Posts tagged as: zimbabwe

Zimbabwe:How Zimbabwe Squandered Its Diamond Riches

opinionBy Shannon Ebrahim

JUST a year before its citizens couldn’t find basic food items in their stores in 2007 and were literally starving, Zimbabwe made the largest diamond find in recent history. The Marange fields were so flush with alluvial diamonds that within six months there were 35 000 locals sifting for them. Behind the backs of the marauding security forces, people were stuffing diamonds into turkeys, hidden pockets, and any other cavities they could.

But just two years later, the government launched “Operation Never Return” to drive out informal miners from the Marange fields using brutal methods such as dogs and helicopter gunships. The intention was to exert greater control over the profits for the benefit of the political and military elite. The windfall from the great diamond find for ordinary Zimbabweans living on the poverty line was over.

But even with the profits filtering into the local economy in 2006 and 2007, the economy of the country was so devastated that finding basic food items to buy was almost impossible. Store shelves were empty, the prices of basic items rocketed, and Zimbabweans were flooding into South Africa by the thousands.

How did Zimbabwe squander such a rare chance to revive its beleaguered economy? In 2011, the Minister of Mines estimated that Marange could generate $2 billion (R26bn) a year in revenue.

Well, the answers can be found in a ground-breaking report released this week by Global Witness which tracks who profited, and how ordinary Zimbabweans were denied.

Despite Zimbabwe quickly becoming one of the top five diamond producers in the world after Russia, the Democratic Republic of Congo and Botswana, Zimbabweans continued to starve, face an unemployment rate of 80%, endure collapsing infrastructure, and a country without cash flow. The most stunning official admission from the policy establishment came last year from Finance Minister Patrick Chinamasa who said in his 2016 budget statement: “There was a greater economic impact from diamonds during times of uncontrolled alluvial panning than through formal diamond mining arrangements.”

As Global Witness has exposed, the reason formal diamond mining did not see profits filtering back into the society is because the five main diamond companies which were given licences to mine the Marange fields were allegedly siphoning off the profits either to the Central Intelligence Organisation, the Zimbabwe Defence Industries, former security force chiefs, or associates of President Robert Mugabe.

Mugabe has tried to claim that private companies involved “robbed Zimbabwe” as his government had anticipated profits worth $15bn from Marange, although only $2.5bn has been received from exports since 2010. But of that $2.5bn that the state earned, only $300 million was accounted for in public accounts, according to Global Witness.

While there may have been discrepancies between what private companies received and what went to the Treasury, the government owns 50% of the companies licenced to mine, and the responsibility for selecting and overseeing the private partners.

Of the five main mining companies, Kusena is entirely owned by the Zimbabwe Mining Development Corporation (ZMDC), and was set up by the CIO as a source of off-the-books financing. Then there is Anjin mining in which the Zimbabwe Defence Industries has a 40% stake. Jinan mining is another, and is considered an extension of Anjin that is 50% owned by the ZMDC. Mbada Diamonds has operated one of the largest mining concessions in Marange, and its owners hide behind a web of companies. Global Witness has uncovered that the company is owned by retired Air Force Chief Robert Mhlanga, who is a close associate of Mugabe.

More recently the government has tried to amalgamate the diamond industry into the Zimbabwe Consolidated Diamond Company (ZCDC), and has refused to renew the licences of Marange companies. The shareholders of the ZCDC are largely the same cast of characters that emanate from Mugabe’s inner circle.

The tragedy is twofold. One is that so much revenue which could have been put towards lifting people out of poverty was squandered by the political and military elite when suffering was at an all time high. Second, members of the security establishment will seek to influence the outcome of next year’s election to further entrench their control over the diamond industry.

Needed now are steps toward parliamentary oversight of the operations of the ZCDC, and greater transparency concerning the revenue flows associated with the diamond industry.

Zimbabwe: Fertiliser Crisis Looms

By Tinashe Kairiza

Zimbabwe is facing a serious fertiliser shortage, amid revelations that an additional US$60 million is required for importation of raw materials to manufacture adequate stocks outside the US$56 million the country recently secured through an arrangement with the African Import and Export Bank (Afreximbank), an industry representative has revealed.

Last week, the Reserve Bank of Zimbabwe announced that it had negotiated for a US$156 million loan facility with Afreximbank to import fertiliser among other key commodities before this summer cropping season gathers momentum. But the Afreximbank support facility is not adequate to meet local fertiliser demand.

