ZIMBABWE’S largest seed producer Seed Co Ltd’s management recently told an annual general meeting the company’s plans to dispose of a sizeable stake to a technical partner were at an advanced stage, with the deal expected to be completed by year end.
Zimbabwe Independent business reporter Taurai Mangudhla (TM) chats with Seed Co Group CEO Morgan Nzwere (MN) on the ongoing equity partnership negotiations as well as the group’s performance in general.
TM: Elections have passed, what has been Seed Co’s experience in the post-election environment so far?
MN: There have been a lot of inquiries coming post-election, whether they will materialise into significant business is something else but we are hopeful this year because the new dispensation is likely to be more pro-agriculture compared to the inclusive government – so that does give us some hope.
TM: Are your stocks enough to meet demand if it so happens that the new government will push for agriculture’s growth in a huge way?
MN: Currently we have got about 24 000 metric tonnes (mt) of seed in stock here in Zimbabwe – between 23 and 25 000 metric tonnes actually – because it’s not a round number; but say about 24 000 metric tonnes and then in the region we add another 15 000 metric tonnes or so.
TM: How much of this can actually be sold in the current season and is there need for new production?
MN: We expect to sell about 43 to 44 000 tonnes as the MD said, so it’s 25 000 tonnes plus 15 000 tonnes and the new deliveries that are coming in now; so we will then be ending up at around 18 000 tonnes or so come financial year end.
TM: In your presentation you spoke about a technical partner. Can you give more details in terms of identity of the partners? Because it appears it’s already a done deal.
MN: Well, I can’t. Except to say that they are among the world’s top five seed producers.
TM: Can you at least maybe give the country of origin?
MN: No, no it doesn’t really help you because if you look at the top five seed companies, two are from America and two are from Europe. We can just say we are talking to one of those.
TM: How about the continent at least. Can you specify on that?
MN: What I can simply say is that it’s not from China.
TM: I see you are keeping your partner’s identity confidential, but you said it’s at equity level – so how much are you giving to the technical partner?
MN: Like I said, we have signed confidentiality agreements, so I don’t want to be found foul on anything, you know. These transactions are very sensitive, if you know what I mean. You don’t want someone to come and start accusing you of maybe just a slip-up, you know.
TM: It would be interesting to the market to know exactly what percentage is up for grabs here.
MN: All right, what I can say is they are not going to get a majority stake because of indigenisation. They will be getting a minority but sizeable enough that they will be able to make an impact.
TM: Moving on to your debtors; how much are you still owed by the Zimbabwean government?
MN: Since last year we haven’t really been paid anything as of year end actually. Since we did our year presentation in May, we have gone past June, July and August, and the guys have just been focusing on elections and no one has been dealing with these debt issues. Everyone was fighting for their political survival. Now that the elections are over we are now expecting things to happen.
You see, we are owed by government and quasi-government institutions and during the inclusive government it was a bit difficult because there were always questions as to who the other people were and why should we be paying for that. But now it’s really a singular government, so things are going on in the way that we would like them to.
TM: You still haven’t said exactly how much is owed.
MN: How much? Government debtors – we are still looking at about US$18 million.
TM: What was the figure at the end of 2012?
MN: It was exactly around that figure, so from May nothing has changed.
TM: Are you charging any interest on the government debt?
MN: We do charge interest but you know with government it’s often quite difficult to recover the interest, but the agreement we have with them says we can charge them interest.
TM: Moving on to your regional operations, how are they performing?
MN: Those ones are fine: Zambia is doing well, Malawi is doing fine, with the upcoming elections. East Africa is fine. Where we have had problems is obviously here in Zimbabwe because of the liquidity issues that we have had. The cotton businesses have had their challenges because of the current fights in the cotton industry.
We supply to ginners and then the ginners themselves buy the lint from the farmers. Now the farmers are unhappy with the prices being paid by the ginners and that translates into reduced plantings. We are hoping these issues between the farmers and ginners are sorted. We are a third party in that whole supply chain process. I mean we don’t sell directly to the farmers; we sell to the ginners who then distribute the inputs to the farmers.
TM: How is your business development going in the region, particularly in Tanzania?
MN: Tanzania is now a market that’s come of age. It’s doing very well. It’s growing and we expect it to keep growing in the next few years.
TM: How about the newer markets?
MN: The new markets that we are really spending a lot of effort on in terms of business development are Nigeria, Ethiopia and Rwanda. Rwanda is not a very big market but we are already getting substantial orders.
TM: What’s your strategy in terms of entry into these regional markets?
MN: In markets like Nigeria we have entered with a local partner. In Tanzania, on the cotton side, we have got a local partner and in Ethiopia the same thing. But our model is to always have at least 30% and then the local partners take the balance.
TM: When do you expect the new businesses to start breaking even?
MN: Nigeria maybe 2016, Ethiopia probably 2015 or 2016 as well, depending on a few issues. You know the major problem or challenge that we face in those markets is that unlike here in southern Africa where we have big commercial farms, there it’s mainly small-scale farmers. So your production is a challenge, because when you do production, you need what is called isolation distance. You can’t grow a seed crop next to a grain crop, otherwise there will be contamination. Thus getting good seed producers is always the biggest challenge. As seed is a bulky product, you can’t ship it to Equatorial Guinea or to Nigeria – otherwise all your margin will go into transport.
TM: What is the potential contribution of the new regional operations in terms of your budget?
MN: I think if going forward we can achieve between now and 2016 a growth rate of between 10 and 15% per annum, I think that would be good. As you know, these new businesses never start delivering returns on day one, but you know Zambia is now a business that’s providing US$7 million profit but for about five years we didn’t report any profit.
TM: From your experience, how much time is generally required for the seed businesses to start making money?
MN: Well, that’s why I have said some of those markets should be breaking even in 2016, so you can work it out from there, but it really depends on a number of variables.