Identifying of Farmers Considering a Move to Zambia and the Tasks Involved.
- Janine MacSporran
- 2 days ago
- 7 min read
In early 2003, as I have previously said, my focus was on identifying and facilitating the move of farmers to Zambia. I should say our services were not free, as I had already run up huge out-of-pocket expenses, not only for my time but also for travel, professional and legal costs. Now, with the advent of the scheme, we needed to employ administrative staff, a field assistant to visit farms and retain agronomists.
John Knight and I discussed our fee structure and recovery of costs at length and decided we would not be able to recover much of these costs up front if we wanted to move the farmers; after all, they had little. Therefore, we would have to recover them from the ongoing services we provided. Under the agreement, we would monitor and supply other services, including agronomy, for up to ten years or sooner if the farmer was capital debt-free, that is paying off Universal Leaf Tobacco (ULT). This included the monitoring of the farmers on behalf of the lenders, including operational and financial performance, preparation of annual budgets and agronomy services, including signing off on capital expenditure, while John’s company would require scheme members to have their annual accounts done by them. In theory, this was part of the agreement, and therefore economies of scale were very important. To effect, Led Smit, of Ernst and Young (E&Y) would move to E&Y’s Zambian offices, as would Keith Griffiths. Keith in a support role but still focused on E&Y general consultancy. Each prospective scheme member would have to have access to US$30,000 to be part of the program some of this being used to identify a farm and its suitability, the latter to be checked by a retained in house Zimbabwean agronomist, the legal documentation required, the preparation of an application for an Investment Licence from the Investment Centre of Zambia which at that time cost US$2,500 and had to be supported by a business plan and proof of funds, a lease agreement, and a further business plan that differed from that presented to the Investment Centre but which was acceptable to the bank and the tobacco company. We had compiled a reasonably sized list of properties, but farmers could identify their own land and make an agreement in principle with the owner of the land to lease, provided it complied with the requirements of the bank and ULT, including the contentious clause that the lessee could be replaced if he defaulted on his loans by someone of ULT’s choice.
About this time, while preparing these leases, we had our first piece of contention in Zambia, and I mention it because, to secure the loan, I upset someone who had become a friend to me. Up until this time, Andrew Howard of Sharpe and Howard had handled all my legal work, including forming our farming company, Soilmasters. Andrew had shared accommodation with Graham Rae at Pietermaritzburg University, and Graham, knowing him, had approached him, and he had provided excellent advice. Andrew was South African but moved to Zambia on marrying the daughter of a local doctor. However, the bank insisted, and was supported by ULT, that we had to use their lawyers, Corpus Globe. Andrew, for his part, voiced his strongest disappointment, claiming he had charged us special rates in the hope of his retention for the larger scheme, a valid thought but never asked for or promised by us. As it was, I would use Andrew throughout my time in Zambia for various work, especially land issues, while in the meantime, I became good friends with the senior partners at Corpus Globe, Mwelwa Chibesakunda and Elias Chipimo. Mwelwa set up his own partnership a few years later and became our main legal advisor for Agricultural Advisors in Zambia and, eventually, for AgDevCo in Zambia, while Elias gave up law for politics, standing at one time for the Presidency of the country. Mwelwa had gone to school in the UK and on a Saturday could be found at the Lusaka Rugby Club for a beer. At a later date, I will record his successful representation of me against claims made by the Chinese and an unscrupulous local politician.
“Rugby may be a sport, but I have found it to be one of the best networking tools you can have. Many will argue golf is better, but I did not play golf.” - Peter McSporran
With all this in place, the farmer would receive a capital loan from ULT to build infrastructure for curing, storing, and grading tobacco, a working capital loan from Barclays Bank to grow the crop, and the ability to buy the required equipment under a lease-hire arrangement. We would also assist in getting an investment permit to allow the investor to reside in Zambia. Simple! Not really. The Investment Centre would, in theory, issue licences to investors with US$500,000, although we soon found this was negotiable. This should have given immediate residency rights as an investor, but it didn't, and we had to convince immigration that taking loans was the same as investing in the country. Immigrantion were the most open to asking for bribes, but we refused to pay when requests to buy lunch, lunch being a euphemism in requesting a bribe. They argued that local bank loans were not foreign investment. Luckily, by then, my relationship with the Investment Centre, which in turn was keen to bring in farmers, was good, and some of the more obscure causes of rejection were overcome. Not the need for a degree or equivalent, though, we convinced them that a Gwebi or Blackfordby Diploma was the equivalent of an agricultural degree. In practical farming, I think they were better.