Battling an acute foreign currency shortage and mounting economic challenges, the country has perennially struggled to mobilise sufficient financial resources for importation of adequate fertiliser for its farmers.

Zimbabwe requires an estimated 400 000 tonnes of fertiliser for a successful summer cropping season.

Zimbabwe Fertiliser Manufacturers’ Association chairperson Alvin Mashingaidze said, as a production cost-cutting measure, and in light of the prevailing liquidity crunch, the industry would import raw materials and manufacture locally.

The association is constituted by firms such as Windmill, Zimbabwe Fertiliser Company, Omnia and Sable Chemical.

Most of the companies are struggling to mobilise sufficient foreign currency required to import raw materials.

“The truth is that we are not getting enough foreign currency to import raw materials. For the production of 400 000 tonnes, the country requires about US$120 million. So, we still require US$60 million to meet that demand,” he said, noting that the industry was targeting to mobilise the outstanding resources within the next month to avert fertiliser shortages.

The fertiliser industry, Mashingaidze said, was sitting on stocks estimated at about 100 000 tonnes. “At the moment the industry is sitting on 100 000 tonnes of fertiliser. An additional 100 000 tonnes has been distributed in the market already,” he said.

“We only have about a month to mobilise resources to meet fertiliser demand through the importation of raw materials.”

Over the last nine months, Mashingaidze said fertiliser manufacturing firms had significantly increased their production capacity by setting up new blending plants.

In the last two years, fresh capital investments have been made into additional blending plants which have increased Zimbabwe’s capacity to manufacture fertilisers to about 1,2 million tonnes, depending on the availability of raw materials.

However, fears are mounting that without the much-needed raw materials, the blending plants would turn into white elephants.

“Most companies have set up several blending plants to increase production of NPK and basal fertiliser demand. All you need are the raw materials,” Mashingaidze said.

As part of preparations for this summer cropping season, the central bank has been allocating foreign currency to fertiliser manufacturing firms for the importation of raw materials.

Zimbabwe Farmers’ Union executive director Paul Zakariya also expressed fears that the country could face fertiliser shortages, derailing the success of the summer cropping season.

He, however, said seed manufacturing companies had sufficient stocks to meet demand. “In terms of seed, the companies have adequate seed to meet demand. They have more than enough. The only hitch will be on fertilisers, even last year we had some challenges with top dressing fertilisers around December,” Mashingaidze said.

“It is on the top dressing that we have a problem.”

Over the years, Zimbabwe’s crop output has sharply declined due to fertiliser shortages, among other challenges.

Zimbabwe:Bitcoin Reliance – Central Bank Loses Out On Interest Rates

Photo: Bitcoin

Bitcoin (file photo).

By Hazel Ndebele

The increasing reliance on Bitcoin, a cryptocurrency, by Zimbabweans, is disastrous, as the country is losing out on monetary policy interventions, which can be useful when the Reserve Bank has a currency it can control, a leading American academic has said.

A cryptocurrency is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions and to control the creation of additional units of the currency.

Bitcoin is a digital token, with no physical backing, that can be sent electronically from one user to another, anywhere in the world. All Bitcoin transactions are made with no middleman, meaning banks are not involved and therefore there are no transaction fees.

Zimbabwe is reeling from a severe liquidity crunch, with most businesses facing collapse, as they struggle to access foreign currency to import critical inputs due to depleted nostro balances. As a result, desperate Zimbabweans have resorted to using cryptocurrencies such as Bitcoin to make online and foreign payments.

African Leadership School for Business vice-dean for strategy and research and former professor at America’s Harvard Business School, Catherine Duggan, recently warned that it is not economically viable for a country to rely on a cryptocurrency. She said if she was the central bank governor of a country relying on a cryptocurrency, like Zimbabwe, she would be extremely worried because it would mean that she is not able to control such a particular currency. Duggan was speaking at a workshop a fortnight ago, whose theme was “The Political Economy of Currency Movement; Factors Driving the Value of the Dollar and a Framework for Understanding the Intersection of Politics and Economics”, which was organised by the British Council.

Currently, banks are prioritising the processing of telegraphic transfers based on the Reserve Bank of Zimbabwe’s priority list, while Visa/Mastercard payments are also being controlled or culled altogether. This leaves Zimbabweans with few options on how to make external payments and, as the scarce United States dollar continues to disappear from the market, the demand for alternative payment options such as Bitcoin, is expected to increase.

