Legat’s full statement on GNU and compensation of white farmers

John Legat chief executive of Imara Asset Management Zimbabwe says the government of national unity has made tremendous progress since its inception in 2009 but the media thinks otherwise. He also says the government has been compensating white farmers since 2002 but the commercial farmers union has not publicly endorsed the scheme. 

Here is his newsletter in full.

“A Return to Legality”

Zimbabwe’s “Government of National Unity” (GNU), created following extended negotiations between South Africa and the main political parties in early 2009, has made positive progress despite media attempts to suggest otherwise. As we have seen elsewhere around the World and in Africa, a GNU is by no means a perfect solution to a political crisis and will only really work successfully if all the members of the GNU have the same goal and speak with the same voice.

This is clearly not the case in Zimbabwe and as a result badly needed reforms take time to be enacted, whilst Ministers within the GNU often contradict each other thereby bringing about confusion both domestically and abroad. In Zimbabwe’s case it is not helped by the obvious splits within Zanu-PF as various factions attempt to gain the upper hand in the succession battle of a leader who is 87 years old and clearly mortal. It is further argued that one of those factions would like to bring about the demise of the GNU so that early elections can be called and, one assumes, rigged to allow a Zanu win, and hence to allow that faction to gain the upper hand.

As we wrote in our last Investment Notes, we believe that an election in 2011 is highly unlikely as the MDC parties, supported by South Africa and SADC will not sanction an election that has not been held under a new constitution that has itself been approved in a referendum, and under new electoral laws with an updated voters’ roll. This was recently confirmed by the SADC sub-committee that met in Zambia earlier this month. Indeed recent reports following party negotiations with the SADC facilitators now suggest that elections will not be held until the end of 2012.

Despite all of this, the GNU is the Government of the day and business has to proceed as best it can with decisions on policy made at Cabinet level. The early adoption of the multi-currency system and ultimately the US dollar was perhaps the single most crucial decision that was made (although the free market had already made that decision when it effectively dumped the hyper inflating Zimbabwe dollar in 2008). We wrote in our last Notes how successful that has been in terms of killing inflation on the one hand and boosting rapid economic growth on the other (9-10% growth rates). Whilst the US dollar has been a weak global currency to adopt (for now at least), this has not been a negative issue by any means. Indeed, since Zimbabwe’s primary exports (platinum, gold, tobacco and cotton) are all priced in dollars, and its main imports (energy) are also priced in dollars, there has been no currency risk for investors/businesses in those crucial sectors of the economy.  A weak dollar against the South African rand has also helped Zimbabwe exporters to compete and has encouraged local producers to buy raw materials from China and India in dollars rather than from an expensive South Africa in rand.

We also mentioned in our last Investment Notes that a “hybrid” debt reduction programme had been approved by Cabinet last December. This was vital in terms of putting Zimbabwe on the right path to negotiate debt relief with the creditor nations and in particular the IMF. This is a process and not an event but we hope it will lead to an IMF sponsored programme being adopted in some form or other. A return to legality will be one key pillar in this process both from an economic but also from a human rights perspective. The latter issue however will be for the time being a major political obstacle as existing, and in some cases draconian laws, are used by individual political parties to pursue their own agendas. It is an issue that can be conquered quickly though if the political will is in place.

Economic rights are more difficult and at the moment are further complicated by the uncertainty surrounding the Indigenisation regulations that are being used by a faction of ZANU as a key ingredient of their election campaign or perhaps for self-enrichment. Indigenisation is seen as a simple extension to the controversial land reform process that began in 2000. It is the land issue that will be the hardest nut to crack in the necessary return to legality. In order for the agricultural side of the economy to flourish, the use of land as collateral for loans will be essential whether in the form of leasehold or freehold title but one that will stand up in a court of law.

Following a Constitutional Amendment with regard Agricultural land in 2005, all title to agricultural land fell to the State. Most title deeds at the Registrar of Deeds have therefore been altered to reflect the Amendment and are of doubtful value under current law.  Whilst this state of affairs could of course change under a new constitution at a later date, the current constitution allows farmers to be compensated for any improvements made to the land such as dams, tobacco sheds, irrigation systems, greenhouses, barns, plantations, pastures, roads,  etc but not for the land itself or for moveable objects such as tractors. From 2002, the Government of Zimbabwe made it clear that it was willing to pay such compensation and a number of farmers took advantage of that scheme at the time. Hyperinflation however effectively led to the suspension of the scheme as the farmers and Government could no longer agree on a valuation that was changing by the day.

Post dollarization however, the Minister of Finance reintroduced the scheme in his 2009 budget and allocated $4.4 million for the purposes of compensating farmers. By October 2010, over US$900,000 had been paid out by Government largely due to the slow take-up of the offer by the farmers themselves. Since there was a short-fall in the 2009 budget, an additional $2.25 million was allocated for 2011, and a proposed $5million for 2012 and $7 million for 2013.

In order to benefit from this compensation, a farmer must first write to the valuation section of the Ministry of Lands inviting a valuation of the property concerned. The Ministry requires a letter from the Ministry of Labour stating that all employees were properly compensated at the time of eviction which assumes of course the farmer has kept those records as proof. The farmer will also have to show that any bonds attached to the property have been cancelled. The Ministry of Lands then invites the farmer to compile a detailed and comprehensive schedule of improvements, without a valuation, on the farm at the date he vacated it. Supporting documentation such as photographs are helpful. The valuation experts at the Ministry then compile a valuation report based on this information which is then reviewed by the National Agricultural Land Compensation Committee who will make a final recommendation to the Ministry of Lands. The farmer or beneficiary is then invited to discuss the offer of compensation which he or she is free to accept or reject. If the offer is accepted, then the Chief Valuation Officer invites the parties to lodge the farm’s Deed of Transfer with the Ministry. The offer clearly states that the valuation is for improvements only. The US dollar funds are then paid out by Government to the farmer.

This process has worked and as such further farmers have submitted their documents for consideration in order to benefit from the compensation scheme. The funds are paid by the Government of Zimbabwe and not by an outside Government or agency. It is in the National Budget. In order to control what could be a huge number of applications, priority is being given to those farmers still resident in Zimbabwe and especially to elderly farmers who need the funds to live out their remaining years. Since compensation is being paid on a willing basis from both parties, there is no reason why in the future, the British Government or other agencies might not step in to support future payments alongside the Government of Zimbabwe or the GNU. As we understand it the CFU has not publically endorsed this scheme but it is being positively reviewed by them. Their preferred option up to now has been to fight for compensation for not just the improvements, but also for the land and loss of earnings. We suspect this to be unreasonable under the circumstances and would unlikely be considered by the donor nations.

A return to legality is ultimately essential if Zimbabwe is to be accepted back into the World’s financial community to be free to borrow from capital markets, banks and multi-lateral agencies. The land improvements compensation programme is just one element in this process that the Government of National Unity has endorsed. There are many other measures that can and need to be adopted. The new Commissions for Electoral Reforms, the Media and for Human Rights can further improve Zimbabwe’s status. It has been heartening to see the Zimbabwe Stock Market rally this year making it one of the better performers in Africa to date, driven not just by foreign investors, but more recently by domestic institutions as well.

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