It was also important to maintain good relations and attract foreign investment, notably from the UK, which maintained strong ties with the settler agricultural sector.
When Mugabe came to power in 1980, his government inherited an agricultural sector that was dependent on subsidies and government support. Through continued government intervention from 1980-1985, the smallholder sector developed rapidly, providing maize and cotton largely for local use.
In 1986, the government decided to create incentives for export production, including foreign exchange and marketing subsidies, making commercial production more profitable. As a result, many large-scale and smallholder farmers moved to the commercial production of cash crops such as tobacco and maize for export. But by 1990, the government could no longer sustain subsidies. Instead it embarked on a program of deregulation.
Declines in the value of the Zimbabwe dollar, coupled with increases in the prices of fertilizer, feed, and transport, rendered commercial farming an expensive endeavor. As a consequence, large-scale commercial farming of more profitable crops such as tobacco increased. Tobacco became the country’s single largest foreign exchange earner.
But small-scale farmers generally did not benefit from increases in tobacco production. They did not enjoy economies of scale. They also lacked access to capital, markets, technology, and extension services. Small-scale farmers therefore focused on other less profitable crops including maize, cotton, and groundnuts. Still, in the first two decades after independence, small-scale and resettlement farmers were not able to compete with large-scale farmers without continued subsidies and increased market access.
There were other constraints. Investor confidence is largely based on the maintenance of the status quo of the agricultural sector in countries such as Zimbabwe. Prior to the end of the 1990s the Zimbabwe government did not want to send mixed signals to the investment community and jeopardise its investment profile or potential. As such tthe government was loath on embarking on large-scale subsidy and asset nationalisation schemes to develop small-scale commercial agriculture.
In the absence of donor funding to develop training, extension services, credit facilities, and market access, the Zimbabwe government had few economic options available to incorporate smallholders into the agricultural sector without scaring away much needed capital.
As internal discontent increased, and external funding for land reform dried up, Mugabe threatened to expropriate white-owned farmland without compensation. In 1997 the government published a list of 1 471 farms that were to be expropriated and resettled. It demanded that the UK provide funding for the endeavour. The UK did not heed the call. Corruption, coupled with the gazetting of white-owned farms, threatened remaining donor funding. In 1999 the International Monetary Fund suspended its funding to Zimbabwe.
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