re­quire­ments of agri­cul­ture, par­tic­u­larly also the dom­i­nance of short-term lend­ing due to the short-term na­ture of de­posits in Zim­babwe.

In light of the above, fi­nanc­ing mech­a­nisms that trig­ger an agri­cul­ture rev­o­lu­tion should en­com­pass:

1. In­creased pri­vate sec­tor in­volve­ment in the fi­nanc­ing of agri­cul­ture given the cur­rent fi­nan­cial con­straints faced by Gov­ern­ment. Part­ner­ships and fi­nanc­ing ar­range­ments be­tween pri­vate sec­tor in­vestors, farm­ers, agro-pro­ducer com­pa­nies and pub­lic in­sti­tu­tions in agri­cul­ture should be ex­panded for pur­poses of pri­mary pro­duc­tion and value ad­di­tion. This should also be ex­tended to cover agri­cul­ture in­fra­struc­ture, in­clud­ing ir­ri­ga­tion devel­op­ment.

No­tably, Gov­ern­ment sup­port schemes such as Com­mand Agri­cul­ture, the Pres­i­den­tial Well-Wish­ers Agri­cul­tural In­puts Sup­port Scheme and Arda/pri­vate sec­tor ini­tia­tives have had a sig­nif­i­cantly pos­i­tive im­pact on agri­cul­ture pro­duc­tion and pro­duc­tiv­ity.

In ad­di­tion, ar­range­ments in the form of joint ven­tures, Pub­lic Pri­vate Part­ner­ships, BOOTs and BOTs also need to be ex­panded in sup­port of agri­cul­ture.

2. In­creased par­tic­i­pa­tion of cap­i­tal mar­kets and pen­sion funds in pro­vid­ing medium to long-term fund­ing to agri­cul­ture.

3. Re-cap­i­tal­i­sa­tion of in­sti­tu­tions man­dated with agri­cul­ture devel­op­ment us­ing do­mes­tic fi­nan­cial re­sources to lev­els which en­able these to at­tract for­eign cap­i­tal.

4. Ca­pac­i­tat­ing these in­sti­tu­tions to en­ter into part­ner­ship with both do­mes­tic and for­eign part­ners for agri­cul­ture fi­nanc­ing schemes such as lease fi­nance and struc­tured com­mod­ity fi­nance in or­der to in­crease sup­port to agri­cul­ture.

Lease fi­nance ar­range­ments would as­sist farm­ers and other play­ers in agri­cul­ture to have ac­cess to equip­ment with­out sig­nif­i­cant cap­i­tal out­lay.

5. Re-es­tab­lish­ment of an agri­cul­ture com­modi­ties ex­change, the for­mer Zi­mace, and in­tro­duc­tion of a ware­house re­ceipt sys­tem.

6. As the coun­try en­hances the in­vest­ment en­vi­ron­ment and en­gages the in­ter­na­tional com­mu­nity, stake­hold­ers, in­vestors and devel­op­ment part­ners; the coun­try needs to lo­cate and project agri­cul­ture as one of the key sec­tors for in­vest­ment.

Fi­nanc­ing op­tions

Agri­cul­ture fi­nanc­ing in Zim­babwe in re­cent years has been dom­i­nated by banks as Gov­ern­ment-fund­ing re­ceded over the years.

Fund­ing has, how­ever, been highly short-term and costly as banks are re­ly­ing on short-term sources of fund­ing.

The agri­cul­ture sec­tor, just like all other sec­tors, is grossly un­der­funded given the liq­uid­ity chal­lenges in the econ­omy.

As men­tioned be­fore, agri­cul­ture re­quires pa­tient cap­i­tal, which is cor­rectly priced. Ab­sence of such cap­i­tal in the do­mes­tic mar­ket cre­ates need for at­tract­ing for­eign cap­i­tal to the sec­tor. Zim­babwe does not have medium and long-term fund­ing re­quired in agri­cul­ture, and the avail­able short-term fund­ing is not ad­e­quate to meet the myr­iad fi­nan­cial re­quire­ments in the sec­tor.

Over 80 per­cent of to­tal de­posits are de­mand de­posits that are not avail­able for longer-term lend­ing.

In­ter­na­tional and re­gional lines of credit are limited and sub­ject to a high risk pre­mium, re­flect­ing the per­cep­tion of Zim­babwe as high risk due to the ex­ist­ing ex­ter­nal debt pay­ment ar­rears and debt over­hang.

Com­pound­ing the chal­lenge is the rel­a­tively high level of non-per­form­ing loans in agri­cul­ture as a pro­por­tion of to­tal bank­ing sec­tor loans and ad­vances.