On the US dollar, Duggan said the currency is overvalued in Zimbabwe.

“For a country like Zimbabwe, the US dollar is overvalued because it is valued the same as to how it is valued in the United States of America and yet the economies are totally different,” Duggan said. The US is an economy doing well, whereas Zimbabwe has been going through an economic crisis for nearly two decades.

Duggan said people need to believe in their own currency and have confidence in it, but if that lacks, then the currency is reduced to just pieces of paper. “The US dollar is just a piece of paper, but the United States government and Americans have confidence in it and the reason why we use this currency is that we all agree that it is worth something,” she said.

The bond note, whose value has been eroded by up to 60% in some instances against the US dollar, faced a crisis of confidence in the market even before it was introduced.

Zimbabwe

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Zimbabwe:Rice Imports Stabilise On Central Bank Intervention

By Ndakaziva Majaka

Ayan Trading Limited (Ayan), the Mutare-based importer of Mariana rice, says it is set to receive US$10 million worth of letters of credit (LCs) from the Reserve Bank of Zimbabwe (RBZ) to guarantee payments to international suppliers.

Ayan — which supplies over a quarter of Zimbabwe’s 200 000 tonne annual rice demand — sent its workforce on unpaid leave in August following acute foreign currency challenges which resulted in suppliers refusing to deliver rice to the firm. The company currently has a US$6 million foreign payments backlog.

Finance director, Ntokozo Moyo, on Monday told The Financial Gazette that the company had now recalled all its workers following clearance of a portion of its foreign payments backlog.

“We had sent our workers home on unpaid leave because we had stopped receiving supplies as a result of failing to pay foreign suppliers. However, to date we have managed to pay about $1,5 million to suppliers with the assistance of the Reserve Bank of Zimbabwe” Moyo said.

“In fact, we are also expecting to receive LCs worth $10 million around next week from the $600 million Afreximbank (African Export and Import Bank) facility.”

The firm has been receiving US$300 000 weekly which only covers 20 percent of its US$6 million monthly requirements — under an allocation system put in place by the central bank to manage the allocation of foreign currency to the industrial sector and other critical areas of the economy for imports.

“We have since moved from this position thanks to the Afreximbank facility. In fact, we anticipate rice prices to go down in the coming months. Prices were being pushed by the inability to pay suppliers. As it stands we expect supplies to start coming in by the 15th (of October) which essentially means we will go back into production,” he said.

The firm has been failing to meet this demand on the back of payment challenges.

The Grain Millers Association of Zimbabwe says demand for rice has surged 300 percent from 50 000 tonnes per year in 2007 to 200 000 tonnes per year in 2016.

Moyo said the hard currency shortages had “dealt a heavy blow to us as a manufacturer and even affected market share”.

“However, we are optimistic that by December we will have gained lost ground,” said Moyo.

During a closed door meeting with RBZ governor John Manguya last month, retailers informed the central bank that local firms risked mass closure if foreign suppliers were not paid.

“As it stands at the moment, we may end up retrenching because we are not producing. Our employees are home on unpaid leave and suppliers won’t deliver to us, so the situation is dire… Prices will obviously go up,” Moyo had said in the meeting.

However, Mangudya had assured them the situation was likely to improve as the country had started drawing down on a US$600 million nostro stabilisation facility.

The RBZ has been working on a number of initiatives to meet forex requirements for productive foreign payments. The US$600 million Afreximbank facility is complemented by a US$150 million letters of credit facility to support importation of critical raw materials and products such as fertilisers and feedstock for the manufacturing of cooking oil.

Zimbabwe

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Zimbabwe:Authorities Advance U.S.$70 Million to Banks for On-Lending

By Enacy Mapakame

The National Social Security Authority (NSSA) says it advanced $70 million since dollarisation to banks for on-lending to the country’s productive sectors including the growing small to medium businesses. This is in addition to $5 million availed to the Small to Medium Enterprises Development Corporation (SMEDCO) and $10 million agro bills on an annual basis for SME farmers.

NSSA regional contributions, collections and compliance manager Mrs Agnes Chikwavire, indicated this is part of the authority’s contribution towards stimulating economic growth by availing cheaper financing for all the country’s productive sectors especially the SMEs on the back of their potential to contribute meaningfully towards the economy.

