Beneficiaries of RBZ farm mechanisation scheme

IN 2007/08 the Reserve Bank of Zimbabwe (RBZ) ran a scheme which was ostensibly designed to support commercial agriculture. At the time, Zimbabwe was undergoing a major land revolution, with significant changes in land ownership under the fast track land reform programme (FTLRP)

The government's view was that the new farmers needed support from the State. The Reserve Bank of Zimbabwe launched the farm mechanisation programme. The purpose was to enhance productivity on the farms through mechanisation.

The RBZ procured agricultural equipment worth US$200 million through FISCORP, its wholly-owned subsidiary. FISCORP described itself as “Financial Surgeons to the Nation”. The equipment ranged from combine harvesters to tractors, disc ploughs, planters, harrows and generators.

In financial terms, FISCORP was giving loans to the farmers. In return, the farmers were supposed to repay the loans. The beneficiaries were rated based on their credit-worthiness. The majority of them were rated “A”, the highest rate of credit-worthiness under the scheme. Many of the recipients, especially the ministers, senior civil servants were given an “A” which meant they were expected to repay without difficulty.

This scheme was a classic example of State intervention in an area which had previously been occupied by the private sector. In the past, a farmer would approach a commercial bank to borrow money to buy agricultural equipment. Alternatively, a supplier would offer the same equipment in terms of a credit agreement. There were also commercial organisations which specialised in leasing agricultural equipment, such as the Leasing Company of Zimbabwe. In all these cases, farmers would use their property as collateral for the loan or lease agreements. Farmers had ownership rights to the land which made it bankable.

The impact of the land revolution went beyond ownership patterns. It also impacted the financial architecture which supported commercial agriculture, more specifically the institution of private property. Banks which had invested heavily in commercial agriculture lost a lot of business and their balance sheets were heavily impacted. But it was the farmers’ inability to use the land as collateral for loans which had farreaching effects. The government knew this was a problem now that land was owned by the State and sought to plug the haemorrhage through State intervention. The RBZ farm mechanisation scheme was one such measure. Instead of commercial banks offering credit, the RBZ would do that, through its subsidiary, FISCORP.

However, it also represented the much-criticised quasi-fiscal activities of the central bank. Far from being discouraged by the criticism, the RBZ believed it was performing a heroic role for the nation during a very difficult time which was characterised by record levels of hyperinflation. It proceeded to hand out a variety of agricultural equipment and machinery to the new farmers, with expectations that the farmers would repay the debts.

At the time, there were criticisms of the elitist and nepotistic nature of the scheme. However, the identity of the beneficiaries was not known. The RBZ refused to disclose this information. So it remained a closely guarded secret. However, it soon emerged that beneficiaries had defaulted on their loans. They had taken delivery of the equipment and used it but they were not paying back the loans.

The RBZ was left without recourse. A commercial bank would have sued the farmers. It could have threatened to sell the land to recover its debts from the farmer. The RBZ’s hands were tied by the politics of the land revolution. After all, the land belonged to the State. This is reflected by a letter written by the RBZ to the government.

In 2011, the then governor of the RBZ Gideon Gono wrote to the then Minister of Agriculture Joseph Made:

“Honourable minister, I write to advise you that at its meeting on Tuesday, 25 October 2011, the Reserve Bank of Zimbabwe board passed a resolution mandating me to seek from you guidance on how to resolve the farm mechanisation debt.

“As you are aware, Honourable minister, the bank is owed a lot of money by beneficiaries of the farm mechanisation programme. The board needs your advice on the way forward given the political nature of the circumstances surrounding this debt.

“While the bank is cognisant of the need to avoid taking precipitous action which could have undesired repercussions on the national interest, there is an urgent need to make sure that this matter is finally put to rest.”

Clearly, Gono and the RBZ board were aware of the contractual nature of the loans and that they were supposed to be repaid by the beneficiaries. They were also aware that the debt was a burden on the central bank and that a lot of money was involved. However, reference to the “political nature” of the debt and fears that legal action could have “undesired repercussions on the national interest” betrays their insecurities. Surely, it was in the national interest that the beneficiaries of the scheme repay their loans? What is the “national interest’ in allowing beneficiaries of the scheme to avoid repaying their debts?

Years later, in 2015, the government passed the Reserve Bank of Zimbabwe Debt Assumption Act. This legislation meant that the State took over the debts of the RBZ. This included the farm mechanisation debt. Some of the more enlightened members of society saw what was happening and protested that this was not fair. Why should the rest of poor Zimbabweans pay the debts incurred by a few elites who benefited under that scheme? At the very least, they wanted to know the identity of the beneficiaries. Prominent lawyer, Beatrice Mtetwa, wrote to the RBZ requesting the names of beneficiaries. However, both the RBZ and the government refused to disclose the names.

Five years after the RBZ Debt Assumption Act was passed, Zimbabwe is in a far worse state economically. The government introduced command agriculture, a controversial programme under which more machinery, equipment and inputs were given out to farmers by the State.

The information on beneficiaries is also a closely guarded secret. The likelihood is that beneficiaries were not different from the beneficiaries of the farm mechanisation scheme of 2007/08.