- Zimbabwe agreed to pay $3.5 billion in compensation to white farmers whose land had been expropriated under Robert Mugabe.
- To raise the money, Zimbabwe will issue a long-term debt instrument on international capital markets, set to mature in 30 years.
- While Zimbabwe is confident it will be able to raise the money, the cash-strapped country had to seek help from developmental partners.
The cost of Zimbabwe’s chaotic land reform programme has, on one level at least, been quantified: The government on Wednesday agreed to pay US$3.5 billion in compensation to white farmers whose land had been expropriated under Robert Mugabe’s administration.
The US$3.5 billion plus interest was negotiated from a government valuation of US$1.2 billion versus US$5.4 billion from the former farmers, and forms part of a Global Compensation Deed agreement between white commercial farmers and President Emmerson Mnangagwa’s government.
The agreement was announced at a signing ceremony on Wednesday at State House in Harare.
To raise the money, Zimbabwe will issue a long-term debt instrument on international capital markets, set to mature in 30 years.
This is a mammoth task, given that arrears account for 73% of the country’s existing external debt. Convincing creditors is unlikely to be easy.
Joint mobilisation of funds for compensation
The cash-strapped country had to seek help from developmental partners just to come up with the agreed valuation, raising questions on its ability to meet the required funding.
Valuation technical assistance was provided by the World Bank through support and funding from the European Union (EU) and the United Nations Development Programme (UNDP), in conjunction with other international development partners based in Zimbabwe.
But, according to the agreement, Zimbabwe is confident it is up to the task.
The global compensation figure will be payable in instalments, with the first being a 50% deposit payable 12 months after signature of the agreement.
One quarter of the balance will be paid in each subsequent year so that full payment is made over five years.
“The full amount of the global compensation figure may, however, be paid within 12 months of signature of the agreement if sufficient funds for the purpose are mobilised within this period,” according to information provided by the Finance Ministry.
Out of 2 963 responses received from farmers in a referendum conducted by the Commercial Farmers Union (CFU) of Zimbabwe and the Southern African Commercial Farmers Alliance (SACFA), 2 801 (94.5%) accepted the government’s offer.
President Mnangagwa described the agreement as “momentous” and “historic”, saying it “brings closure and a new beginning”.
On behalf of farmers, Andrew Pascoe, president of the Commercial Farmers Union, said the agreement is a milestone that would resolve “this outstanding issue”.
The agricultural sector in the southern African country has already been dealt several body blows prior to the addition of the US$3.5 billion bill.
It has faced years of hunger, with new farmers failing to match their predecessors’ harvest, resulting in the country using billions of United States dollars to import food, including the staple maize.
Last year, the World Food Programme flagged rapidly rising food insecurity in Zimbabwe.
Wandile Sihlobo, chief economist of the Agricultural Business Chamber of South Africa (Agbiz), attributed this to a combination of extreme climate events, economic instability and fragile state resources.
In 2018 alone, Zimbabwe spent US$724 million on agricultural and food imports, according to Sihlobo.
The value for food imports (% of merchandise imports) in Zimbabwe has been higher than 11% since 2008, reaching a peak of 22.38% in 2009.
Additionally, billions of dollars were spent on inputs and agricultural equipment to support new farmers – often the politically connected – without proportional harvest to show for it.
Politicians, senior government officials and their close relatives were given farm equipment worth more than US$200 million for free, but very few produced a notable harvest.
In some cases, prime land was parcelled to the elite: the late President Mugabe owned as many as 16 farms, according to President Mnangagwa.
Most of the farms taken over by the politically connected are lying idle today.
Will it work?
Economist John Robertson believes the chances of Zimbabwe getting the required funding are “very poor”. He explains:
“Bonds imply promises to repay. We won’t get any support until we carry out reforms to restore our productive capacity. We have no way of repaying new debts when the existing debts are beyond us. But if we fix the economy by restoring confidence we will get back to earning respect as well as money.”
– Economist John Robertson
However, another economist and member of the central bank’s Monetary Policy Committee, Eddie Cross, believes Zimbabwe has “a good chance to raise the funds required”.
Citizens, meanwhile, took to social media to express their thoughts on the matter.
Some, like @baba_nyenyedzi, expressed doubts about the state acquiring more debt.
The important question to ask is why a tax payer must assume a debt they will never benefit from. It’s not like Zimbabwe doesn’t know the new farmers. They never miss a chance to tell us. Whoever occupied farms must pay for it. The tax payer must never carry this burden. pic.twitter.com/y65vU1mn5s
— Tinashe M (@baba_nyenyedzi) July 29, 2020
“The important question to ask is why a taxpayer must assume a debt they will never benefit from. It’s not like Zimbabwe doesn’t know the new farmers. They never miss a chance to tell us. Whoever occupied farms must pay for it. The taxpayer must never carry this burden.”
Zimbabwe is already saddled with a ballooning external debt with Total Public and Publicly Guaranteed (PPG) external debt standing at US$8.094 billion, as at end December 2019.
The Reserve Bank of Zimbabwe also carries on its books foreign currency denominated debt of US$5 billion, making the country’s ability to settle the farmers’ compensation bill difficult without support from external financiers.
It has been making partial payments to the white commercial farmers.
As at end of December 2019, approximately 769 former farm owners consented to the interim payment scheme, with over 500 farmers having been paid.
In 2019, a total of Z$68 million was availed towards former farm owners and the 2020 Budget also set aside Z$380 million for interim land compensation, which the ministry of finance said was in line with the Constitution and Bilateral Investment Promotion and Protection Agreements (Bippas), targeting vulnerable groups and the elderly.