“As for our money markets investments, we have a portfolio of $70 million to banks for on-lending,” said Chikwavire during the Institute of Bankers of Zimbabwe Summer School 2017 in Nyanga. We have also advanced $5 million to SMEDCO and agro bills targeting farmers classified as small-scale and informal, we are looking at $10 million every year,” she said.

NSSA is also developing special packages for the SME sector to expand the shrinking social security base due to job losses in the formal sector. This comes on the backdrop of the increasing informalisation of the economy spurred by the booming SME sector. Mrs Chikwavire, however, acknowledged the increasing informalisation of the economy is drastically shrinking the social security contribution base. In light of this, she said the SME sector required adequate funding to boost growth while pursuing their formalisation to enable them to contribute to the country’s tax revenues and economic growth.

“There is urgent need, therefore, for the development of appropriate social security packages for the informal sector, not only to alleviate the vulnerability of workers in this sector, but also to expand the social security contribution base,” she said adding improved access to cheaper finance was important for the growth of the sector.

However, the sector needs to formalise in order to access banking services as research has shown a significant number of the business owners rely on informal financial services, which is risky and expensive. According to a Finscope survey, only 14 percent of the SMEs are formally banked while the rest rely on the informal services to access funds.

“There is need to embrace financial inclusion as disbursements will be done through financial institutions. This will result in more income to the government as formalised SMEs will contribute to the fiscus through various forms of taxes.

“This is also in addition to employment creation and enhancement of social security, poverty eradication and less social welfare burden. Once employment is created it will also mean more contributions to NSSA – contributions which can then be channelled towards other sectors of the economy including SMEs thereby further facilitating economic growth and development in general,” she said.

Zimbabwe

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Zimbabwe:Israeli Diamond Firm in Trouble

Photo: The Herald

Diamonds (file photo).

By Cyril Zenda

The High Court has foiled an attempt by an Israeli diamond firm to wind down its operations in Zimbabwe without settling its financial obligations.

High Court judge, Justice Owen Tagu, granted an application by a local businessman, Fadi Ali Khatoun, and his two companies to bar Fuss Diamond Limited from repatriating cash from Zimbabwe without settling its debts.

The Israeli firm applied for liquidation and the joint liquidators have tried to take the diamond dealer’s money out of Zimbabwe without settling its local debts.

Khatoun managed to convince the court that the purported provisional liquidation of Fuss Diamond in Israel was a ploy by the company to flee from Zimbabwe, where it owes him and his companies close to $2 million.

In 2013, Fuss Diamond appointed Khatoun as its local representative for purposes of “negotiating, execution of a diamond purchase and sale contract, receipt of diamonds and monies in connection therewith”.

Khatoun arranged for Fuss Diamond to buy diamonds from Marange Resources (Pvt) Limited and got the Israeli firm to make a deposit of $5 million.

Between July 2013 and April 2016, Marange Diamonds and later ZCDC released diamond gems and money to Khatoun worth about $3 774 000 for Fuss Diamonds, leaving a payable balance of $1 1226 000.

During the course of the transactions, Fuss Diamond engaged one of Khatoun’s firms, Minexus Mineral Resources (Pvt) Limited as its agent in various mining concessions and interests which it entered into and was involved in activities in the Kadoma area where it incurred various contractual and statutory debts and liabilities amounting to $1 689 800.

Fuss Diamond failed to settle these debts to Khatoun and his two companies, resulting in the issue going to court.

It is at this stage that Fuss Diamond applied for provisional liquidation in Israel and the joint liquidators wrote to the ZCDC and the Minister of Mines and Mining Developments, Walter Chidhakwa, demanding that the $1,2 million that had not been spent from the deposit of $5 million be released straight to them, not via Khatoun, the local agent.

Khatoun saw this as a ploy by Fuss Diamond to exist Zimbabwe.

“The applicants (Khatoun and his companies) are now alleging that the third respondent (Fuss Diamonds) has now appointed the first and second respondents (advocates Amit Pines and Uri Gil respectively) as its provisional liquidators for purposes of seeking repatriation of the amounts in issue to the Republic of Israel against the laws of Zimbabwe,” read the court papers.

