Financing agric in Zim: What are the challenges, opportunities?

Field day ... In order to build up agriculture, resettled farmers need finance.

The previous three blogs have offered some insights into the different dynamics of financing agriculture in Zimbabwe — covering in turn loans/credit, remittances and savings clubs.

What is clear is that financing for commercialising and intensifying small and medium-scale agriculture, now existing particularly in the (not so) new resettlements, is woefully inadequate and this severely constrains investment and in turn wider agricultural growth and economic regeneration.

The lack of finance means that most people for most of the time rely on self-financing, and so flows of investment are subject to the vagaries of the weather and the changing demands for expenditure at a family level (notably for school fees).

Self-financing is more possible in the new land reform areas where agricultural surpluses are more common, but this is not guaranteed. In highly differentiated rural societies, it is only those, who are already relatively rich and have the resources to generate surpluses who can reinvest profits.

As we have seen, external financing is limited, and the banking/formal loan system cannot meet demand and imposes impossible constraints for most. Where contracting for a particular crop is possible — notably tobacco — this too has its problems, as companies squeeze farmers, who are dependent on their financial support.

Some are able to draw on patronage networks to gain funding through government schemes, such as command agriculture, but this is a vanishingly small number overall, and concentrated in the A2 farms. Remittances are significant and may be channelled into lumpy investments — notably for irrigation — or into projects linked to sons and daughters, often in the diaspora.

But remittances are not assured, as conditions change at migrant destinations, whether through Covid-19 restrictions, economic depression or xenophobic violence.

The politics of financing

As David Graeber pointed out debt structures social relations and politics, and has done for thousands of years. Financing that imposes debt, even as short-term contracting and loan arrangement, creates a politics of unequal relations and often dependency.

The autonomy that farmers strive for, and what having access to land through land reform has provided, is therefore, limited by social and political relations constructed around finance.

The banking system in Zimbabwe is incredibly conservative. Perhaps all bankers are, and lending without guarantees of return is of course foolhardy.

However, formal banking and loans systems have not moved with the times. In the past agricultural finance was central to the operation of (white) large-scale commercial agriculture. Self-financing was largely unheard of.

Farmers were always in debt. A loan was forwarded at the beginning of the season, secured against the title deeds of the farm. This financed the cropping, as well as investments in equipment and so on, and money was paid back at the end of the season.

Close relationships with bank managers and farmers assured continued financing, even when it was difficult to repay, and there was considerable negotiated flexibility in financing.

White commercial agriculture and the banks (also then largely white-owned) were intimately connected through social, political and commercial relationships.

And in the colonial era white-owned commercial agriculture was heavily supported by the state, which offered large amounts of concessionary finance to farmers as well as infrastructure development on farms through the intensive conservation areas, for example, that oversaw the building of dams, roads and more in the “European” farming areas.

Following land reform, such relationships were disrupted. White farmers were in the most part displaced and although there were some banks under new ownership, they did not reconfigure their business model towards a small-holder farming sector.

Bank operations were constrained by the lack of overall finance in the economy as it contracted due to a combination of economic mismanagement, rising national debt and sanctions that prevented (or at least dissuaded) international loan finance, private and public.

With limited finance, loans to other sectors than agriculture always looked more favourable, and portfolios shifted.

Private banks have been loath to finance “new” land reform farmers due to lack of collateral. With the removal of title deeds (or continued dispute around them) and the lack of viable 99-year lease arrangements, which had clauses in them that undermined the banks’ confidence, there has been little option even for medium-scale A2 farmers.

For A1 farmers none of these options were even available. The lack of imagination in policy circles around tenure issues is striking. The assumption is that the only option is to return to what existed before, despite the context for farming having changed radically.

The reluctance of Zimbabwe’s banks to look at other loan options that have been widely used to support agriculture in many parts of the world is striking.

Part of this is political and bound up in the resentments created amongst the white economic elite due to land reform, and the knock-on effects on international finance, including through donors.

But it is also the failure of both government and the private sector to learn from elsewhere. Did Asia’s Green Revolution, driven by millions of small farms rely on title deeds and collateral guarantees? Of course not. Yet Zimbabwe seems stuck in the past, and the state has offered few alternatives, while the NGOs and donors stick to their micro-finance and savings projects in the communal areas that may provide some livelihood security, but certainly not wider investment and growth.

For the new farmers in the land reform areas, options are, therefore, highly constrained. They neither have the bank finance, nor the high level of subsidies offered to white commercial farming in the past, and most have had to go it alone, or with support from extortionate loan arrangements from financial agents, restrictive contracting arrangements or support through remittances.

When people compare commercial agriculture of the past and the attempts to rebuild a commercial base for agriculture today, where investment is so urgently needed, this context must be borne in mind. That many have managed to build irrigation systems, buy tractors and develop intensive livestock projects, as discussed in previous blogs, is remarkable given the circumstances.