Fi­nanc­ing agri­cul­ture in Zim­babwe is cur­rently con­strained by a num­ber of fac­tors, in­clud­ing:

— Low cap­i­tal­i­sa­tion of agri­cul­ture fi­nanc­ing in­sti­tu­tions;

— Depen­dence on un­sus­tain­able fund­ing sources; — Limited Gov­ern­ment sup­port; — High cost of funds; — High non-per­form­ing loans; — Lengthy lit­i­ga­tion process when seek­ing de­fault re­course;

— High risk em­a­nat­ing from the as­pects of nat­u­ral dis­as­ters, cli­matic change and un­cer­tain po­lices on land own­er­ship and lack of se­cu­rity; and

— High trans­ac­tion costs dur­ing mon­i­tor­ing of projects.

Ac­cord­ingly, banks have be­come more risk averse and have, there­fore, re­duced lend­ing, in par­tic­u­lar to farm­ers, but are in­creas­ing lend­ing to cor­po­rate agri­cul­ture.

In­ter­na­tional fa­cil­i­ties avail­able for agri­cul­ture typ­i­cally take the form of mech­a­ni­sa­tion equip­ment fa­cil­i­ties such as the Brazil fa­cil­ity (US$98,6 mil­lion), de­signed to en­hance small­holder agri­cul­ture pro­duc­tiv­ity, hence out­put growth.

Re­solv­ing the prob­lem of limited credit to the agri­cul­tural sec­tor calls for con­certed ef­forts by all stake­hold­ers, in­clud­ing Gov­ern­ment, the bank­ing sec­tor, farm­ers and non-bank­ing fi­nan­cial in­sti­tu­tions to chart a col­lec­tive way for­ward to aug­ment the flow of credit to agri­cul­ture.

In­creas­ing pro­duc­tion

The ma­jor risk in agri­cul­ture fi­nanc­ing em­anates from the as­pects of nat­u­ral dis­as­ters, cli­matic changes and un­cer­tainty on se­cu­rity of ten­ure.

Risks have also emerged from the grow­ing level of NPLs and high costs of funds.

The es­tab­lish­ment of the Zim­babwe As­set Man­age­ment Cor­po­ra­tion by the Re­serve Bank of Zim­babwe has con­trib­uted sig­nif­i­cantly to the re­duc­tion of NPLs.

In re­spect of cli­mate change and nat­u­ral dis­as­ters, we need to ap­pre­ci­ate that Zim­babwe lies in a semi­arid re­gion with limited and un­re­li­able rain­fall pat­terns and tem­per­a­ture vari­a­tions.

In­creas­ingly, Zim­babwe is char­ac­terised by shift­ing rain­fall pat­terns, re­cur­rently dom­i­nated by mid-sea­son dry spells.

Where farm­ers were pre­vi­ously ac­cus­tomed to con­tin­u­ous rain­fall over at least six months from Oc­to­ber to March of the fol­low­ing year, this has since changed dra­mat­i­cally, with out­put im­pli­ca­tions.

Rain­fall ex­hibits con­sid­er­able spa­tial and tem­po­ral vari­abil­ity char­ac­terised by shifts in the on­set of rains, in­creases in the fre­quency and in­ten­sity of heavy rain­fall events, in­creases in the pro­por­tion of low rain­fall years, and in­creases in the fre­quency and in­ten­sity of mid-sea­son dry-spells.

Agri­cul­ture pro­duc­tion and pro­duc­tiv­ity has been de­clin­ing over the past few decades, re­flect­ing both con­tex­tual in­ter­nal de­vel­op­ments and the im­pact of chang­ing weather pat­terns.

Agri­cul­ture pro­duc­tion in Zim­babwe is vul­ner­a­ble to cli­matic and weather changes, in par­tic­u­lar er­ratic rain­fall pat­terns and spa­tially dis­trib­uted rain­fall, due to its heavy depen­dence on rain-fed agri­cul­ture and cli­mate-sen­si­tive re­sources.

Agri­cul­ture’s sen­si­tiv­ity to cli­mate-in­duced wa­ter stress is likely to am­plify and com­pound the cur­rent chal­lenges of low pro­duc­tion and low pro­duc­tiv­ity.

To mit­i­gate the risks of cli­matic changes, in­ten­sive devel­op­ment of ir­ri­ga­tion fa­cil­i­ties be­comes ap­par­ent. Devel­op­ment of ir­ri­ga­tion fa­cil­i­ties en­sures in­creased pro­duc­tion as farm­ers are able to sup­ple­ment the rain­fall and would be ca­pac­i­tated to pro­duce all-year round.

The cur­rently un­favourable ten­ure and pric­ing of agri­cul­ture fi­nance pose a risk, con­strain­ing ca­pac­ity for growth and ex­pan­sion of farm­ing ac­tiv­i­ties.

