Eric Bloch Column

Demands on financial institutions unreasonable



TRONG>ONE of Zimbabwe’s national daily newspapers last week demonstrated, in an editorial, that it is totally detached from reality. It evidenced an inconceivably abysmal awareness of the fundamentals of sound operations of the financial sector of the economy, that absence of knowledge being exceeded only by its lack of knowledge as to how Zimbabwe’s agriculturalsector was funded in the past, and by its blatant racism.


Almost the only factually correct statement in the editorial was that Zimbabwe’s commercial farming has “from time immemorial” been very reliant upon financing from banks and other financial institutions. Agriculture, on any basis other than very small-scale subsistence farming, is very capital intensive.


For most of the past century, the initial capital cost was the acquisition of the land even though today’s Zimbabwean politicians delude themselves and others into believing that the land was stolen. As of the 1990s, almost every farm in the country had been bought by the sitting tenant, and even the original commercial farmers established themselves upon lands unused by any of the people of the country. However, it does not suit the government, the ruling party, the war veterans and many others to admit to the facts when such are not conducive to their intents of, in fact, stealing the land.


After that initial capital cost, farmers were confronted with massive outlays on development and improvement, including farm buildings, dams, boreholes, fencing and the like, and upon obtaining necessary capital goods, inclusive of irrigation equipment, pumps, tractors, ploughs, and very considerable other needs. And after all those expenditures, there are very great operational expenditures, ranging from procurement of inputs such as seed, fertilisers, chemicals and so forth to wages and allied labour costs, electricity, fuel, insurance and an almost endless list of other operating costs.


Very few farmers had the resources to fund all their unavoidable capital and recurrent operating payments and, therefore, as stated in the editorial “banks provided money for labour, farm inputs” and all else. However, the editorial fallaciously contends that all that the farmer was required to do “was to come up with a detailed annual budget of his requirements”, and continues to allege that the “Land and Agricultural Bank that advanced loans to white commercial farmers did not ask for collateral because owning a piece of land was enough security”.


The editorial is wrong! When the “piece of land” was hypothecated to the bank and had a value sufficiently in excess of the loans, it sufficed as collateral. But when it did not, the farmer had to mortgage the land and provide supplementary security, be that hypothecation of other property, cession of insurances, pledges of shares, provision of guarantees, or otherwise.


The Land and Agricultural Bank, and all other banks, necessarily sought security for the funds to be advanced by them. This they had no alternative but to do, for the bulk of the monies that they advanced were not their own, but those of numerous depositors who lodged their hard-earned income and accumulated capital with banks in the belief that their resources will be secure and fully protected. Banks had, and have, a fiduciary responsibility to their depositors, investors, clients, the public and the country as a whole to administer funds responsibly, cautiously and securely, and hence made their advances against adequate security.


Implying that “white commercial farmers” were accorded required funding without security, or against security of the land only, and that today’s new farmers are confronted with unjust demands for collateral, the editorial poses the question: “Why should the goal posts be changed now?”


The editorial justifies its question by stating that Zimbabwe now has farmers “who have over the years survived many adversities such as poor soils, lack of financial backing and were even denied access to agricultural extension officers”. The editorial argues that what these farmers now require is “just access to financial resources to enable them to work the land”, andplaces responsibility for achieving this upon the government, which, it says “should reject outright calls for collateral security by financial institutions”.


And the editorial does not rest there, for it urges that if persuasion of the financial institutions fails, “the government will have no option but to resort to using its powers to whip the defiant banks into line”, and yet it is that same national daily that has very correctly berated the irresponsibility of financial institutions that have reduced themselves to liquidation or curatorship and placed in great jeopardy the thousands of depositors whose funds have been put at risk.


Nevertheless, the editor put his finger on the nub of the situation when he wrote that “owning a piece of land was enough security”. The government has adopted a very determined and obdurate stance that all land should be owned by the state. It has discarded any respect for title deeds, which evidenced land ownership. It has resisted all representations that farmers, be they white commercial farmers, or newly settled A1 or A2 farmers, should be vested with land tenure.


Therefore, the position of the past that ownership of land was enough security — although contingent upon the value of the land in question to the extent of the loans — no longer applies, for the government is fast creating a position where none owns the land.


Instead, the government has recently proposed that farmers who qualify under yet-to-be-specified criteria will be granted 99-year leases over land allocated to them, although as yet the terms and conditions of such leases are still to be disclosed. However, the government has intimated that the leases will be specific to the particular farmer and will not be capable of transfer to others.


Thus, those leases will be devoid of any collateral value. If, contrary to the government’s heretofore declared intents, the leases would permit transferability, then they would have some collateral value and could be used as security for loans and other funding facilities required by the farmers of Zimbabwe. If not, the only other alternative would be for the government to be the guarantor for the due repayment of all advances to farmers.


Despite the gross misconceptions that characterise the editorial, its final statement cannot be denied, for it states that “agriculture is the backbone of Zimbabwe’s economy and it therefore means that a successful agricultural season means a positive economic growth”. If the government would recognise this fact, it would reverse its ill-conceived, and  catastrophically implemented agricultural policies.


Instead of those policies, it would apply justice and equity, constructiveness and realism. It would implement the agreements it entered into at the 1998 Harare Donor Conference, and again in 2001 in Abuja, instead of pretending that the other parties to those agreements had reneged and that, therefore, these agreements are null and void.


If the government would restore farms to those unjustly displaced under spuriously promulgated, destructive laws and would then acquire land on a willing buyer, willing seller basis and by cooperation and collaboration between the government and all representative farmer organisations, Zimbabwe would be on the path to agricultural recovery. And if Zimbabwe would recognise that tenure is a prerequisite to responsible financing — as well as a productivity motivant to the farmer — the necessary funding would become available.


But if the government hearkens to the editorial’s call to force bank and financial institution lendings without security, then the financial sector will soon be as decimated as is agriculture today.


A positive stance by the government towards agriculture will be the catalyst to total economic recovery. The government will no longer have to deceive as to the availability of food; it will no longer have to beg the international community for food support.