Impact of sanctions on agric sector
sanctions ECONOMIC have had a significant impact on Zimbabwe’s agriculture sector.
THE extent of this impact can be seen in the following ways:
Reduced access to global markets
We have seen reduced access to global markets and trade restrictions on beef, tobacco and horticulture, making it difficult for farmers to export. This limitation on market access reduced the country’s earnings and hampered growth and profitability of the agriculture sector. Zimbabwe has been having a huge negative balance of trade running into billions of dollars for the period 2001 to 2022, except for the years 2003 and 2006. The highest deficit was experienced in 2011, when the country had a trade deficit of US$5 billion.
Tobacco
Tobacco is the single most important agricultural export crop, followed by cotton. However, huge proportions of exported tobacco and cotton are unprocessed, which is evidence of limited value addition. The country’s export potential is being hindered by the following factors: limited market access, removal of export quotas under the European Union (EU) market, low production and productivity, limited Infrastructure and logistics, and stringent regional and international exporting standards
Beef
Between 1985 and 2001, Zimbabwe exported boneless beef to the EU under the African, Caribbean and Pacific (ACP)-EU partnership, whereby there were exemptions from most import duties within certain quota limits. Zimbabwe’s quota was set at 9 100 tonnes, which, over the period 1995-2000, was only exceeded once in 1995.
The most important beef export market for Zimbabwe in the late 1990s was the EU, making up over 94 percent of the total value of exports. The bulk of the EU exports were of the higher value/graded meat products. Part of the ACP-EU agreement was that Zimbabwe was to comply with OIE standards for export, namely, that barriers needed to be constructed and maintained between buffalo and cattle.
Exports from Zimbabwe to the EU ceased after the introduction of sanctions. Prior to that, the Zimbabwean beef industry was geared to export, with over 60 percent of commercially produced beef going to export markets, and 90 percent of the local market was for cheap lower grade beef cuts and the latter remains so.
EU sugar qouta
Under the Sugar Protocol, Zimbabwe’s preferential tariff quota stood at 30 225 tonnes annually. It could increase its sugar quota by a further 25 000 tonnes, under the variable special preference. All the quotas were scrapped due to sanctions imposed on Zimbabwe.
Horticulture
Historically, horticulture was the fastest-growing sector and generated significant amounts of foreign exchange, at one point being the second largest foreign exchange earner after tobacco. The horticulture export industry grew from US$32 million in 1990/1991 to a value of about US$143 million in the 1998/1999 season.
Previously, farmers used to export horticultural produce to the Netherlands and the United Kingdom. However, access to these markets were restricted due to sanctions, resulting in a significant decline in the horticulture industry. By 2005, horticultural exports had gone down to about US$72 million, with the value further tumbling to US$40 million by 2009. The horticulture industry’s contribution to gross domestic product (GDP) fell from about 4.5 percent before sanctions to the current 0.8 percent.
Cotton
The cotton industry is failing to access EU markets directly because of sanctions. Access to the EU market is happening through middlemen, which has resulted in the loss of 5-10 percent of the value of produce. The cotton industry used to export products of a total value of US$50 million and it is now getting less because they cannot sell directly to EU markets.
The cotton industry is failing to pay for inputs, spare parts and machinery to companies outside the country because some local banks are under sanctions. Payments are blocked and foreign companies demand a first class bank as a guarantor and the process takes long.
Limited access to inputs and technology
Sanctions restricted access to agricultural inputs such as fertilisers, seeds and machinery. This scarcity of inputs limited the productivity of farmers and reduced their ability to adopt modern farming techniques and technologies, resulting in decreased yields and lower agricultural output.
The sanctions affected the image of the country through negative perceptions by the international community, making it extremely difficult to attract investment in agriculture.
This resulted in lack of development, rehabilitation and modernisation; and deterioration of production and marketing infrastructure, ultimately reducing productivity and access to markets.
There was a decline in the number of functional tractors from 14 000 to 6 000, against a national requirement of 40 000 units. The combining capacity declined from 300 units to 130 functional units against a national requirement of 400 units.
There is a shortage of cold storage infrastructure around the country. State-of-the-art packing houses, which are required to facilitate exports to European markets, are also limited.
As a result of sanctions, functional irrigation schemes declined from 275 000ha to less than 206 000ha due to lack of repairs and maintenance, rehabilitation and modernisation. Zimbabwe has the potential to irrigate up to 2 million ha.
Lack of foreign direct investment (FDI) has made Zimbabwe unable to develop this irrigation potential utilising existing water bodies, underground water and transboundary water bodies such as Zambezi River and Limpopo River, which can make a significant contribution to food security and agricultural growth in the country, especially in drought periods.
The available 1 000 small, medium and large water bodies remain underutilised, mainly due to lack of investment and FDI in irrigation development, rehabilitation and modernisation.
Zimbabwe used to have well-developed input support, manufacturing and processing industries. The lack of investment and lines of credit also made it difficult for these industries to retool and invest in better plant and machinery.
Financial constraints
The sanctions affected the image of the country through negative perceptions by the international community, making it extremely difficult to access agriculture lines of credit.
The following challenges were posed by the illegal sanctions on the financial sector:
◆ Loss of correspondent banking relationships in all the major currencies: This led to cutting off of access to the global financial system for international remittances.
◆ Loss of business from import- and export-focused entities that moved to other banks which could provide the service.
◆ Inability to get grants and subsidies from
international organisations.
◆ Inability to access international credit lines for on-lending to the private sector.
◆ Expensive lines of credit as financiers added risk premiums, making the funds too expensive for developmental finance.
◆ Suspension and cancellation of technical assistance from international organisations.