Also high costs of fi­nance re­sults in high costs of the fi­nal prod­ucts, and this re­duces com­pet­i­tive­ness of agri­cul­ture out­put against im­ports and in ex­port mar­kets.

Re­sul­tantly, the sec­tor recorded high lev­els of NPLs, which can di­min­ish the ap­petite of fi­nanciers.

Agri­cul­ture risks be­ing crowded out in the credit mar­ket by other sec­tors that have high affin­ity for short-term costly cap­i­tal.

Avail­ing long-term fund­ing, ca­pac­i­tat­ing Agrib­ank and other in­sti­tu­tions to be able to at­tract cheaper, long-term cap­i­tal from in­ter­na­tional devel­op­ment in­sti­tu­tions that are into agri­cul­ture devel­op­ment could as­sist in mit­i­gat­ing risk.

Low-hang­ing fruits

There are sev­eral sec­tors that could be re­garded as low-hang­ing fruits for agri­cul­ture, which could gen­er­ate quick re­turns and fa­cil­i­tate growth.

Hor­ti­cul­ture is one sub-sec­tor that is low-hang­ing as it can be done in­ten­sively on a small scale, with high rates of turnover and re­turns in a year.

There is sig­nif­i­cant de­mand for hor­ti­cul­ture prod­ucts both in the do­mes­tic and in­ter­na­tional mar­kets. Be­sides, pro­duc­tion of hor­ti­cul­ture prod­ucts could also be in­te­grated into ur­ban agri­cul­ture on a small but in­ten­sive scale, and these could be pro­duced by a num­ber of non-farm hold­ers.

Cash crops such as soya, sug­ar­cane and tobacco could ac­tu­ally an­chor agri­cul­ture devel­op­ment as they have struc­tured pro­duc­tion and mar­ket­ing sys­tems that are al­ready func­tional.

Ex­pan­sion of farm­ing ac­tiv­ity around these crops, en­sur­ing their mar­ket­ing re­mains well-struc­tured, is a ready op­por­tu­nity.

In ad­di­tion, there is also po­ten­tial for in­creas­ing value ad­di­tion pro­cesses for these crops across their value chains, which could en­hance and in­crease de­mand.

Grain crops, par­tic­u­larly maize, are equally low-hang­ing prod­ucts in that they are rel­a­tively easy to grow and can be pro­duced by all lev­els of farm­ers, from large-scale to small-scale farm­ers, and in most parts of the coun­try.

Out­put for grain crops could eas­ily be en­hanced through timely pro­vi­sion of ad­e­quate in­puts to pro­duc­ers.

In ad­di­tion, there is huge po­ten­tial for value ad­di­tion into such prod­ucts as stock-feed and edi­ble oils thus cre­at­ing an avail­able mar­ket and also po­ten­tially, ex­ports.

Larger role

Agrib­ank wel­comes Gov­ern­ment-ini­ti­ated agri­cul­ture sup­port pro­grammes which have sig­nif­i­cantly en­hanced pro­duc­tiv­ity and in­creased the hec­tarage un­der grain crops.

A bumper agri­cul­ture sea­son is now en­vis­aged for the coun­try.

Gov­ern­ment pro­grammes are crit­i­cal in en­sur­ing pro­duc­tion through avail­abil­ity of in­puts and cre­at­ing mar­ket link­ages for farm­ers.

Fund­ing un­der the ini­tia­tives has given farm­ers the op­por­tu­nity to in­crease pro­duc­tiv­ity and farm out­put.

Event those with NPLs and could not ac­cess ordinary bank fi­nanc­ing now had the op­por­tu­nity to be fi­nanced through Gov­ern­ment fa­cil­i­ties, cre­at­ing ca­pac­ity to clear their debts, thereby be­com­ing bank­able again for com­ing sea­sons.

Such pro­grammes and in­ter­ven­tions by Gov­ern­ment are ide­ally sup­posed to be tem­po­rary, with com­mer­cial bank fi­nanc­ing as­sum­ing an in­creas­ingly larger role for fi­nanc­ing agri­cul­ture, with ap­pro­pri­ately struc­tured fi­nanc­ing pack­ages at the right price and tenor. Gov­ern­ment-sup­port ini­tia­tives should be pro­gres­sively con­fined to A1 and com­mu­nal farm­ers for long-term sus­tain­abil­ity. Mr Sam Mal­aba is CEO of the Agri­cul­tural Devel­op­ment Bank of Zim­babwe. He wrote this ar­ti­cle for The Sun­day Mail.

Newspapers in English

Newspapers from Zimbabwe

© PressReader. All rights reserved.