“They suspect that the provisional liquidation of third respondent in Israel is a fraud well-calculated to evade debts there and internationally and is meant to hoodwink international creditors into believing that any monies owed by fourth respondent (ZCDC) in any country cannot be received by anyone other than the appointed provisional liquidators.”

Tagu granted the application by Khatoun and his firms that the money owed to Fuss Diamonds by the ZCDC be paid through them since they are the recognised local agents of the Israeli firm. He ruled that the provisional liquidation order granted in Israel was not enforceable in Zimbabwe because it was not a final order.

“The first, second and third applicants as interested parties were not advised and such liquidation is vitiated and is contrary to principles of natural justice,” Tagu said.

“What we have been told is that there is a provision order for liquidation. Whether the third respondent will ultimately be liquidated or not is a story to be told on another day. For this reason, it would be undesirable, illegal and an affront to public policy of Zimbabwe to recognise and enforce a provisional judgment of an internationally competent court whose finality is not yet known. Had it been said that the third respondent had been finally liquidated in Israel and there was a final judgment to that effect, my position would have been a different one.

newsdesk@fingaz.co.zw

Zimbabwe: CEO Says Miner Safe From 15% Levy Requirements

By Simbarashe Zishiri

Zimplats says it is already compliant with Zimbabwe’s beneficiation requirements and will not be affected by the imposition of the punitive 15 percent levy on unprocessed platinum exports from next year, according to chief executive Alex Mhembere.

The southern African country proposed the levy in 2013 in a bid to push platinum miners operating in the country to establish smelting and refining facilities locally. The tax was supposed to come into effect in January 2015 but was pushed to 2018 to allow the miners time to set up the facilities.

Mhembere told The Source on Wednesday that Zimplats produces white matte, which is refined from concentrate, as such the company will be exempted from the levy, he said.

“Zimplats produces a product that is different from concentrate, we produce white matte which goes from a concentrate, we take it through the smelter and then through another stage that produces this white matte, which is an import. So the regulations as they stand at the moment, are looking at a product that is not an import,” he said.

Zimplats has to date invested $30 million in upgrading its smelter to improve its product, he added.

Last month, Gerhard Potgeiter, group executive for growth projects at South Africa’s Impala Platinum (Implats) said the miner could shut down its 50 percent owned Mimosa mine near Zvishavane if government goes ahead with plans to impose the levy which he said will make the mine unviable.

Implats co-owns the mine with Sibanye, another South African miner.

Mhembere also said Zimplats had made ‘tremendous’ progress on its Mupani mine project which is scheduled to come online in 2025.

Output from the mine will replace the Rukodzi and Ngwarati mines whose resources are expected to deplete in 2022 and 2025 respectively.

“We have already progressed quite tremendously… . in 2025 we will be in full production,” Mhembere said.

“Mupane mine is a very important project that we have embarked upon. So for us to maintain the same level of production, we have to (be) ready when the lifespan of those mines comes to an end.”

Preliminary work on the Mupani Mine project started in June last year.

Zimbabwe

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Zimbabwe:Barclays Employees to Get 15% Shareholding

By Bernard Mpofu

The Zimbabwe Stock Exchange (ZSE) has approved the transfer of 15% shareholding in Barclays Bank Zimbabwe to an employee share ownership scheme as the take-over of one of the country’s iconic banking institutions concludes.

On May 30, Barclays Bank Plc, which held 67,8% shareholding in the local unit, signed a binding sale and purchase agreement with FMB Capital Holdings for the sale of Barclays’ majority interest in Afcarme, which controlled the local unit.

The transaction is structured in three phases — transfer to trust, initial Afcarme transaction and subsequent Afcarme transaction.

According to a circular to shareholders seen by the Zimbabwe Independent, the takeover had received all regulatory approval. However, what is now outstanding is the mandatory offer to minorities which will effectively seal the deal.

“Afcarme has transferred with the approval of the ZSE, a 15% interest in BBZ to a newly established One Thousand Nine Hundred and Twelve Trust (1912) Employee Share Ownership Trust (1912 ESOT), for the benefit of all the current and future employees of BBZ. This was executed by way of a transfer of existing BBZ shares from Afcarme to the trust as an irrevocable donation (nil consideration). The minority listing, comprising the ZSE free float, is unaffected. Following completion of the transfer, Afcarme holds 52,68% of the issued share capital in BBZ,” the circular reads in part.

