Zimbabwe’s economic woes are expected to worsen this year as one of the major foreign currency earners, tobacco, is expected to underperform in the 2019/2020 summer cropping season due to a looming drought, fall in tobacco registration numbers and discouraging forex retention levels.
The development comes at a time when the country is facing myriad of challenges which include forex shortages, electricity outages and fuel shortages amid fears the pending drought will put pressure on foreign currency demands.
Analysts warn that drought has complicated an already crumbling economy as the tobacco selling season is expected to start late due to late planting. This means Zimbabwe’s forex drought season will extend to April as most tobacco in the dry land is still at a tender stage and tobacco merchants will bring money later than they have planned due to drought.
Zimbabwe Tobacco Association (ZTA) president, Rodney Ambrose, told Business Times that drought has dealt a huge blow to golden leaf production as dry land crop constitutes over 70% of the total tobacco sales.
“Given the current climatic conditions and the stage at which most of our crop is at right now, the tobacco marketing season is going to be delayed, therefore, we should use that time to create conducive environment for selling the golden leaf,” Ambrose said.
“We should ensure that all modalities are in place before the selling season kicks off with serious meetings with all stakeholders expected by the end of January. Though we haven’t discussed the exact percentage which we certainly need over 60% forex retention threshold and a clearer payment method which should be different from last year’s complex payment method.”
He said the monetary authorities should start working on payment methods to avoid confusion of yesteryear which the tobacco merchants capitalised on, resulting in low tobacco prices.
ZTA said central bank should consider that tobacco merchants and banks have given farmers loans in US dollars which have to be repaid. This comes amid claims that a number of tobacco merchants failed to pay their obligations due to subdued tobacco prices.
Ambrose said contract farming levels have increased to 90% from 82% due to exorbitant input prices and lack of funding for various self- financing farmers. He said the irrigated crop is satisfactory while the dry land is in dire state and rains should intervene to save the country from disaster.
However, he said rains in Banket, Chinhoyi, Mount Darwin and Kwekwe have brought hope in the multi-billion-dollar industry. Tobacco registrations have fallen 15% to 143 568 in 2020 season from 168 735 the previous year while new growers fell 82% to 7447 from 40 772, according to a latest report by the Tobacco Industry and Marketing Board (TIMB).
Area planted increased to 81 977 hectares from 79 708 hectares. TIMB chief executive Andrew Matibiri said the majority of the country’s tobacco is still at infant stage and significant rainfall is needed to change the fortunes of 2020 tobacco season.
“Over 60% of the total crop has not yet received significant rainfall and has not been top-dressed for it to reach maturity stage by the end of February; this only means that we are going to have a very late selling season. The crop is in dire need of the rains to change the fortunes of the season but it is our hope that this week we may start receiving some significant rains,” Matibiri said.
He said the tobacco industry is faced with various challenges which include complex payment systems and forex retention levels. Discussions are at advanced levels with all stakeholders to iron out these issues.
Last year, monetary authorities allowed third parties such as retailers, technology groups and rival lenders, who are referred to as authorised dealers, access to customers’ accounts. Tobacco is the second largest foreign currency earner after gold, accounting for 21% of total export receipts in 2019.
Most farmers are rejecting central bank’s proposed 20% of offshore loans for production of the crop and 10 percent for value addition while the investor gets 70%. Before that, the forex retention for offshore loans was 100%.
Preliminary indications show that the tobacco marketing season will kick off end of March with most tobacco expected to come mid-April.