By Alex T. Magaisa
In 2007/08 the Reserve Bank of Zimbabwe ran a scheme which was ostensibly designed to support commercial agriculture. At the time, Zimbabwe was undergoing a major land revolution, with significant changes in land ownership under the Fast Track Land Reform Programme (FTLRP)
The government’s view was that the new farmers needed support from the State. The Reserve Bank of Zimbabwe launched the Farm Mechanisation Programme. The purpose was to enhance productivity on the farms through mechanisation.
The RBZ procured agricultural equipment worth US$200 million through FISCORP, its wholly-owned subsidiary. FISCORP described itself as “Financial Surgeons to the Nation”. The equipment ranged from combine harvesters to tractors, disc ploughs, planters, harrows and generators.
In financial terms, FISCORP was giving loans to the farmers. In return, the farmers were supposed to repay the loans. The beneficiaries were rated based on their credit-worthiness. The majority of them were rated “A”, the highest rate of credit-worthiness under the scheme. Many of the recipients, especially the ministers, senior civil servants were given an “A” which meant they were expected to repay without difficulty.
This scheme was a classic example of State intervention in an area which had previously been occupied by the private sector. In the past, a farmer would approach a commercial bank to borrow money to buy agricultural equipment. Alternatively, a supplier would offer the same equipment in terms of a credit agreement. There were also commercial organisations which specialised in leasing agricultural equipment, such as the Leasing Company of Zimbabwe. In all these cases, farmers would use their property as collateral for the loan or lease agreements. Farmers had ownership rights to the land which made it bankable.
The impact of the land revolution went beyond ownership patterns. It also impacted the financial architecture which supported commercial agriculture, more specifically the institution of private property. Banks which had invested heavily in commercial agriculture lost a lot of business and their balance sheets were heavily impacted. But it was the farmers’ inability to use the land as collateral for loans which had far-reaching effects. The government knew this was a problem now that land was owned by the State and sought to plug the hemorrhage through state intervention. The RBZ Farm Mechanisation Scheme was one such measure. Instead of commercial banks offering credit, the RBZ would do that, through its subsidiary, FISCORP.
However, it also represented the much-criticised quasi-fiscal activities of the central bank. Far from being discouraged by the criticism, the RBZ believed it was performing a heroic role for the nation during a very difficult time which was characterized by record levels of hyperinflation. It proceeded to hand out a variety of agricultural equipment and machinery to the new farmers, with expectations that the farmers would repay the debts.