TREASURY has ordered pension funds to subscribe to a US$348 million bond issue to finance government’s ambitious command agriculture programme aimed at lifting maize output in a country where four million people face starvation.
By Bernard Mpofu
The move has rattled operations of pension companies and signals desperation by government to end food insecurity and hunger largely caused by the disastrous land reform programme and droughts.
The directive, which could have dire consequences for the pension fund industry in Zimbabwe, will be financed through government bonds with a prescribed asset status.
This comes at a time insurance contributions have been sagging and the economy is grappling with an unprecedented liquidity crunch and cash shortages stemming from low foreign investment inflows, low exports and dwindling diaspora remittances.
Government believes pension funds prescribed asset ratios are low at under 2% and should be 7,5%.
The financially bankrupt government in February said it would be stricter with insurance companies with low prescribed asset ratios with steeper penalties for not complying.
According to the statutory Instrument 24 of 2016, insurers are now required to have a prescribed asset ratio of 7,5% of the market value of total adjusted assets including those in funeral assurance business.
The prescribed asset ratio used to be 10%.
Prescribed assets are investments approved by government and are seen as assets good for infrastructure development.
Desperate to boost grain output, government early this year introduced a US$500 million Special Maize Production Programme which envisages the utilisation of 400 000 hectares of land to produce two million tonnes of maize using 2 000 farmers.
Maize output, which plunged owing to the chaotic land reform programme, has in recent years been affected by adverse weather conditions and delays in paying farmers for their deliveries.
Pension funds must now comply with the controversial directive to fund the programme, despite liquidity constraints on the market and a low uptake of prescribed assets.
According to the Zimbabwe Association of Pension Funds (ZAPF), government requires more than half of the total budget of the command agriculture programme from insurance companies, yet these firms have suffered a decline in business in the wake of company closures and the scaling down of operations by local industry.
“The background to the meeting is that the government has recently launched command agriculture with a target of financing 400 000 hectares of the maize crop. They estimate to produce two million tonnes of maize which would drastically cut the food import bill or completely eliminate it. This noble strategy will allow the government to channel the nation’s scarce resources to developmental issues other than food imports,” said ZAPF director-general TendayiKakora in an email seen by Zimbabwe Independent.
“Against this background, the government is appealing to ZAPF to assist raise US$348 million that is required to finance the project. ZAPF has been requested to give an indication of how much Self-Administered Funds will contribute towards the project. Government bonds with prescribed asset status are going to be available in the market soon and members are requested to assess their cash flows on a monthly basis, over the next 12 months starting September 2016 and indicate to ZAPF what contributions they are likely to make towards financing this project.”
Government sees maize production this year at 511 816 tonnes, against the initial projection of 450 000 tonnes.
“The higher-than-anticipated output is attributable to good rains received in the second half of the season that helped some of the late planted and re-planted maize crop,” said Finance minister Patrick Chinamasa in his Mid-Year Fiscal Policy Review presented last Thursday.
Meanwhile, the Insurance and Pension Commission (Ipec) has threatened to take action on pension funds for their low uptake of prescribed assets, as the stock of government bonds stood at US$220 million.
“Prescribed assets continued to be grossly undersubscribed, despite directives to the contrary. The commission will continue to penalise the industry in order to ensure compliance,” the insurance regulator said in a report.
Industry players are however against the move, saying it could affect their operations given the biting liquidity constraints triggered by company closures.
“Noble as the project may appear at face value, it remains very ambitious. The risk is too high and this could prejudice pensioners,” an industry expert said.
Among some of the bonds that were issued during the period under review are the Infrastructure Development Bank of Zimbabwe’s US$50m bond to upgrade Kariba hydro power station; Agricultural Marketing Authority (US$50m to finance the purchase of grain by the Grain Marketing Board); FBC and Agribank agro bills and the Zimbabwe Electricity Transmission and Distribution Company’s US$15m bond for prepaid meters.
On an unrelated issue, Catering Industry Pension Fund chairman Muchadeyi Masunda has written to the Independent denying corruption allegations in an article published by this paper in July based on a document prepared by Comarton Consultants managing director Richard Muirimi.
In the document dated August 4 2015 seen by this paper, Muirimi said the catering industry was one of the country’s worst performing funds. Muirimi claimed in the document that the catering industry did not go to tender for its Information Technology system but appointed a South African-based vendor, on which the story was based.
Muirimi, however, through his lawyers C. Kuhuni Attorneys, on August 23 2016 wrote to Masunda denying ever writing the document on which this paper’s story was based on.
“Our client denies having made any of the remarks attributed to them in the Zimbabwe Independent,” read the letter. “They neither made any of the statements to the newspaper nor did they cause or let them to be published by the newspaper.”
However, Muirimi has not denied to the Independent he wrote the letter. Instead, he has angrily told this paper that the document was not meant or publication as he had been asked by the state to prepare it.