Hilary Muza 
Agriculture has been the backbone of the Zimbabwean economy for a significant amount of time now. Oddly enough, over the years it has seen considerably less investment than mining, which is the other major leg that the Zimbabwean economy stands on.
In this article, I would like to draw attention to the need to invest more in agriculture, particularly agriculture contracts, which have the potential for not only growing the economy in a holistic manner, but also guaranteeing a healthy profit for shrewd investors.
The problem with agriculture financing has always been it’s overarching financial framework.
For example, small-scale farmers, who are the majority of producers by number in Zimbabwe, cannot access financing and as a result cannot turn a profit. Banks are forced to loan to farmers at high rates of interest to make it viable for them. The focus is not a broad market-centric approach but a narrow lend-and-recoup framework, which in my view profits neither the lending institutions nor the farmers.
In other words, farmers themselves are yet to be organised into an institution to be partnered with in improving the agriculture sector, and not simply as a resource or asset in the farming process.
For instance, in a lot of agricultural contracts, the odds are stacked against the farmer who must not only produce quality products, but also do so without adequate training on how to maximise the potential of the land, seeds and other inputs as well as their labour.
These farmers also have to fight predatory penalty clauses and a lack of support should they fail to deliver. This means that one bad season often means the end of a farmer’s career.
The financing gap is a major reason that the agricultural sector has stagnated and has not seen the kind of growth it should be seeing.
This week’s article brings to the public’s attention the potential value of agriculture financing and its appeal to new investors in agriculture, in the hope and expectation that businesses and investors alike look more deeply into agriculture as a viable investment.
Why agriculture contracting works
Agriculture financing is year-on-year financing given to suitable farmers in terms of which the farmer is capacitated financially, provided with inputs and equipment (and sometimes training) and is guaranteed of a purchaser for their produce upon harvesting.
Though some improvements are welcome, the best implementation of this mechanism that I have seen is in the tobacco sector. The beauty of tobacco contracts is that they are easily enforceable by the financer. For instance, the law provides that tobacco contracts are sounding in United States dollars.
In this, financers are guaranteed of recouping the investment in foreign currency. Our courts have seen numerous cases where tobacco financing companies have successfully collected foreign currency from defaulting farmers despite the numerous changes in the country’s exchange control framework.
This leads me to the second advantage of tobacco contracting agreements, which is the legal framework. As I have mentioned above the legal framework guarantees the investor will make a return in the currency they would have invested.
This certainty alone goes a long way in inviting investment into the sector. The main weakness I find with this method of agriculture financing is that a significant number of tobacco financers are offshore.
What this means is that profits from tobacco contracts are repatriated outside the country, meaning that only a marginal amount remains to circulate within the Zimbabwean economy. The remedy in my view, is a simple one. With the upsurge in investment in real estate, it is clear that local investors trust the property market as a means of holding the value of their investment and in addition, guaranteeing them a good return on that investment.
I would posit that investing in agriculture, specifically tobacco financing is a viable way of investing funds that guarantees a quick and healthy return on investment.
It certainly is an option worth investigating. I say this in the hope that venture capital and other finance institutions will take another look at the agriculture sector, as a destination for investment in the medium to long-term that not only builds the economy but also makes good business sense.
Tobacco contracts can be more profitable when issues of tenure are not made to obfuscate the potential that this sector of the economy has.
A lot still needs to be done regarding the solidifying of the issue of tenure for farmers, access to resources for farmers and the guarantee of a healthy return investment for investors.
If consensus is to be reached by the relevant parties, this would unlock a major part of the economy in a way that is impactful for the farmer, commerce, the economy and the government.
Muza is a duly admitted lawyer with expertise in business law, labour law and commercial litigation. He writes in his personal capacity. For feedback, email him at hilarykmuza@gmail.com or call on +263719042628.
