The document discusses challenges facing smallholder farmers in Zimbabwe and potential financial solutions. It notes that Zimbabwe's economy has experienced instability, high debt, poverty, and unemployment. Agriculture is important but smallholder farmers receive little credit. Proposed solutions include increasing financial inclusion, investing in agriculture, and using blended finance to mitigate risks and support smallholders through loans, grants, and contract farming.
2. INTRODUCTION
• Zimbabwe is located in Sub-Saharan Africa
• The economy of the country characterized by instability and volatility impede
economic performance due to
• low mineral prices,
• infrastructure and regulatory weaknesses,
• poor investment climate,
• weak domestic demand,
• high public debt,
• tight liquidity conditions,
• drought,
• widespread poverty,
• 95% unemployment rate,
• and high public wage expenses
4. ECONOMIC GROWTH OVERVIEW
• Using the graph in the previous slide, economic growth in the country
declined between the years 1998 and 2008 due to a financial global crisis,
drought, and hyperinflation
• Whilst, the period of 2010 to 2013 the country recorded a 10% real growth
rate due to the dollarization of the economy which promoted use of multi
currencies resulting in reduced inflation rate
• Poor harvests, decreased investment, and low diamond prices reduced the
growth to 3%
• Economic growth stabilised post 2014 after the government entered a
Second staff monitoring agreement with IMF and also owing to the
depreciation of the South African Rand rendering a decline in SA imports into
Zimbabwe
5. AGRICULTURE IN ZIMBABWE
• Zimbabwe’ agricultural sector is dual in nature, comprising of large-scale commercial farms,
historically owned by minority white settlers and smallholder farms occupied by the black majority
• After independence, in 1980, white farmers owned 15 million ha which dropped to 12 million ha
through a land reform and resettlement programme which included policy shifts and agricultural
measures allowing subsistence farmers to shift to commercial farming
• Small holder farmers shifted from producing traditional crops e.g. maize and wheat to more drought
resistant crops and cash crops e.g. cotton
• The government embarked on a Fast Track Land Reform Programme (FTLRP) where some of the
remaining commercial farms were converted to A1 farmer schemes- small holder production
(average size: 37ha) and A2 farmer schemes -commercial production at a larger scale (average 318
ha)
• Approximately 70% of the population are dependent on agriculture, thus agriculture is a key sector
for Zimbabwe’s economy
• Agriculture contributed 12.53 % of the country’s GDP in 2015
6. SMALLHOLDER FARMING
• Approximately 1.5 million smallholder farmers are subsistence farmers
• Smallholder farmers play a significant role in ensuring food security, economic growth
and employment creation
• Boosting smallholder agriculture in Zimbabwe is crucial to the recovery of the economy
• It is estimated that world food demand will grow with 70% by the year 2050, thus annual
investments of $80 billion will be required mostly from the private sector to meet this
demand
• Banking sectors in developing countries lend a much smaller share of their loan
portfolios to agriculture compared to agriculture’s share of GDP
• The pie chart below shows that the agriculture sector received only 19% of Loans and
Advances by the banking sector in Zimbabwe and this was mainly received by
commercial farmers
7. Distribution of Loans and Advances by the banking sector in
Zimbabwe
Agriculture
19%
Individual
20%
Services
15%
Manufacturing
15%
Distribution
17%
Mining
6%
Financial
organisations
2%
Other
6%
Source: Reserve Bank of Zimbabwe, 2014
8. CHALLENGES
• Fragile settings of the country limit the number of bankable projects and
investment opportunities in the agricultural and agribusiness sectors
• Smallholder farmers are prone to domestic risks, due to persistent drought, and
heightened political uncertainty
• Thus, smallholder farmers in the rural agriculture value chains have always been
considered the most risky and no meaningful tangible credit windows have been
opened to them in the country
• The near collapse of formal marketing channels, as well as shortages and high
prices of key agricultural inputs (fertilizers, seeds, crops and chemicals), resulted in
steep drops in agricultural production in Zimbabwe
• Smallholder farmers have less access to technical knowledge, markets, credit, and
inputs such as improved seeds, fertilisers and equipment.
9. FINANCIAL SOLUTION
• Most farmers are subsistence farmers thus financial assistance is required to provide them with the
necessary inputs to engage in commercial farming
• Mobilization of private sector investment by MDBs and ODA in the country is essential to revive its
agricultural sector which will in turn promote job creation, alleviate poverty, and contribute to the
country’s GDP through:
• Increasing financial inclusion in the agricultural/rural sector by bringing more rural people into the formal
financial system
• Providing funding to increase investments in agriculture to raise productivity, improve quality of agricultural
products, and lead to better postharvest practices, which ultimately will increase smallholders’ incomes and
promote rural entrepreneurship for small agribusinesses
• Using Blended finance co-investments structured as debt, equity, risk sharing and guarantee products, and
performance-based incentive structures differing in rate, tenor, security or rank; to mitigate risks
• Using new technologies and advancements and increasing integration of farmers into better organized value
chains to promote solutions and delivery channels that reduce the transactional costs of smallholder farmers
• Addressing issues in the enabling environment and specific government policies that limit the flow of
financial services to small holders. Government policies can restrict lending but also can crowd in private
sector
• Financing smallholder farmers in the developing world using either as grants or loans
• Strengthening smallholder market linkages through contract farming