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A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO

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FOOD AND AGRI FINANCING. A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO. Fringilla Lodge, October 2009. Contents. Introduction Financial Sector and Agriculture Zanaco Overview Zanaco and Agriculture Recommendation Conclusion. Introduction. Food and Agriculture.

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Presentation Transcript
contents
Contents
  • Introduction
  • Financial Sector and Agriculture
  • Zanaco Overview
  • Zanaco and Agriculture
  • Recommendation
  • Conclusion
food and agriculture
Food and Agriculture
  • Key economic sector
  • Under performed in the last 3 years; sector contracted by an average of 1.2% p.a. between 2006-2008; 4% contraction in 2008 alone due to a 7% reduction in crop production
  • Crop production reduction was mainly due to;
    • Extreme whether patterns; floods, drought etc
    • High cost of inputs
    • Limitation to credit facilities, inputs, and extension services
    • Inadequate infrastructure
    • Poor livestock management
    • Weaknesses in the FSP and;
    • Failure to attract private investment in the sector
  • This is despite MACO having a medium term target of attaining 30% GDP contribution by 2015

MACO NAP 2004-15

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food and agriculture cont d
Food and Agriculture (cont’d)
  • Good water availability but untapped; over 1.7 trillion cubic meters of under ground water resources, and about 40% of surface water resources in the SADC region
  • Ineffective water rights and regulatory/demand management mechanisms
  • Inadequate attention to research and extension needs of the irrigation sector
  • Estimated 10.5 million hectares of land currently being used for agri production, despite 42 million hectares of land classified medium to high potential for agro production (14% utilisation)

MACO NIP 2006-11

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banking sector overview
Banking Sector Overview
  • Low banking penetration with a ratio of deposits to GDP of approximately 20-25%
  • High historic growth rates of deposits (25-30% p.a.) and loans & advances (30-35% p.a.)
  • Focus on primary agriculture
  • 20% loan assets to agriculture sector
  • 50% of provisions to agriculture sector; root causes;
    • Tenor of financing does not match investments/capex need
    • Currency mismatch
    • Short term views by banks on agriculture borrowers and assimilated at normal corporate borrowers
    • Lack of long term view to address cyclicality issues

7

challenges of financing food and agric
Challenges of financing food and Agric
  • Inconsistency and/or lack of continuity in policies (volatility in government policies)
  • Distorting subsidies and spur of the moment import/export bans that decimate farmers and that discourages banks from lending to the sector due to resulting price volatilities
  • Lack of value chain infrastructure support i.e. feeder road network, land tenure and administration, energy, communication etc, which creates linkages between supply side and demand side of the sector
  • Lack of warehouse financing legislation
  • Lack of silos in the country forcing crops to be sold after harvest; too much power with millers/traders
  • Weak commodities market to provide risk management solutions (hedging)
  • High energy costs
  • Lack of long term funds for irrigation
  • Outsourcing mechanization with risk of non-availability of harvesters etc versus underutilized assets if owned by farmers

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challenges of financing food and agric cont d
Challenges of financing food and Agric (cont’d)
  • Some banks exiting the business, leaving farmers in a lurch for their seasonal requirements;
  • Limited availability of long term funding; need to explore other long term funding options i.e. bond issuance, Notes etc
  • Privatize extension services; improve efficiency and investment availability
  • Opportunity for guarantee schemes (CEEC, DBZ etc)
  • Insufficient skills and information resources for the successful development and operation of irrigation system

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zanaco and agriculture1
Zanaco and Agriculture
  • Strategic relationship with ZNFU (4% shareholding, 1 Director on the Board)
  • Dedicated Agri business team
  • On-going initiatives;
    • Facilities for Commercial farmers
    • IFC; Emerging farmers
    • ZNFU; Lima scheme
    • NAPSSF; Munda Scheme
    • ADB; Zampip
  • Relationships with and funds distributed to 5,900 small scale, subsistence and emerging farmers
  • Between 20% and 30% of the loans and advances portfolio is in Agriculture loans (depending on seasonality)
  • Improved credit turnaround times

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food and agriculture sector sustainability
Food and Agriculture sector sustainability
  • Top 6 issues from Zanaco’s perspective;
    • refurbish or build silos/warehouses
    • Enact warehousing finance legislation
    • Need for consistent and predictable government policies (no policy shifts); no spur of the moment import/export bans
    • Professionalize/privatize extension services
    • Focus on yields!!!
    • Strengthen Regional Commodity markets
  • Strengthen value chain support infrastructure; land tenure and administration, road network, energy, etc
  • Incentivize creation of long term funding mechanism for the agric sector (fiscal and/or monetary)
  • Minimize distorting subsidies and spur of the moment import/export bans
  • Financial institutions initiatives to create hedging solutions for farmers
  • Finalize CEEC, DBZ guarantee schemes
  • Promote bilateral long term funding for irrigation
  • Work closely with Banks on managing the FSP program
zambia should be a bread basket
Zambia should be a bread basket
  • Lots of land
  • Fertile Soils
  • Good water resources and availability if irrigated
  • Reasonable rains nation wide
  • Good banks
  • Good farmers

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