“On 10 October 2017, Barclays sold 8% of Afcarme to FMBCH in a private share transfer. Barclays will retain a 19% in Afcarme for a period of up to three years. This will give FMBCH an effective 42,7% and Barclays an effective 10% ‘look through’ ownership in BBZ.”

Barclays Bank Zimbabwe was established in 1912, and has operated in the country continuously since then, making it a landmark feature on the local financial services landscape.

The bank, listed on the ZSE, has over 1 000 employees and a countrywide network of 38 branches in main urban areas.

“The ZSE has directed that a compulsory offer to minorities will be subject to further regulatory approvals and further announcements will be in due course to that regard in compliance with the relevant applicable laws. All other regulatory clearances have been given by the appropriate authorities as required by law,” the circular reads.

Zimbabwe

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Zimbabwe:Pan-Islamic NGO Holds Eye Cataract Medical Camp

Photo: Overseas Private Investment Corporation

Cataract surgery being performed (file photo).

By Faith Zvorufura

Muslim World League (MWL) represented by the International Islamic Relief Organization, Saudi Arabia (IIROSA) held a medical camp for eye cataract in Harare from 25 September to 1st of October 2017.

Minister of Health and Child Care, Dr David Parirenyatwa who visited the camp to witness the work taking place extended government appreciation of Muslim World League for providing treatment to eye patients in the country.

“MWL is doing a good job by providing free treatment for those that cannot afford it. Zimbabwe is looking forward to more medical camps, of which the country is in vital need,” he said.

Speaking at the same event, Secretary General of IIROSA, Hassan Shabar said the project was as a result of multiple requests from people in need of such services.

“This camp is MWL’s second of its kind in Zimbabwe. It was carried out as a response to the many requests which MWL received two years ago,” said Shabar.

He added that Secretary General of Muslim World League, Dr Muhammad bin Abdul Karim Issa requested eye treatment projects continue being implemented in the country even after the camp.

“These medical camps should continue, they are part of a huge project in Africa organized and fully funded by the MWL to prevent blindness,” added Shabar.

Zimbabwe

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Zimbabwe: Differences Between Farmers’ Calling, Career Opportunity

opinionBy Charles Dhewa

There is no shortage of training courses and capacity building programmes for farmers, SMEs and other value chain actors in Zimbabwe. However, while all these activities and strategies are necessary, nothing trumps calling. Farmers with a calling do not need a cheering crowd. They do not feel entitled to receive awards for their farming prowess but they feel compelled to make a difference in their communities. They do not measure their excellence by the number of awards or yields per hectare but their influence on other farmers.

Instead of rewarding individual farmers on the basis of their yields, in the new economy, we should recognise farmers and other value chain actors for their leadership and capacity to persuade more young people into agriculture. In a changing climate, it makes sense to reward farmers for their resilience in difficult environments than achievements under easy circumstances where resources are abundant and dormant.

How much value are you adding?

With a new farming season already underway, it is important to continue revisiting key elements of agricultural success. Value addition is supposed to happen at each stage of product development. In the agriculture sector, such stages include: Production, Harvesting, Storage, Packaging, Transportation, Processing and Marketing. From production to harvesting, a farmer should add value to each product or service. The moment you begin thinking about seed, you need to start answering questions around what soil, land, water, fertiliser and other requirements are needed. Entertaining such questions is already part of adding value.

Unfortunately, most new farmers think farming is just about getting a piece of land. It is important to look at the cost of value addition from seed to harvesting. Each farmer should ask himself/herself whether s/he really wants to be a farmer or someone else. Do you have the requisite knowledge and resources for farming? Each value chain node has its barriers to entry. Some farmers have been in business for more than 30 years. Others have superior climate, soil and water. How much do you measure yourself against these actors?

Farmers and value chain actors who ignore the above factors are often surprised when invisible answers emerge from the market. After getting a loan, some farmers rush to produce any crops yet the customers they are targeting are already being saved. A key question is: What is going to be unique about your farming and commodities that will enable you to lure customers from existing suppliers? When you have harvested, packaged and ready for the market, who are you producing for, how much and what are their expected standards and specifications?

