HomeOpinion & AnalysisColumnistsBudgetary implications for agricultural financing and development

Budgetary implications for agricultural financing and development

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When Finance minister Tendai Biti announced the 2012 Budget on the November 24 2011, my immediate feelings were not “mixed” such as those emanating from certain predictable quarters.

Rather, I would describe them as feelings of cautious optimism. Though I felt that he did the best that could be done for agriculture under the circumstances, I was keenly aware that this was only a Budget which was at best a statement of intent.

The proof of the pudding is in the eating. I like to think of the 2012 Budget as a fine balancing act, but Biti, being a rather grandiose man with an extravagant turn of phrase, likes to think of it as an exercise in “fiscal marksmanship”.

In the next few weeks, as is always the case after the Budget announcement, FSS will focus on fiscal policy implications on the financial services and agricultural sectors as well as the convergence area between them. We begin with the latter.

The Budget sets the tone for agriculture by underlining the socio-economic importance of the sector before quantifying agriculture’s 11,6% projected contribution to gross domestic product in 2012 (down from 7,4% in 2011).

Agriculture contributes 16% of the country’s exports, accounts for 25% of formal employment and provides livehoods to 70% of the rural population. The sector’s backward and forward linkages with agro-input suppliers and agro-processors/manufacturers — through which the latter draws 60% of its raw material requirements — are also noted.

The sheer size of the annual financing needed to actualise the sector’s potential was put in perspective — a whopping $2,5 billion or which is over 60% of the Budget itself! Constrained by current lack of fiscal space, the minister duly acknowledges that financing at such a level can only be achieved through the joint efforts of the government, the private sector and co-operating external partners.

Growth cluster concept: An important highlight of the 2012 Budget is the introduction of growth clusters based on the competitive advantages of each province.

Notable agricultural industries identified include the livestock cluster for Masvingo, Midlands and Matabeleland provinces, the cotton cluster for Midlands and Mashonaland provinces as well as the horticultural hub for Mashonaland East, Manicaland and Midlands.

Three-year rolling financing strategy: This initiative, which has been described by some as “a masterstroke” is meant to align the financing and the production cycles in agriculture.

It should take the sting out of those who have previously accused the Finance minister of poor planning. It takes the monkey off his back and puts it right back on the shoulders of those who would rather find scapegoats for their own lack of initiative.

They must be quaking in their boots, unless they intend to find new excuses soon.

Completion of legal work on securitised leases: This will go a long way in addressing the concerns of the banking sector, which have so far prevented them from lending adequately to the agricultural sector, while the allocation of $2 million towards speeding up the surveys on A2 sub-divisions should pave the way for the issuance of bankable leases.

Livestock financing/development: The Budget acknowledges that livestock development has previously been neglected in favour of cropping issues.

From the marginal growth rates of 0,5% and 0,1% growth in beef production in 2011 and 2012 respectively, the sector has the potential to grow by rates of over 5% last seen in the 1990s.

In order to achieve this, the government proposes to avail $6,5 million in 2012, up from the $5 million disbursed through Agribank in 2011.

It is worth noting that the Three-Year Rolling Financing Strategy will have a component introducing the Livestock Development Facility.

Beneficiation: The budget acknowledges the benefits of value addition or beneficiation of agricultural resources namely higher export earnings and increased domestic employment opportunities and accordingly prioritises to incentivise domestic value addition.

Agricultural commodities identified for domestic value addition include tobacco, oilseeds, cotton and leather. Outright bans and fiscal disincentives will be considered to achieve this objective.

Agricultural infrastructure: Given the upheavals agriculture experienced over “the lost decade”, infrastructure rehabilitation and development will play a key role in supporting agricultural economic activity. Of the $611 million available for hard infrastructure, $25,85 million (4%) is set aside for the agricultural sector.

This should also be looked at in the same light as the allocation of $15 million for the rehabilitation and development of 65 irrigation schemes.

Other issues: We conclude the article by a brief outline of other key highlights of the Budget. The intention to raise $100 million through the issuance of agro-bills will have to contend with tight liquidity conditions and the underlying risk profile of agriculture, given the experience with AMA bills.

Of the additional diamond revenue of $600 million, agriculture will get $87 million, which at 14,5%, surpasses the minimum allocation of 10% required by the Maputo Declaration.

Overall compliance with the Maputo Declaration, inclusive of the allocation to water and sanitation stands at 11,63%.

While the imposition of 25% duty on meat and dairy products as well as fresh farm produce is welcome, it will have to be accompanied by adequate support systems to ensure that local output is sufficient to meet rising demand, otherwise we will be faced with another round of inflationary price increases.

What do you think about Biti’s “fiscal marksmanship”? Weigh in with your insights on omen.muza@gmail.com.

Omen N Muza is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd who writes in his personal capacity.

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