agriculture

TRAINING & EDUCATING COMMUNAL FARMERS COULD INCREASE AGRICULTURAL YIELDS

Agriculture production in the country suffered a massive decline after the so called land reform as the new farming community lacked the know-how, the knowledge and the capital to maintain the level of production of the former farmers. In any case the reforms were carried out in one of the most frenzied fashion while the debate or controversy of these reforms still dominate public discourse. However the reality is that agriculture experienced one of the most devastating decline in its history and the country being mainly an agro- based economy; the economy took a huge depression losing as much as 50% of the GDP by 2007.

The issue is still controversial yet the country still has to revive agriculture to not only avoid the now routine food shortages but to also contribute towards the economy’s recovery. To that end the just ended tobacco marketing season and the figures on the composition of the farmers that produced the crop reveal an interesting statistic. According to the figures from the Tobacco Industry and Marketing Board approximately 66 000 farmers registered to grow the tobacco crop this coming season  32% were communal farmers while the A1 farmers constituted about 48% with major farmers constituting the rest. Of course the production of commercial farmers will be higher than that of most communal farmers but the import of these statistics is the embracing of tobacco farming by the previously ignorant communal farmers.

 There is no doubt the dollarization of the economy has played key role in motivating these farmers but it is also fair to say there was an effort of imparting of knowledge and skills  to these farmers from how this crop is grown to its harvesting . Of course the quality of the crop may not be as good as that of well financed farmers but the bottom line is that production of this crop has grown from a low of below 50 million kilogrammes to about 130 million achieved this year. This has happened as some farms that previously produced tobacco remain idle in one of the legacies of the land reform meaning clearly it is these communal farmers that have stepped in. In fact communal farmers when armed with the right information or knowledge they can still produce considerably even with less resources and the production of the staple maize crop provides clear testimony of this.

The Grain Marketing Board previously used to estimate that as much as 60% of the maize it collected at its depots came from communal farmers while cotton is also produced mainly by communal farmers in the centre north of country. This means stakeholders will have to educate communal farmers about other crops such as soya beans, paprika, potatoes etc as these still remain in short supply locally forcing companies like National Foods to import these or actually stop producing certain products.

The results in the tobacco crop show that an effort to get communal farmers to join has paid off and more communal farmers continue to join in the production of this crop. In fact the country is now fifth largest producer of tobacco in the world thanks to largely to these peasant farmers that have joined the ranks of tobacco farmers recently and the country certainly looks poised to regain its status as the largest producer of Virginia tobacco. With the most ideal economic environment currently prevailing the training of communal farmers on growing various other crops will pay off just as it has done with tobacco. 

confidence

RBZ REGULATIONS ON FOREX MAY HURT INVESTOR CONFIDENCE
The new central bank regulations on real estate property sales is now limiting the money that can be accessed by the seller to the initial $50000 and the rest will only be accessed over a year. This is what was contained in the monetary policy statement in late July 2011 and implementation seems to have started only now. The rationale for this according to the central bank is that the economy is not benefitting from real estate transactions because the proceeds are being kept outside the country hence prejudicing the country. It then goes on to note that since dollarization there has been what it terms ignorance by traders on the exchange controls which it believes it should still enforce even though it does not control much of the economy. In the statement it mentions that it is the custodian of the capital account and as such it has been perturbed by the movement of funds in this account without its approval and this especially in an environment of liquidity shortages. By enforcing these regulations it believes it can stem the problem of illiquidity and help to resuscitate the economy. However the central bank appears to have developed a short memory of what brought us to this and unfortunately this move might hit badly on the very fragile investor confidence, a prerequisite for any country wishing to attract foreign direct investment. Unfortunately for the central bank though not everyone shares this amnesia; potential investors and citizens still remember the economic turmoil of the last decade in which the central bank’s actions played a major part. By its owned admission the central bank used funds of foreign currency account holders without their consent and it printed money thus fuelling inflation. Whether these acts were benign or not is besides the point, it is the implications for the central bank that I wish to put into perspective here. After raiding private accounts the central bank lost credibility and trust because that action constituted what may be termed a property right violation if we are to use more diplomatic language and it’s not clear if all its victims have been compensated. Subsequently investors or traders have since adopted ways of trying to circumvent or avoid having their money stuck in the country’s financial system particularly the central bank and this is corroborated by Zeparu a local research firm. It concluded in one of its surveys that a significant part of the trading population remains unbanked because people still do not have confidence in the financial system after the traumas of losing savings at the hands of banks at the height of hyperinflation. Zeparu estimates as much as $2.5 billion circulates outside the formal system and that if true is an indictment against the entire financial system the RBZ included. In light of this it’s hard to understand why the central bank now wants sellers of property to give it custodianship over their money for about year with an interest earning potential through this so called involuntary surrender requirement. As stated earlier confidence is a very fragile attribute and once it’s ruined it will take a long and painstaking effort restore it and certainly the central bank has not done that yet. If the central bank insists on this, the obvious result would be the slowing down of business in property sales and the foreign investment that was flowing into this industry will dissipate. No one especially now believes the central bank will honour its obligations at the end of the year as it has lost its function of issuing currency when we adopted the multiple currency system. In fact the central bank has been a peripheral figure in the economy since dollarization of the economy largely because it cannot issue currency and its heavily undercapitalised hence cannot perform some of its traditional functions. There has been no interbank trade since formal dollarization of the economy and there has effectively been no lender of last resort because the central bank remains insolvent perhaps that’s the down side of dollarization. To that end it has since called for the return of the local currency and this latest effort is testimony showing the central bank’s exasperation with the limitations brought to it by dollarization. It is quite a paradox for the central bank because confidence in the economy has been partly restored because the RBZ has been side-lined with stakeholders apparently satisfied with this arrangement thus far. On the other hand liquidity problems continue because as explained in the monetary policy there is no lender of last resort hence financial institutions are taking extra cautious steps by avoiding lending that would cripple them. Industry has been the major victim of this yet it is the general economy that will continue to suffer as companies that could potentially do well remain constrained by low capitalisation. The solution to this at least in the interim lies in restoring the credibility of the central bank, a very important step if we are to assuage every stakeholder. In that regard reforming the central bank has to be the number one priority at the moment, a change in its structure, the right check and balances and its independence from executive are paramount changes. If a change in personnel at the central bank is what it is going to take to get stakeholders to have confidence in the central bank once more then logic has to prevail over narrow politics. Additionally recapitalising its operations is also very important because at the moment if there is going to be turmoil in the banking industry the central bank does not have the capacity to intervene and salvage the situation because it does not have the resources to do this. In the monetary policy statement the central bank acknowledges the $7 million extended to it by treasury for its recapitalisation yet this is just a miniscule of what it is actually needed and thus more will be needed if enough capitalisation is to be achieved so as to fully restore the credibility and function of the central bank. It is such a fine line between protecting the country’s economic interests and spooking investors hence authorities always have to be mindful of this when contemplating new regulations.

