eBusiness Weekly
Kudzanai Sharara
This week’s revelation by Tobacco Industry Marketing Board (TIMB), chief executive officer Andrew Matibiri that Zimbabwe only retains 60 percent of the tobacco crop’s export earnings should reignite calls for a new funding model that is aimed at returning more from the crop.
Appearing before the Parliamentary Portfolio Committee on Lands and Agriculture, Matibiri said financiers take 40 percent of raw tobacco as repayment for their assistance to growers in financing production inputs.
More than 80 percent of the country’s tobacco crop is funded by foreign contractors in form of fertilizers, chemicals and insecticides among other items. Using last year’s export earnings of US$741 million it means only approximately $296 was retained by financiers.
This funding model, analysts say, raises concern over the tobacco industry’s cost structure and the exact contribution the sector yields to the economy.
Leading banker and FBC Holdings Limited’s chief executive John Mushayavanhu is on record saying tobacco should be wholly financed using local funds if the country is to benefit from the crop.
“Tobacco should be financed using local dollars 100 percent. We end up with say 200 million kg of tobacco financed by local money and sell them for nostros (foreign currency),” he said at his company’s results briefing in August last year.
Tobacco has earned a strategic position in the economy because of its contribution to the Gross Domestic Product and foreign currency earnings.
Experts say in Zimbabwe, over three million people depend on the industry for their livelihoods.
But Mushayavanhu believes the country is not earning enough from its exports as merchants are recouping the bulk of the earnings, resulting in limited impact on the economy.
“If you look at the percentage of the tobacco that goes to the auction floors and the tobacco that goes to the contractors, it’s now skewed towards merchants, so as a country we are now having a situation where the merchants come in and finance our tobacco using inflated prices and then take the money out. As a country we are not benefiting as much as we should.
“That is the challenge we must address as a country,” said Mushayavanhu.
He said during the past when tobacco production was not so skewed towards merchants, inflows would be felt across the economy. Considering that tobacco is the country’s top foreign currency earner, tobacco selling seasons are supposed to ease foreign currency shortages.
According to Mushayavanhu, this has not been the case in the last few years despite the high tonnage which reached 253 million kg last year, and will be slightly lower this year.
However, Mushayavanhu’s comments come at a time most local financial institutions have not been extending much funding to the agriculture sector, thereby forcing most farmers in the sector to resort to funding from merchants and Government initiatives such as Command Agriculture.
One of the stumbling blocks to farmers’ access to agricultural finance has been their inability to provide collateral for loans while others cannot provide a business case to access funding.
Analyst Walter Mandeya of Trigrams Investment says the situation were bankers complain “about foreign merchants taking a huge margin after financing the local production of tobacco, which the local banker fails to finance due to technicalities over land ownership, is a very good example that Zimbabwe has serious structural economic challenges that need all progressive minds to engage and resolve.
“You have to wonder who really benefits and why the situation is not being resolved to safeguard national interests. There is a real need to start unpacking these issues and resolving them now, to make sure that the country gets the best value from its resources, whilst the country can still sell its tobacco in light of the global push to reduce smoking and tobacco consumption,” he said.
