Zim Turns to South African Bank for Golden Leaf Finance

Source from:  Zimbabwe Standard (Harare) Emmanuel Mungoshi 04/19/2005

AGAINST the backdrop of what is probably turning out to be the world's fastest collapsing economy, Zimbabwe has crossed the border into South Africa to seek assistance to finance the operations of its tobacco growers. This follows the reluctance by a significant number of local banks to issue loans to the new farmers citing the prevailing insecure macro-economic environment, which is largely a result of the government's controversial policies that have caused an economic downturn. Late last month, the Tobacco Development Corporation (TDC) through the aid of the local central bank signed an agreement with South Africa's biggest retail lender - ABSA - for a US$25 million to finance tobacco production inputs for the 2005/6 season. The loans, which have been guaranteed by the Reserve Bank of Zimbabwe, would be channelled towards buying inputs for the both A1 and A2 tobacco farmers. Agriculture, which is the mainstay of the Zimbabwean economy accounting for more than 60% of the country's exports, is virtually in ruins after President Robert Mugabe ordered the seizure of thousands of farms from white farmers since 2 000 to resettle landless peasants. At 85 million kgs, tobacco - Zimbabwe's former biggest cash crop - will be another small crop this year although the sector appears set for a small recovery. Before veterans of the liberation struggle and supporters of the ruling Zanu PF party began to confiscate thousands of white-owned farms in 2000, tobacco accounted for up to 40% of Zimbabwe foreign currency receipts. Currently, differences over selling prices between growers and merchants, which surfaced at the beginning of the selling season, also threaten to prolong the country's hard currency squeeze. The economic downturn has hit the banking sector hard, in part because most banks were heavily exposed to the commercial agriculture sector, and the loss of revenue from white farmers has also compounded the situation. In 1999, a year before the farm seizures began, about 4 500 largely white commercial farmers, borrowed about $60 billion annually to finance tobacco growing. Local financial institutions say they are reluctant to finance resettled tobacco growers - commonly referred to as A1 and A2 farmers - because they lack collateral. Some of the few banks that dared to help the new farmers say they have now withdrawn funding because of persistent defaulting. However, economic consultant Erich Bloch says courting offshore credit lines does not in any way reflect the local banks' lack of confidence in the industrial sector. "In a normal situation local banks should be able to provide such facilities. However when the country has a negative balance of payment there are two choices either to go to the foreign currency auction floors or to facilitate off shore credit lines," said Bloch. Enditem