◆ Inability to service international obligations, without correspondent banking relationships in the major currencies as the obligations are denominated in USD or EUR currencies
Overall, economic sanctions have had a detrimental impact on Zimbabwe’s agriculture sector, limiting market access, input availability, financial resources and productivity. The consequences of these sanctions have ripple effects. They affect not only the farmers but also the broader economy and the population’s food security.
Strides made despite the sanctions
◆ The agriculture sector has grown from US$5,2 billion to US$9,2 billion in 2023.
◆ The food security situation improved from 59 percent in 2020, 38 percent in 2022 and 28 percent in 2023. This is mirrored in the Food Consumption Score, which increased from 47 percent in 2020 to 66 percent in 2023. The cereals self-sufficiency position increased from 45 percent to over 100 percent of the 2,2 million tonnes national requirements.
◆ Agricultural exports increased from US$4,3 billion in 2020 to US$6,5 billion in 2022, driven by tobacco exports, which increased from US$794 million in 2020 to US$998 million in 2022. Horticultural exports increased from US$63 million in 2020 to US$69 million in 2022 and cotton exports increased from US$30 million to US$45 million in 2022.
◆ The country has recorded the highest ever tobacco production in 2023 — 296 million kg.
◆ The year 2022 also saw the highest ever wheat production, where we managed to produce 375 131 tonnes, and for 2023, the country is expecting to produce 435 000 tonnes of wheat, against a national requirement of 360 000 tonnes.
◆ In 2020/2021, the country produced in excess of 3 million tonnes of cereals (maize and traditional grains) largely owing to the good rainfall season and adoption of climate-smart agricultural practices.
◆ In 2020, Government launched the Pfumvudza/Intwasa programme, anchored in the adoption of conservation agriculture principles. Since then, average production has increased for 0.8 t/ha to 1.4 t/ha
◆ Since 2020, Government mobilised over US$2 billion domestic resources for dam construction under a 5 in 1 Vision 30 Accelerator Model comprising dam, irrigation, domestic water supply, electricity generation, and fisheries components. The area under functional Irrigation has increased from 150 000ha to 204 000ha. Government is targeting to have 350 000ha under irrigation by 2025. ◆ The Presidential Rural Development Programme intends to drill a borehole in each of the 35 000 villages by 2025 and establish village business units by providing water for horticultural business ventures, fishery projects, poultry projects, orchards, water for domestic use and dip tanks. A total of 21 drilling rigs have, to date, drilled 1 179 boreholes, out of which 114 have been equipped with bush pumps and 17 have been solarised.
◆ The ministry rolled out US$200 million worth of mechanisation facilities. These are the John Deere facility worth US$ 50 million; the Belarus facility worth US$100 million; the Morefood for Africa facility worth US$38 million; and local manufacturing for industry worth US$56 million. By December 2022, a total of 1 641 units had been distributed (John Deere, 209), local manufacture (243) and Belarus (1 189 tractors and combine harvesters). The tractor fleet increased from 8 000 in 2020 to 14 000 in 2023. The number of combine harvesters increased from 100 in 2020 to 210 in 2023.
◆ The ministry successfully capacitated all the 6 000 extension workers with tablets and motorbikes. Extension workers are also undergoing continuous refresher course training to improve their service delivery. This augments our thrust of taking farming as a business at household level. This is key to ensuring that we transit from largely being subsistence farmers to commercially oriented enterprises.
◆ The ministry launched the “concept one farmer field school (FFS) per village” in 2021 to catalyse agricultural transformation and to date, 46 058 FFSs have been established countrywide as centres of excellence at sub-national level, where farmers are trained on good agricultural practices, conservation agriculture/Pfumvudza techniques, taking farming as a business and general crop and animal husbandry practices.
Strategic partnerships for value chain financing and growth
The ministry took a deliberate policy position to crowd in the participation of banks and private sector institutions to fund agriculture using various models, including contract farming and joint venture frameworks. This policy thrust has already proved attractive and successful in securing increased investment into the agriculture sector.
In 2022, the Food Crop Contractors Association, a consortium of private sector off-takers of agricultural commodities, was created to support local production.
The ministry formed the Mechanisation Development Alliance to galvanise public and private sector efforts to close the farming mechanisation gap. Under the Mechanisation Development Alliance, the ministry signed up mechanisation facilities worth over US$200 million, wherein Government will facilitate the importation of equipment from several sources for onward distribution to farmers by commercial banks.
Over 4400 tractors will be imported under these facilities. Furthermore, the ministry facilitated the formation of the Irrigation Development Alliance (IDA), comprising all private sector stakeholders in the irrigation development sub-sector, to crowd in the private sector in the irrigation development and climate-proofing thrust. The IDA consummated proposals amounting to 100 000ha in 2023.
Enabling policy and regulatory environment, and improved sector coordination
Government has lined up various incentives to promote investments in agriculture and these measures include:
◆ Rebates of duty for the importation of high-value sophisticated capital equipment and materials for use in the preparation or packaging of fresh produce for export;
◆ Exemption from income tax for the first five years of operation for the designated special economic zones;
◆ Value added tax (VAT) levied at 15 percent, and farming inputs and equipment are subject to VAT at 0 percent;
◆ Machinery and equipment allowable as part of equity investment into brownfield projects;
◆ Foreigners allowed to own up to 100 percent of their investment, and repatriation is allowable up to 100 percent of dividends from current year’s proceeds; among other incentives.
How to grow further if sanctions are removed
If sanctions are removed, the sky is the limit for the sector, as a result of the policies that we have implemented and milestones recorded so far. The removal of sanctions will accelerate growth, particularly for horticulture, beef, cotton and tobacco.