Zimbabwe: Local Tobacco Merchants Battle for Offshore Loans

Source from:  Financial Gazette (Harare) 04/27/2009

ZIMBABWE'S tobacco merchants are jostling for offshore lines of credit ahead of the marketing season scheduled to start next week, amid concerns risk-averse international investors were taking an increasingly cautious approach to local exposure. This is despite a trajectory towards a turnaround in the country's economy, which has experienced a 10-year decline amid an unprecedented economic and political crisis. Banking sector sources said local merchants were struggling to arrange offshore facilities for the purchase of tobacco at the forthcoming marketing season, tentatively scheduled to open on April 29. There were, however, possibilities the central bank could give the local merchants a reprieve and allow them to borrow locally, as some banks were said to have "idle cash" from clients that they could on-lend to local tobacco buyers. "Some deep-pocketed clients have placed huge amounts with banks but the lending business is currently stagnant. There's room for the cash to be lent to the tobacco merchants if a price can be agreed," a banker with a local merchant bank told The Financial Gazette. Some of the banks were also said to have secured credit lines from offshore sources, but they had to seek authority from the financial sector regulator to avail them to domestic tobacco merchants, a source indicated. Should local merchants not secure offshore credit lines and fail to participate at the tobacco auctions, the market will be dominated by offshore merchants and their local agents. The major tobacco buyers in recent years have been from the Asian countries, particularly China. Previously, the central bank has unveiled United States dollar lending to local merchants, which they have had to repay on shipment once they secured foreign buyers for their tobacco. Very few local tobacco buyers have correspondent merchants abroad that can avail financial resources to enable them to participate on the tobacco auctions. In his monetary policy statement in January, Reserve Bank of Zimbabwe governor Gideon Gono said tobacco merchants had to raise offshore lines of credit for purposes of purchasing tobacco from the auction floors and financing of contract growing of tobacco. "In this regard, no merchant shall be allowed to purchase green leaf tobacco using foreign exchange resources sourced from the local market," Gono said. A significant amount of foreign currency inflows from foreign merchants had already started trickling into the foreign currency starved banking sector ahead of the opening of auctions, although one banker said they expected the bulk of funding to come into the country during the second week of the auctions when foreign merchants had satisfied themselves on the expected quality of crop. Pre-shipment finance and loans for tobacco merchants are registered with the central bank and can easily be repatriated if not fully utilised for the tobacco purchases. Output for the crop is forecast to decline this season. The Commercial Farmers Union has said production of flue-cured tobacco would fall from 48 720 tonnes last season to 39,700 tonnes this season. The figures have been corroborated by official forecasts by the Tobacco Industry and Marketing Board, which expects a 10 percent decline in output this season. Enditem