Efforts to reduce the tobacco sector’s reliance on external financing have faced challenges due to the limited lending capacity of local banks, according to Tobacco Industry and Marketing Board (TIMB) chairman, Mr. Patrick Devenish.
Speaking before the Parliamentary Portfolio Committee on Lands, Agriculture, Fisheries, Water, and Rural Development last week, Mr. Devenish highlighted that while localising tobacco financing remains a priority to maximise returns, achieving this goal will take time due to constraints within the banking sector.
Currently, an estimated 95% of farmers depend on contract farming, a system introduced in 2004 after banks became hesitant to provide loans to land reform beneficiaries. Under these agreements, farmers receive inputs from companies based on TIMB-approved packages and are obligated to sell their produce to the contracting firms. Debt recovery is facilitated through a TIMB stop order mechanism.
To shift towards self-sufficiency, the Tobacco Value Chain Transformation Plan aims to increase local funding to 25% by 2025.
“The ultimate goal is for tobacco production to be financed by local banks,” Mr. Devenish stated. “At present, bank balance sheets are not strong enough to support this transition, but as they grow, we expect more local players to enter the industry.”
This aligns with discussions from last year’s tobacco conference, organised by Business Weekly, which examined the feasibility of domestic funding and the role of banks in supporting tobacco production. While the shift to local financing is desirable, the conference concluded that current banking capacity remains inadequate.
Multinational corporations continue to dominate the global tobacco market, leveraging their market access to secure low-cost offshore financing. The availability of these cheaper international funds, coupled with high local interest rates, makes it difficult to raise adequate domestic funding for the sector.
Despite these challenges, conference participants advocated for innovative investment approaches from institutional investors, encouraging them to allocate resources to support local funding initiatives. Expanding financing options beyond offshore loans was also discussed, including potential contributions from pension funds and investment instruments specifically designed for the tobacco industry.
Additionally, experts at the event explored financial instruments such as agro-bills and government-backed guarantees to mitigate risk and encourage local banks to engage in the sector.
A US$60 million facility announced by the government in 2021 to support tobacco farmers has yet to be implemented. Similarly, the TIMB-administered Tobacco Input Credit Scheme (TICS) was discontinued due to widespread defaults, preventing it from evolving into a sustainable revolving fund.
Critics argue that despite tobacco being Zimbabwe’s second-largest foreign currency earner, much of the revenue is used to repay debts to sponsoring entities, limiting the country’s overall financial gains. There are also concerns that offshore funding facilitates illicit financial flows, particularly through inflated input costs.
While indigenous companies have increased their participation in the industry, many operate under contracts with large multinational firms, raising questions about the true extent of local ownership and control in the sector.
