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Sunday, July 14, 2024

Restrictions in tobacco production financing removed

Story by Owen Mandovha, Business Reporter

GOVERNMENT has removed restrictions on tobacco production financing by allowing the use of local financing facilities, an area which was a preserve of offshore funding for more than five decades.

The Tobacco Finance Act which dates back to the colonial era provided that only foreign loans should be used for tobacco production financing which restricted the participation of indigenous tobacco merchants while creating cartels.

In its latest Monetary Policy Committee meeting, the Reserve Bank of Zimbabwe discarded this law which no longer suits local economic conditions.

“The Tobacco Finance Act says that one has to use offshore loans to finance tobacco production and this only served a few in the sense that local indigenous merchants had no these lines of credit compared to foreign tobacco merchants, so it created sort of a cartel. The situation on the ground has greatly changed whereby there is a lot of foreign currency sitting in the country. So, the government decided that let’s open up the sector to suit local conditions,” said an economist, Mr Persistence Gwanyanya.

Stakeholders in the tobacco industry have cheered this policy reform, saying the previous law only benefitted a selected few.

“I don’t think that this law was doing any good to both farmers and the economy because even if we were getting hundreds of millions in forex from tobacco sales, only a tiny fraction was left because the majority was repatriated in the name of repaying these offshore loans,” added a tobacco expert, Mr Mutandwa Mutasa.

Zimbabwe Tobacco Growers Association (ZITOGA) President George Seremwe said the policy review was long overdue, adding farmers will emerge as the biggest winners.

“This is a great move by Government to do away with this colonial political and our expectation is that the farmer will benefit because we are using less expensive financing facilities,” he said.

With the country enjoying a record tobacco output of 294 million kilogrammes during the 2023 marketing season, the highest in the country’s history, Government has deliberately shifted focus to further transform the industry to fully benefit farmers and the economy.

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