Agribank-AFC rebranding: more is required

IT is pointless to rename a bicycle a car when there are no structural changes made to the bicycle infrastructure in the first place as calling the bicycle a Bentley will not make it travel any faster. By the same token, it makes no difference undertaking a mere rebranding exercise of the same underperforming state owned bank without a real capital injection, a meaningful restructuring exercise and a review of the Land Tenure Act.

This April, President Emmerson Mnangagwa launched the Agricultural Finance Company (AFC) Holdings, a financial institution with four subsidiaries; AFC Commercial Bank, AFC Insurance, AFC Land and Development Bank, and AFC Leasing Company. According to the government, the institution is aimed at providing funding across the whole agriculture value chain from communal to large-scale farmers with Treasury having injected ZW$700million into the firm. Mid-2020, the government proclaimed the restructuring of Agribank into a Land Bank meant to provide investment support for A1, A2 and small-scale commercial farmers, a move in the right direction. Nonetheless it is not so much the rebranding exercises but the value created for the financial institution. It appears the government has been upbeat about a series of name changes without capacitating the institution and transforming the land security issue for the farmer.

In an Equity Axis exclusive with Agribank Finance Director Elfus Chimbera in April 2020, he indicated that the government was seeking foreign partners to shoot up foreign currency into the bank for a piece of equity so as to capitalise the bank for a further reach. On the flip-side; the government would shed its 100% stake with the bank forced to operate more efficiently. Nothing has materialised to date. A vital piece to the jig-saw puzzle is the need to make the government distributed farms bankable by way of abolishing the 99-year leases through a legal statute. Without doubt, this would allow, not just the AFC but other banks to extend credit to local farmers, leveraging on the land as security.

Without additional real investment and the termination of the 99-year leases, the change of name does not translate to a new era for the bank per se. A solid value proposition is also mandatory in the insurance space where the institution has shown interests — a sector that requires solid capitalisation and a sound reinsurance backing. For the 2019 full-year, Agribank reported an inflation-adjusted loss of ZW$270 million from a loss of ZW$40 million in 2018 owing to the inflationary pressures in the country.

Zimbabwean SOEs have over the past two decades been bleeding the taxpayer of billions of dollars, necessitating a pressing need to privatise them. Furthermore, SOEs now contribute less than 2% to Gross Domestic Product (GDP) against 40% in the 1980s. In late 2018, Finance minister Mthuli Ncube announced that 11 SOEs, six IDC subsidiaries, and 17 ZMDC subsidiaries would be privatised under the government’s public enterprises reform framework for 2018-2020 while some would be liquidated, merged or departmentalised. Treasury had planned to dispose of all or part of 35 state enterprises by December 2020. However, many of the transactions have not materialised.

In the recently launched National Development Strategy paper (2020-2025), Treasury, indicated plans to privatise SOEs:

“In the interim, Government will expedite SOEs reforms targeting improved governance, provision of services at viable prices, full or partial privatisation, demergers, outright disposals and amalgamations of some SOEs into existing government departments.”

Notwithstanding, the privatisation mantra has been in the strips of Zimbabwean economics for the past two decades with no results, due to a lack of political commitment compounded by strong opposition from engrained vested interests.

The Agribank was established as a commercial bank in 1999. Before that it was known as Agricultural Finance Corporation AFC), which was formerly known as the Land and Agricultural Bank — an institution established in 1925. In 2003, Agribank transformed into an agricultural development bank, with emphasis on making agricultural loans, but it kept its commercial bank license and function. In July 2020, Agribank completed a due diligence to ascertain its asset value before calling for bids from prospective strategic partners willing to inject capital in exchange for equity.