More production does not always mean more consumers

Almost all consumers are already being served. It doesn’t follow that more production creates more consumers. That is why market research is fundamental. Most value chains have serious barriers to entry. What is more important is understanding market trends. Markets don’t have the same levels of security. Sometimes doors can be opened through the right timing. In fact, timing can reduce barriers to entry and once you get in you can start building your niche from within. Do not be a farmer who shows up once and disappear. That is how you lose your customers. Markets do not want to relate with you in that manner. Consistency in supply and participation in the market is crucial. Customers you are saving can easily become yours but once you take a break you can easily lose them.

Unfortunately, most of our farmers tend to be seasonal actors who open and close their businesses in line with seasons. It means they are always re-starting. A telling example is small scale poultry producers who take three months producing chickens, one month selling and the next three months producing, during which time they will not be participating in the market. Only one month is used for operations and the business is closed for three months. There are also high chances that by the time you go to buy chicks for the next round, costs will have increased and all profits are eroded. This is a self-created and self-defeating barrier to entry.

The power of consistency and different models

Consistency ensures specialisation. Farmers who run from one commodity to another always lose a lot of resources including knowledge. Producing two or three commodities keeps your niche market active and increases your knowledge base. As you work on your chosen commodities you intensely understand the behaviour of commodities on the market. That is how you ensure you don not lose your 20% customer base. There are cases where continued participation by the same farmers creates barriers for new entrants unless when one regular participant pulls out for whatever reasons.

Different models enable you to compare working with intermediaries with connecting directly with end-users. Most farmers are losing their credibility in the eyes of consumers or end-users to traders who are the final suppliers yet original producers like farmers should connect with end-users. In a fragmented market environment, intermediaries can continue receiving credit that is due to farmers.

That is why it is important for farmers to build their own brands which identify them at an acute level. Farmer unions should facilitate this process so that consumers can directly talk to people who produce what they eat rather than continue engaging with intermediaries.

Another way for easy entry into a new market is through bringing a new product. Reducing price is not the best way of competing because it can lead to cut-throat competition which can completely destroy new entrants, especially those who will have borrowed to finance their first production. In most cases, new entrants are always price takers. One way of defending your proposal in front of financial institutions is explaining how you will deal with barriers to entry. What are your key strategies for breaking or navigating barriers to entry?

Investing in knowledge gathering

Experience is critical. You can partner with actors already in the market while you learn the ropes or you can farm on a lease basis with other farmers. Unless you ride on existing traders, some customers can identify and exploit you as a new entrant. At least three crops can enable you to insert yourself in the market. That is the same amount of time one needs to earn a university degree. It’s the same amount of time needed to build a concrete market and knowledge base. If you are a new farmer, do not just be a resource-provider. Learn about the commodities you are financing as well as about the market. As a farm owner, don’t leave everything to workers. Value chains are made up of different nodes but the most important asset is understanding the markets.

Most farmers may not remember knowledge they used to produce commodities last season because there have not been intentional efforts to capture what happened. Conducting knowledge surveys can reveal what communities are probably forgetting and cases where wheels are re-invented unnecessarily. When value chain actors or community members are assisted to identify their critical knowledge, they become empowered to spend most of their resources on the most valuable knowledge unlike chasing every suggestion.

With the right capacity building initiatives, every community can identify 20% of its knowledge that can make 80% of the difference in terms of community development outcomes and better livelihoods. They can be able to figure out circumstances where rapid learning is needed as well as kinds of knowledge that already exist among all community members, only requiring sharing as opposed to creating from scratch. For instance, if almost every farmer knows how to grow maize, there is no point in wasting time and resources on field days that focus on maize production. On the other hand, where old knowledge needs to be standardised into community routines, ways of standardising such knowledge should be cultivated.

For instance, knowledge on traditional basketry, livestock breeding and pottery can be lost to the future generation if not standardized and introduced into formal education systems. Where local experts like herbalists or black smith are not able to share their knowledge because of its intensely tacit nature, young people should be identified and incentivized to under-study these experts.

High value commodities are often associated with high value knowledge that has to be managed in different ways from low value knowledge. An important part of filtering critical high value local knowledge is identifying barriers to knowledge sharing and devising ways of over-coming such barriers. Some of the barriers can be invisible to local people but outsiders can be able to see those barriers and provide the necessary solutions. Communities in many developing countries need skills in identifying what they need to know in order to avoid mistakes that if solved can move them out of physical and mental poverty.

Charles Dhewa is a proactive knowledge management specialist and chief executive officer of Knowledge Transfer Africa (Pvt).

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