Terence Zimwara is an economic analyst contact him on tem2ra@yahoo.com
ZES articles are coordinated by Lovemore Kadenge contact him kadenge.zes@gmail.com and tel 0772 382852

overview of financial services

OVERVIEW OF ZIMBABWE’S FINANCIAL SERVICES INDUSTRY PERFORMANCE


In the past few days the Zimbabwean based financial services companies have been releasing their results for the first six months of this year and so far the results have been consistent save for one or two; most banks are reporting profitability, improved financial positions and increased deposits. In fact this all round performance of the banking industry is the clearest indication of just how the effective the policies of the coalition government have been thus far. In particular, most of the chairman’s reports accompanying these results have singled out the multi-currency system as a key change that has resulted in an enabling business environment and have commended authorities for maintaining this system throughout the duration of the MTP. This multi-currency system or dollarization has enabled the government for the first time in years to control inflation to very manageable levels of around 3.5% below so far this year while the year-end target of 4.5% looks very achievable. This combination has been a massive boon for business, planning has become possible again while the inherent currency risk has been reduced to near zero as the currency we are using is basically an international one. Significantly most banks are now adequately capitalised in line with regulatory minimums and most seem to be adhering to the accepted corporate governance principles. In the meantime deposits have also grown from $2.3 billion on 31 December 2010 to $2.9 billion by 30 June 2011 perhaps indicating a return to a banking culture. On the down side however deposits still remain short term and it has been emphasised enough already just how badly this augurs for business prospects. Industry is in desperate need of medium to long term funds to finance or recapitalise their operations yet banks can only avail short term credit which does not help industrialists’ needs right now. It is unfortunate that some banks have been accused of certain ulterior motives because they are not lending to industry or agriculture and when they do lend its often short term. These accusations have led to threats and ultimatums as in the case of Standard Chartered and Barclays bank yet no amount of political pressure will force privately owned banks to unnecessarily risk depositors’ funds and shareholders’ value. The reality is that there is a problem within the system, a mismatch exists between the maturity of depositors funds which is essentially short term on one hand and the maturity needs of borrowers on the other hand which are long term. Clearly there is nothing banks can do about this now because any attempts to violate banking convention for the sake of resuscitating industry will back fire almost immediately as depositors will start calling on their deposits and the bank will have no funds to cover for this. In addition we have to remain mindful that it was that sort of approach to lending if not worse that caused the collapse of major financial institutions like Lehman brothers and Bear Sterns in the United States back in 2008. The collapse of these and others resulted in a world recession which nearly brought down the world economy as we know it and subsequently new banking and particularly lending practices have been formulated to avoid a repeat of this. The central bank is well aware of this which is why it has instituted its own prudent lending guidelines which must guide banks in lending consequently it would be inconceivable for any bank to flout these guidelines especially now when one bank that apparently did collapsed. The only way out of this would be to secure lines of credit which offer long repayment periods as well as an affordable rate of interest and it is the government that has the major responsibility in this regard even though individual banks can still secure such funding independent of government. The message from industrialists seems to be that economic growth would be much faster if this key demand is addressed and this should motivate government to do more to secure the offshore lines credits so dearly wanted. The other issue concerns the inactive internet bank market due to the absence of lender of last resort a function the central bank has not been able play since the dollarization of the economy. It’s a real Achilles heel but one which the banking industry will have to learn to live with because at the moment it would appear the return of the local currency is the only way the interbank market would become alive again. Yet everyone does acknowledge that the economy still needs time to consolidate gains made so far before we start discussing the resuscitation of the local currency. Additionally other problems like power shortages are also affecting banking operations and resolutions of these would be essential in sustaining high levels of economic growth. In the final analysis it has to be said a healthy banking system mirrors a healthy economy and in our case economic recovery has been very real government revenues collections are exceeding set targets meaning growth could faster than predictions. We have just had a successful tobacco marketing season and next season is poised to be better if the numbers registered to grow the crop is anything to go by. Mining too continues to benefit from high commodity prices and as such production will remain high. Therefore the important thing at this point is to avoid changes or acts that might disturb this momentum and hopefully this is a sentiment every Zimbabwean shares.