Background:
In order for the Zimbabwean government to raise new funds, it needs to improve its governance and reschedule much of its burgeoning debt of US$13.5 billion which actually stands at US$17.2 billion if you include the contingency debt to pay farmers compensation for their improvements.
“In July 2020, we signed a deal with white former farmers to pay them US$3.5 billion in compensation for improvements on farms taken over for resettlement.” - Zimbabwe Minister of Finance (ZMF)
This is being called a contingency debt, not even ratified by Parliament, so it may or may not be paid. The fact of the matter is due to poor governance, outright mismanagement and lack of democracy Zimbabwe at this time is seen as a pariah state unlikely to be able to borrow money anywhere. The last thing it needs is to add a further US$3.5 billion debt to its balance sheet. It would appear, as there is not even a contingency for the US$3.2 billion agreed for the value of the land that they obviously have no intention to pay for it.
After watching the meeting on Friday the 29th of July held in Harare with the Minister of Finance, Minister of Agriculture and a representative of the financial consultants, tasked with raising funds, along with Commercial Farmers Union (CFU), Valcon, Global Compensation Deed (GCD) team and farmers, it set my mind working. It was further jolted by a number of referrals from others by mail and other means declaring their views and asking mine. I have kept away from the land issue as I believe those actively involved have a much better grasp of the situation, which from a distance seems like mission impossible. Whatever efforts they are making in ‘good faith’ should be lauded as it is a lot more than I am personally doing. Equally, it would appear for some reason some pundits seem to be adding confusion even causing division. Possibly my view is also rather pessimistic believing opportunity for meaningful dialogue on compensation will only come about once we have a democratically elected government.
As we have had no view of the detail of the agreement between the consultants and government on raising money we do not know their exact mandate. Is it just to raise money for compensation to farmers or is it closer to the selected consultants' normal role of raising money or rescheduling debt for distressed countries? In my mind, I may be wrong, thinking perhaps it is the wider brief with the land compensation being just one of the many hurdles to deal with on the way to raising funds on behalf of the Zimbabwean Government. At this time, also probably mission impossible.
The meeting raised multiple questions many of which could not be articulated by the audience at such short notice without a preview of the proposal presented. This set my imagination running, including around a number of conversations with government and numerous consultants over the past few years prior to the signing of the GCD.
As I say, I am only imagining that this could have been one of the conversations that may have taken place in trying to get my head around what was presented as a marketable proposal. So here goes.
Zimbabwe Minister of Finance (ZMF): “Good morning ladies and gentlemen. As you well know our country is in distress with chronic debt coupled with sanctions applied through ZDERA and other means due to our perceived lack of good governance, poor human rights record whilst we are still unwilling to hold free and fair elections. The West and its financial institutions appear to think we do not abide by the rule of law stating that corruption is rife, benefitting those few of us with the right connections and allegiances, black or white.
Our problem, since confiscating the land from the white farmers, is that we cannot raise money, let alone feed ourselves. Having been a net exporter of food we are now a net importer. This issue of compensation has become a major topic when we try to discuss raising funds internationally. Further, our good friends in China I am sure are now sick of our continued asking for assistance. Of course, this does not come unencumbered.
More recently our local coffers have been emptied further by trying to stimulate agricultural production through the Command Agricultural Scheme. Can you believe it these new farmers we gave free access to the land, not ownership, are refusing to repay their loans?
We therefore desperately need to raise money including some guise to pay compensation to the ex-white farmers for the improvements to the land without incurring any short-term debt nor paying for the actual land.”
Consultant Representative (CR): “I am sure we can help you. Our consultant partnership is an independent advisory firm with experience in the provision of impartial, specialist financial advice to governments, central banks, sub-sovereign or state-owned clients including debt management. We have looked at innovative means of raising funds for many countries with poor track records due to war, and poor governance issues. Debt or addressing existing debt can be dealt with in many ways.
ZMF: “You look like the people we need. One of our biggest headaches is we self-destructed the country’s capital base by confiscating the land and need to find a solution so that land has value, in our hands rather than the rightful owners. Despite confiscating the land and cancelling their title deeds these pesky farmers seem to have convinced the world that by holding the original title deeds they still have title or at least the right to compensation for their land. That title still somehow intrinsically connects the original owner at the time of confiscation to the land in the eyes of the international community. Meanwhile, our ninety-nine-year lease offers to the new farmers are not seen as collateral for loans from the banks, hence the introduction of the Command Agriculture Program.”
CR: “Aah this is a huge liability, both financial and political. The land issue and compensation need to be addressed before we can raise money for the country’s other needs. Further, for new farmers to use the land as collateral they will need to hold fully transferable leases or full-title. The latter would be rather unpalatable to your government.
