Zimbabwe Agribusiness Report Q3 2012

BMI View: The Zimbabwean agricultural sector needs far greater private and public sector investment to
meet its potential. The government''s weakening fiscal position, coupled with confused policy-making,
which has been criticised for being at odds with the needs of the economically-important agricultural
sector, is likely to restrict the effectiveness of government support over the short term. Meanwhile private
sector investment will be constrained by ongoing political uncertainty. We have a more constructive view
towards the sector over the medium-term and we see output of key crops such as sugar, corn, cotton and
tobacco increasing. However, Zimbabwe remains a long, long way from regaining its status as a regional
breadbasket, especially as regional neighbours continue to develop their own agricultural sectors more
quickly and more effectively.
􀂃 Key Views
We have revised down our sugar consumption growth forecasts for 2012 (from 20% to 15%) and
2013 (from 11% to 7%). We expect lingering political uncertainty to impact investment and
tighten liquidity, which will prove bad for an economy already affected by the expectation of
lower agricultural output. We expect this to negatively impact consumer confidence and result in
moderating consumption.
􀂃 We have revised our corn production forecast for the 2012/13 harvest season down to 1mn
tonnes (a 29% year-on-year (y-o-y) contraction) due to widespread drought and reduced fertiliser
use among grains farmers. This will dramatically increase Zimbabwe''s grains import needs.
􀂃 We maintain our view that price growth will accelerate over 2012 and have made an upward
revision to our year-end forecast (to 7.5%, from 7.0%) due to an upward adjustment to our
global oil price forecasts and a downward revision to our corn production forecasts. However,
tight liquidity (reducing demand-driven inflation) and a weaker rand (making South African
imports cheaper) will limit inflation.
Industry Developments
Political Risk: Heightened political risk, due to ZANU-PF succession concerns, uncertainty surrounding
the establishment of a new constitution and the ongoing indigenisation drive, are all weighing on investor
sentiment, which is in turn strangling liquidity and weighing on economic growth. This is a major risk for
the agricultural sector, which needs private capital to help drive sustainable long-term production growth.
Government Fiscal Dynamics: We believe that fiscal revenue will continue to fall short of target over
the course of 2012 as diamond revenues underperform relative to what the Treasury planned on receiving
from the sector. Given that the government is operating a cash budget which by definition will be
balanced, we believe that spending will be cut by an amount commensurate with the revenue shortfall.
While we believe that revenues and spending will come in below target, we do not believe the
government will face a fiscal crisis but rather continue to limp along spending what it can, when it can.
Nonetheless, this could impede investment in further agricultural support programmes.
Added-Value Needed: The government has stressed its desire to develop added-value industries
upstream of its existing agricultural activities. It is keen to take a larger slice of the value chain, rather
than export primary materials. Its desire to develop ethanol processing capabilities could be seen as
illustrative of this - development here helping to support the sugar sector downstream of it. Cotton could
be an initial beneficiary of this drive, with more cotton going towards textile manufacturing domestically,
rather than being exported.
Tobacco A Bright Spot: The
performance of Zimbabwe''s major
exports is forecast to be robust in
2012. The volume of tobacco, the
primary agricultural export, sold
by the end of March was 21.0%
above the corresponding period in
2011. Furthermore, because of
higher prices, the value of tobacco
sold by the end of March was
48.0% higher than the same
period a year earlier. Farmers told
BMI during a trip to Harare in late April that auction prices had remained firm during April and that
volumes had also remained well ahead of 2011 levels. We therefore expect tobacco export revenues to
grow strongly from the US$400mn earned last year.