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Vol 62 No 12

Published 10th June 2021


Zambia

Betting the farm on winning

As defaults continue and debts pile up, the President reckons his bonanza payment to farmers will win him re-election in August

Just before the start of the three-month election campaign on 12 May, the Patriotic Front (PF) government rushed through at least US$145 million of new loans to fund early procurement of next season's farm inputs.

This borrowing sits awkwardly with Zambia's continuing defaults to foreign creditors and efforts to negotiate an International Monetary Fund (IMF) deal (AC Vol 61 No 25, Two days that changed nothing).

Its refusal last year to abandon a ten-fold increase in Farmer Inputs Support Programme (FISP) contracts to $500m cost the government its pandemic bailout from the IMF (AC Vol 62 No 7, PF bets it all on the polls). This in turn has hindered Zambia's efforts to restructure nearly $13 billion of external debt.

A bumper harvest this year has helped the justify its huge spending on FISP. But agricultural experts say this is largely thanks to good rains, and that rather than increasing yields, FISP is used to buy farmers' votes and fund kickbacks.

Africa Confidential can reveal that a $64m loan from Absa bank was signed on 12 May, the day the cabinet was dissolved. The government has also borrowed $131m from formerly state-owned bank Zanaco. Last year $50m of this loan was disbursed for the 2021 farming season, while $81m was added on 11 May, just before Finance Minister Bwalya Ng'Andu's last day in office.

Other banks that made loans for last year's FISP contracts may also have lent again to the government for the 2022 season, say banking sources in London.

Central Bank technocrats took a dim view of the Zanaco loan, given that Zanaco had to borrow the funds from the Trade and Development Bank to be able to lend onwards.

The Zanaco loan is to fund a two-year, $131m FISP contract signed last year with Zambian company Neria's Investments Ltd, an inputs supplier whose owners are close to President Edgar Lungu. They have been involved in other procurement controversies through their other companies.

Other suppliers include Nyimba Investments, whose owner Gulam Patel is also a long-time Lungu supporter and PF donor (AC Vol 61 No 19, Default hits election plan). According to documents seen by Africa Confidential, Nyimba's contract last year was funded with a $52m short-term loan from Stanbic, agreed in September. The loan was omitted from the 2020 Ministry of Finance Annual Economic Report, as were all non-concessional loans.

The extreme lengths taken to fund FISP demonstrates the political importance of the scheme to the PF.

As well as taking out expensive short-term loans, Africa Confidential has learned that the government also paid suppliers with treasury bills, selecting those that were close to maturity so that the suppliers could then sell them at a discount to local banks for cash. The fact that suppliers sold the T-bills at a discount shows that the contract values were inflated to start with, say insiders. Managing Zambia's domestic debt has become a delicate juggling act, and arrears continue to pile up.

The government prioritises paying certain suppliers over other debts and arrears because state procurement is also a source of party campaign funding via kickbacks priced into the inflated supplier contracts, explain finance sources.

FISP is no exception, say insiders. Benefits are also shared along the supply chain, with prices inflated by middlemen and preferential access for the politically favoured.

Last year the government insisted on reverting to a manual distributions scheme instead of its e-voucher system, claiming that the electronic system was experiencing problems. It claimed that the manual system was more expensive to administer but was necessary. Government officials say this is not the case; the system worked well – too well, thus preventing corruption because transactions were electronically recorded.

The fallout from last year's FISP procurement has already taken a significant toll on the Treasury and next year's inputs are not an urgent priority, say government insiders. As well as the sovereign default, in the middle of a pandemic doctors have been striking over unpaid salaries, while public clinics and hospitals remain short of staff and medicines. The Central Bank is struggling to keep the foreign reserves above $1.1bn despite halting payments to foreign creditors, resorting to heavy domestic borrowing and piling up billions of dollars of arrears, according to government figures.

But the FISP is politically sacrosanct. In non-election years FISP is typically underfunded and poorly administered, but come election time, the government suddenly pumps in money in a bid for the rural vote.

The PF is especially anxious to secure rural votes as it is likely to lose significant support in urban areas, especially in the capital Lusaka (AC Vol 62 No 1, Election-mania takes hold). Here, there is growing support for the opposition United Party for National Development and its leader Hakainde Hichilema.

President Lungu's choice of the controversial former minister Nkandu Luo as his running mate has further hurt the PF's chances, say pundits and PF sources alike. As Lungu's Higher Education Minister from 2016-19, Luo angered students by scrapping meal allowances.

In the meantime, the IMF has been kept at arm's length. The PF has tried to make political capital out of the fact they are speaking to the Fund but have made little effort to address the debt crisis, which the IMF insists is a pre-condition for assistance.



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