In resolving the issue of compensation it will be an indicator of your government's credibility in borrowing money in the future although the figure mentioned has not been ratified by parliament. We need to find a solution to this which at face value may be resolved by agreeing to pay the farmers something even if only in the future. I know, I know you have no wish to do this even if you had the funds to do so but you have to be seen to be abiding by the law in regard to paying your debts. Further, time is on our side, by the month, the farmers' numbers are decreasing due to their age in many cases now leaving their offspring and beneficiaries to argue for their rights in the future. They will be nowhere near as ardent in this dispute as their destitute ageing parents have been. For a start, most have rebuilt their lives outside Zimbabwe.”
ZMF: “Good you understand. At least we can make some show in raising the required money for this despite the local political implications it may have. These farmers, although getting fewer daily due to attrition through age, as you say, are a real pain in the ass. What are our next steps do you suggest?”
CR: “We have to get the farmers to agree to this path. Let's create a GCD agreement to show our good faith in resolving the issue. As there has been no progress over the last twenty-odd years, the ex-farmers will put hope into anything seen to be a step in the right direction. Once we have this in place, we as your consultants will look to raise the money in this instance first to pay the farmers' compensation. It will show the rest of the world that the Zimbabwean government and the farmers are trying to resolve the issue. Window dressing is so important.”
ZMF: “How do we get the farmers to agree?”
CR: “We convince some of those farmers that have had some benefit by working with you in the past. If we convince them it is a good idea and we ensure they are seen as frontrunners in compiling the agreement, therefore gaining the publicity to stoke their egos, we can then get them to convince the CFU to support the agreement. The full content of the agreement must be kept secret, we must avoid any legal obligations that may cause us headaches in the future. Certainly no tangible promises.”
ZMF: “Sounds good so far, so these people will be like Judas goats. They, with the CFU, will share responsibility for the agreement by them selling it to their members. It will not just be seen as a government ploy.”
CR: “Correct. In the event we do not raise the funds, which is more than likely, we kick for an extension to the agreement for a couple of years before offering an alternative. We cannot do this too quickly as we have to be seen as making every effort. Once we have done that, we then hold a report-back meeting. Then and only then, we offer them an alternative to cash.”
ZMF: “Is that possible?”
CR: “Yes, by issuing paper in the form of ‘Government Bonds’.”
ZMF: “So the farmers get bonds to the value of their improvements. We know despite their face value the bonds will have no real value. Our paper is worthless. I presume the face value transaction to each farmer will be to the value of his improvements, not the land. That is he buys the bonds by using the valuation of improvements against the face value of the bonds, not the actual trading value? To do this he surrenders his land title, truthfully an asset unrelated to what we are offering. Would it not be like trading in your house for a broken down unfixable vehicle?”
CR: “Maybe so, but to buy the bonds to the compensation value he must hand over his land title although we are not paying for that. We will tell them that the bonds will only ‘hopefully’ mature in twenty years or more. We need to say, hopefully rather than promise. We are offering hope and in doing so, must say hope about everything, hope in value, hope about future positive changes in value and hope in interest increases and hope they will be redeemed at the set term at face value. Let's not be too pragmatic in case we cannot keep our promises.”
ZMF: “OK. What about interest payments?”
CR: “We will offer to pay a nominal interest of 1%, well below inflation, therefore eroding their value annually.”
ZMF: “Nobody will want to buy these as inflation will erode their value much quicker than the interest paid. Any tradeable value will reflect more the interest payments than the written face value which is worthless anyway. What incentive would there be anyway for us to increase the interest rates once we have the title deeds?”
CR: “That is why we say at the meeting hopefully interest rates will increase and also the value of the bond through unidentified investment funds which at present we do not have the money to invest in, but hopefully will. To make it more attractive at the meeting you must make promises these bonds will be tradeable anywhere in the world for foreign currency and they will be in foreign currency denomination.”
ZMF: “OK and what is our benefit from all this?”
CR: “It is two-fold, the farmers by surrendering their title deeds even into escrow, will no longer physically have them in their hands. Their hold on the land has become more tenuous. For once we shall know where all the original title deeds are. Once we have issued the bonds, our debt is to the bondholder not to the farmer for compensation. This debt is only payable in twenty years, most of these old codgers will be dead then. We then look for the funds required by the country having resolved the land issue without parting with a cent other than my fees and the legals to issue the pieces of paper.”
Following the said meeting at a later date, an elderly farmer was heard saying, “We may be old, but we are not old fools.”
Back to the usual dirge next week in the blog.
Disclaimer: Copyright Peter McSporran. The content in this blog represents my personal views and does not reflect corporate entities.
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