Tobacco should be funded using local money instead of contract arrangements if its foreign currency earning potential is to be fully realised, a leading banking executive has said.
Speaking at the presentation of FBC Holdings Limited’s results for the six months ended June 30, 2018, chief executive officer Mr John Mushayavanhu said tobacco should be wholly financed using local funds if the country is to benefit from the crop.
Tobacco reached record levels of about 250 million kilogrammes as at 21 August this year.
“Tobacco should be financed using local dollars 100 percent. We end up with say 200 million kgs of tobacco financed by local money and sell them for nostros (foreign currency),” Mr Mushayavanhu said.
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 Mr 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 Mr Mushayavanhu.
He said during the past when tobacco production was not so skewed towards merchants, inflows would be felt across the economy.
Tobacco Industry and Marketing Board (TIMB) statistics show that 214 million kilogrammes worth US$631 million were sold through the contract floors, while 36 million kgs worth US$98 million was sold through the auction floors. Considering that tobacco is the country’s top foreign currency earner, tobacco selling seasons are supposed to ease foreign currency shortages.
According to Mr Mushayavanhu, this has not been the case this year despite the high tonnage.
However, Mr 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.
For the six months to June 30, 2018 FBC Bank Limited extended only 5 percent or US$16,6 million of its loans to the agriculture sector.
ZB Financial Holdings only advanced 10 percent or US$13 million while Barclays extended 22 percent or US$32,9 million towards the sector.
One of the stumbling blocks to farmers’ access to agricultural finance has been that of 99-year leases, which most farmers currently do not have.
The 99-year leases guarantees farmers security of tenure and freedom to expand long-term investment without fear of time constraints.
Resource constraints is one of the factors that has caused delays in the issuance of the 99-year leases, but Government, according to Lands Agriculture and Rural Resettlement Minister Perrance Shiri, has set aside a reasonable budget towards capacitating his ministry and the Zimbabwe Lands Commission to expeditiously execute the process.
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