eBusiness Weekly
Misheck Ugaro
The signing of the US$3,5 billion Global Compensation Deed (CGD) between the Government of Zimbabwe and the former farmers brings closure to a long drawn process that had bedevilled policy planning and implementation for the country.
Although there is still some nine months to a year for the full implementation of the tenets of the agreement, the signing signifies an end to an overdue settlement and should for once see all parties speaking with one voice.
The fact that the former farmers voted 94 percent in support of the final settlement in a referendum signifies a willingness to achieve closure to this matter on their part. That should be applauded.
The negotiations managed to narrow the difference between the two parties between US$5,2 billion and US$1,2 billion for the farmers and the Government respectively with the UNDP having valued improvements at US$2,7 billion.
The valuations of these lower figures had excluded some elements of the improvements including biological assets as an example.
The Government on the other hand must be applauded for respecting the rule of law in fulfilling the constitutional obligation as required under Section 72 of the constitution and BIPPAs.
In principle the agreement allows the Government to pay compensation for all improvements on the land as stipulated under Section 72, read in conjunction with section 295 of the constitution of the Zimbabwe.
These provisions stipulate that where land is acquired for public purpose, no compensation is payable in respect of its acquisition, except for improvements effected on it before its acquisition. These provisions are contained in the country’s new constitution of 2013. The provisions provide clear guidance on the makeup of payments covering compulsorily acquired farming land. This cannot be viewed as a reversal of the land redistribution exercise.
The conclusion of the Global Compensation Deed, signed in Harare on Wednesday July 29, 2020, is therefore in compliance with the constitution. This should now bring some sanity, integrity and dignity to all the people of Zimbabwe who were affected by the necessary land reforms.
A unified call can now be projected to the world, which should support any international fund raising efforts especially in consideration of the current ZIDERA sanctions environment. It is imperative that both parties should now work hand in glove towards addressing the next challenge, which is the raising of the US$3,5 billion settlement figure.
The MOF has indicated that they are exploring the possibility of issuing a sovereign bond.
However, on the downside, the referendum to the farmers for the final proposal and offer from the Government, was rejected by about 100 farmers out of the over 3 000 that were consulted. It is not clear how those concerned propose to move forward as that may stall the process that has been achieved.
In addition, questions still arise regarding other factors to be considered including but not limited to the timing of the issuance of any sovereign bond. The authorities are advised to consider the fact that the country is not credit rated and is likely to face punitive interest rates given a perceived high country risk factor.
The restrictive impact of the sanctions is not expected to completely dissipate out of this agreement although it should positively contribute to a relaxation of some credit lines.
The Minister of Finance and Economic Development indicated that they are considering making an underwritten issuance failure of which may force the Government to securitise the funding.
This will be against some Government assets, which may include the land itself. This may pause the self-defeating risk in the end with the land remaining under the control of foreign funders against the initial intended purpose of the land redistribution exercise.
It must be understood that the land reform process was a necessary step designed to address the historical injustices of the past and that must be protected. It would be unwise to use the same land to securitise the foreign borrowings.
There is an opportunity though for the authorities to design a solution that is not foreign based if the matter of land tenor and title deeds is reviewed and looked at differently. It is possible that in the end all funding is generated internally if the new owners of the land can bank it locally and heighten production.
Policy needs to explore this possibility indeed with enough safe guards that inhibit new owners from ending up speculating against it.
It’s a very difficult corner the Government finds itself in.
The Ministry of Finance and Economic Development, to their credit, have already been making provisions in the annual budget plans (provided $68 million in 2019 and in 2020, a total of $380 million).
This is a prudent provision, which was made with foresight of the forthcoming agreement that has now been concluded and can be strengthened with an adequate policy review regarding the new land ownership indicated above.
◆ Misheck is a former expatriate banker once based in several SADC countries and currently works as a corporate advisory services consultant. He is the founder of Rucabel Investments Private Limited, an investment company based in Zimbabwe. He is a member and past Vice President of the Zimbabwe Economics Society. He can be contacted on (263) 777052004/712808140, [email protected]; Linkedin: https://www.linkedin.com/in/misheckugaro.Twitter: @twitcagan.com