The state, however, is not completely absent. But rather than offering the conditions for broad-based financing for farmers operating at multiple scales, state financing is too often a source patronage, clientelism and corruption.

The command agriculture programme is an example of this. Wheat and maize surpluses from select farms with political-military connections comes at a cost.

The surpluses are banked politically too, with proclamations in the state press of the benefits generated. But the economics of patronage systems shows very selective benefits and major opportunity costs, with funds diverted to narrow projects and not used for more broad-based growth objectives.

Everywhere, debt, finance and money in general is always political. It is the basis of control, and the centre of political tussles.

In the case of Zimbabwe racially-inflected struggles over the land reform legacy poison the debate about financing options, restricting options for the majority.

Political patronage through loan/subsidy schemes favour some, but undermine others. Private financing always comes with strings attached, and the profits made by contracting companies are not widely shared, while contract relationships cause forms of bondage and dependency.

And into the mix come often unscrupulous loan sharks or even perfectly respectable financing companies who exploit poor farmers yet have limited options in order to sustain their profits.

Financial bricolage

As the previous blogs in this series have shown, farmers across our sites engage in the practices of financial bricolage, cobbling together solutions from different sources.

The middlemen and contractors so often reviled in popular accounts of financial systems can be important, but they have the upper hand. Combining small-scale loans, irregular remittances, accumulated savings from clubs and occasional windfalls from big harvests is part of this juggling that all farmers must engage in.

Managing finance through bricolage requires navigating diverse sources and multiple demands. Investments are not guaranteed as other needs may arise — school fees, a death or illness in the family, the rebuilding of a herd of cattle due to the impacts of disease (the disaster of January disease across our sites still reverberates) or the need to provide basic groceries in periods when harvests are limited by drought.

Accumulation from below is not straightforward (even accumulation from above through patronage can be fickle as political fortunes change). This means that plans for a farm have to be sequenced, but plans must always change.

Social relations — with relatives, financial agents, state officials, politicians and others — must be cultivated and secured, otherwise finances may not be forthcoming. It’s an elaborate, taxing process, as our informants explained.

All this his would be difficult enough in a stable economy, but when the profits from a harvest are wiped out because the Grain Marketing Board pays in RTGS local currency and months late it is more than dispiriting. One of our informants said that a good harvest resulted in nothing because of this.

Once receiving the money from the GMB, she said she cried on the steps of the Victoria Hotel in Masvingo and was able to buy just two pairs of cheap curtains for the house, not the agricultural investments she had planned for her garden. 

There must be a better way

There must be a better way that matches the current need. Current approaches are premised on an outdated vision of agriculture based on the old dualism that was overturned by land reform.

NGOs and their aid donor supporters offer micro-scale solutions for largely subsistence operations in the communal areas. These are all perfectly legitimate — this is not an argument against women’s empowerment and chicken projects, as these have their place — but such aid investments are not focused on agriculture-based growth and investment.

Meanwhile, commercial banks and the government hark on about large-scale, “modern” agriculture, attempting to recreate what existed in the past.

But today the opportunities for sustained agricultural growth (and so food security, poverty reduction, empowerment, profit and investment, or whatever the preferred objective is) lie in the small and medium-scale farms in the land reform areas (A1 and A2), both constrained in different ways by lack of finance.

In order to build up agriculture, to make use of the crucial asset of land distributed during land reform, resettlement farmers need finance. Just as their privileged white predecessors did when they were encouraged to go into commercial agriculture and produce tobacco or maize or when war veterans from World War II were settled by the colonial regime, including on the very farms that are part of our study areas today.

The sort of finance required is not large. Building a start-up irrigation system with a borehole, water storage and basic pumping to flexible pipes may cost a few thousand dollars, while upgrading with bigger pumps, expanded areas, greater storage, drip irrigation and more reliability through solar investments can also be co-financed from agricultural sales once the initial investment is secured and profits are generated.

Mechanising a farm to reduce tillage costs or enhance processing capacities to add value to agricultural produce again need not cost a fortune.

This does not mean buying big tractors and combine harvesters, but smaller more appropriate forms of mechanisation that are now become available as a previous blog series has discussed.

So where is the elusive US$5 000 loan (even US$1 000)? It is nowhere to be seen – or only available under very restrictive conditions. This must be a priority for those who work on farm finance (and this does not include me).

There are many lessons across the globe to draw from and learning from these must be a priority. This blog series has, therefore, been a plea to those in government, amongst donors, in the NGOs, and in the private sector, including the banks, to innovate and re-imagine the financing of agriculture for the contemporary situation.

This means avoiding harking back to old, outdated models that will not work and to a vision of dualism in agriculture that ignores the vibrant new resettlement areas that show much, still unrealised, potential.

  • This article is from Zimbabweland, a blog written by Institute of Development Studies research fellow, Ian Scoones. Zimbabweland focuses on issues related to rural livelihoods and land reform in Zimbabwe.

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