Corruption wears out Cottco
ONCE Zimbabwe’s pride for knitting everything together on the cotton value chain, the country’s largest cotton producer, Cottco Holdings, has become a pale shadow of its former self.
e cotton buyer has remained a perennial lossmaker, depending on government handouts and subsidies despite being bailed out from a part of the US$1,2 billion worth of non-performing loans absorbed by the Zimbabwe Asset Management Corporation (Zamco).
Despite the negative performance, plans are underway to clean-up the institution’s balance sheet as well as meet the demands required for relisting on the Zimbabwe Stock Exchange (ZSE) as part of a much-soughtafter privatisation plan by management and the shareholder.
is begs the question whether or not successive bailouts from government and subsidies are the way to go for Cottco? At the same time, the question of privatisation through relisting on the local bourse arises.
is comes after Cottco chief executive Pious Manamike last year hinted at the existence of an expansion plan aimed at seeing the company venture into oil and lint processing.
Analysts, however, argue that Cottco’s glory days are over and the lossmaker must be shut down with assets sold to other players paving way for fresh ideas that should fit well into a necessary and disruptive restructuring of Zimbabwe’s entire cotton industry.
Top on the agenda, being creation of micro-ginneries with an intention to start toll ginning.
e micro-ginneries have less processing capacity, in comparison to what Cottco is currently doing, and can be set up anywhere in the country especially close to production areas for convenience, according to renowned Zimbabwean agriculture economics professor Mandivamba Rukuni.
Rukuni said there is no justification to subsidise an underperforming industry, a move he says amounts to fiscal indiscipline.
“ is government is trying to be more economically savvy than the old one, but they are also stuck in old ways which they are struggling to come out of. When you are used to subsiding, you try to underwrite Cottco, but the Cottco model does not make money, so that means the government is not going to profit from subsidising Cottco.
“What it means is that the Zanu PF government cannot run away from supporting farmers because that’s what gets them the votes. But what they can do is to change the model of supporting the farmers. ey are perpetuating the same old fiscal indiscipline,” Rukuni said.
He noted that the government should create a new model which can be improved, for example, toll micro-ginning and supporting local industries.
“ ey should not even sell Cottco to some foreign company which will then continue to exploit our small farmers. ey should just instruct Cottco to go through a major transformation which makes them break their technology into something that is more suited for small-scale industries. In this case you create a big industry from small farmers and micro-ginneries and micro-clothing factories,” Rukuni said.
Toll ginning, Rukuni said, is expected to grow revenues for farmers by more than seven times. Further improvements along the value chain could also see farmers producing handmade fabrics and handmade clothing items which are sold for more than 200 times the value of unprocessed cotton.
He said the government is of the opinion that economies of scale mean one big giant company, but it can be a lot of small players.
Rukuni added that the processed cotton can be sold to small garment makers, creating employment and maximising value.
Development economist Chenayimoyo Mutambasere suggested that Cottco must be shut down for failure to carry out its mandate.
“ e organisation has been allowed to grow and gain support from government to achieve market monopoly … if government cannot continue to prop up this organisation it should be shut down and assets be disposed to an open market which will allow a level playing field for new niche entrants that may bring better value addition to the cotton industry,” Mutambasere said.
Over the years, Cottco has been dogged by corruption, massive pilferage and maladministration with officials buying the product from overseas at a profit.
In addition to corruption at a high level, many features of the operation of Cottco in the domestic market such as supplies of consumables, transport and employment opportunities, were also subject to corrupt and irregular practices, and this increased the companies’ operational costs substantially. e main casualty of this process was the primary producer who is the farmer.
“ e fast-track land reform programme had destroyed the Cotton Growers Association which, for the previous 50 years, had represented the major commercial producers of cotton and would never have tolerated this deterioration in the marketing practices of the main buyer. e small-scale growers who were now responsible for 90% of production, were not organised and did not have the capacity to challenge the activities of Cottco,” economist Eddie Cross said.
He added that the way in which government support has been managed in the past three years has made Cottco an effective national monopoly.
Going forward in its present condition and under existing management, Cottco is unable to pay farmers a price which will enable them to obtain a reasonable return from the crop.
“In my view, this represents a total failure of the privatisation programme which can only be addressed by complete liberalisation of the market system. With 500 000 registered growers, this is a major issue confronting the Zimbabwean authorities today. e potential is enormous, but any success starts at the farm gate,” Cross said.
Cotton remains strategic to Zimbabwe’s economy as it sustains a huge number of households and has the potential of significantly generating foreign currency.