All the curing equipment and the steel structures for the shed had to come from Zimbabwe or South Africa. The preferred source was South Africa, as most farmers opted for forced-air curing systems to maximise yield. All loans, capital, and working capital were in US$, as the tobacco was sold in US$. At that time, this was based on the US$ being almost 12 to 1 against a weak Rand in January of that year. Unbeknownst to the world’s surprise, it would be half that in 12 months. A strengthening currency in Africa is a very rare phenomenon. This was after most of the required equipment had been ordered but was yet to be paid for. Ouch, double ouch! Sadly, our mindset in borrowing in Zimbabwe, where loans were in local currency and tobacco was sold in US$ and exchanged at the daily rate within the banking system, probably made us very blasé, with no thought of a strengthening African currency. Debt for tractors bought on hire purchase or bank loan in Zimbabwe within one year would be reduced by more than half due to inflation at that time of 123%. Part of the reason many farmers drove around in fancy Land Cruisers and Mercedes-Benz cars, which only added to the envy of the have-nots. In Zambia, it was apparent the successful there preferred not to show their wealth, something hard for the new age Zimbabwean farmers of the nineties to understand. Anyway, perhaps we, or at least I, never thought from our experience post independence the Rand would strengthen and strengthen it DID throughout that year, a major factor in the viability of the farmers moving to Zambia up to their necks in debt. We also discovered that, with tobacco prices prevailing at about US$1.90 per kilogram and the cost of production for 40 hectares, the planned area, and the large capital cost of the curing facilities, were not enough. To make full use of the large capital cost of the curing facilities, we would need to double-crop, which meant irrigation. More borrowing, costing about US$3,000 per hectare. So a combination of all these factors raised many of the loans to US$500,000 for capital, sheds, curing, and tractors, and between US$200,000 and US$300,000 for working capital. Most required about another US$100,000 for lease hire or hire purchase for equipment, depending on how much they already had available. We did not ask how it arrived in Zambia. The banks and ULA went along with it, and despite the proviso that the irrigation was to be used only for tobacco, seed maize and wheat soon found their way into the rotation to improve farmer viability. This really annoyed ULT, who tried to claim some of this income in their loan repayments. We were supported by the bank in arguing against this. Keeping the peace between the parties had become, even at this early stage, a daily task.
“Many criticised us for saying the farmers had to have at least US$30,000 in capital to cover our costs to join our scheme, but this, in nearly all cases, equated to less than 5% of their loans. Something impossible to achieve in a Greenfield farming project in those days or even today.” - Peter McSporran
It was decided that John Knight assisted by Keith Griffiths and Sharna Farquhar would promote the scheme in Zimbabwe while I would put a team in Zambia to identify suitable land and liaise with the banks, vet the applicants past records, in a way also vouch for them by reputation, get them an investment licence and build each one a business plan acceptable to both the bank and ULT. One hell of a task. Initially, I spent much time in the field identifying underutilised land or derelict land, followed up with hours in the Ministry of Lands first identifying the land, then its owners if unknown, and to see if they had paid their rent. All land in Zambia was owned by the Government, and a very low annual rental was paid to the state. Many did not pay this, and in theory could forfeit their land. We did not want this to happen and would help with arrears rent if required. By that time most, not all, of the indigenous farmers who had taken over the white-owned farms after independence had all failed many years before, given up paying rent and the farms had only caretakers to try and stop squatters while they sustained themselves with employment in the cities or towns. Many had strong political connections, therefore getting access to the land. Does it ring a bell? Something to be replicated in Zimbabwe, yet unknown to us, but predicted. History in regard to economics is always ignored in Africa, although I sometimes think the present UK government read the same hymnbook.
Disclaimer: Copyright Peter McSporran. The content in this blog represents my personal views and does not reflect corporate entities.
Comments