A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO

1. FOOD AND AGRI FINANCING A PRESENTATION AT THE MULTI STAKEHOLDER MEETING BY ZANACO Fringilla Lodge, October 2009

2. Contents • Introduction • Financial Sector and Agriculture • Zanaco Overview • Zanaco and Agriculture • Recommendation • Conclusion

3. Introduction

4. Food and Agriculture • Key economic sector • Under performed in the last 3 years; sector contracted by an average of 1.2% p.a. between 2006-2008; 4% contraction in 2008 alone due to a 7% reduction in crop production • Crop production reduction was mainly due to; • Extreme whether patterns; floods, drought etc • High cost of inputs • Limitation to credit facilities, inputs, and extension services • Inadequate infrastructure • Poor livestock management • Weaknesses in the FSP and; • Failure to attract private investment in the sector • This is despite MACO having a medium term target of attaining 30% GDP contribution by 2015 MACO NAP 2004-15 4

5. Food and Agriculture (cont’d) • Good water availability but untapped; over 1.7 trillion cubic meters of under ground water resources, and about 40% of surface water resources in the SADC region • Ineffective water rights and regulatory/demand management mechanisms • Inadequate attention to research and extension needs of the irrigation sector • Estimated 10.5 million hectares of land currently being used for agri production, despite 42 million hectares of land classified medium to high potential for agro production (14% utilisation) MACO NIP 2006-11 5

6. Financial sector and Agriculture

7. Banking Sector Overview • Low banking penetration with a ratio of deposits to GDP of approximately 20-25% • High historic growth rates of deposits (25-30% p.a.) and loans & advances (30-35% p.a.) • Focus on primary agriculture • 20% loan assets to agriculture sector • 50% of provisions to agriculture sector; root causes; • Tenor of financing does not match investments/capex need • Currency mismatch • Short term views by banks on agriculture borrowers and assimilated at normal corporate borrowers • Lack of long term view to address cyclicality issues 7

8. Challenges of financing food and Agric • Inconsistency and/or lack of continuity in policies (volatility in government policies) • Distorting subsidies and spur of the moment import/export bans that decimate farmers and that discourages banks from lending to the sector due to resulting price volatilities • Lack of value chain infrastructure support i.e. feeder road network, land tenure and administration, energy, communication etc, which creates linkages between supply side and demand side of the sector • Lack of warehouse financing legislation • Lack of silos in the country forcing crops to be sold after harvest; too much power with millers/traders • Weak commodities market to provide risk management solutions (hedging) • High energy costs • Lack of long term funds for irrigation • Outsourcing mechanization with risk of non-availability of harvesters etc versus underutilized assets if owned by farmers 8

9. Challenges of financing food and Agric (cont’d) • Some banks exiting the business, leaving farmers in a lurch for their seasonal requirements; • Limited availability of long term funding; need to explore other long term funding options i.e. bond issuance, Notes etc • Privatize extension services; improve efficiency and investment availability • Opportunity for guarantee schemes (CEEC, DBZ etc) • Insufficient skills and information resources for the successful development and operation of irrigation system 9

10. Zanaco and Agriculture

11. Zanaco and Agriculture • Strategic relationship with ZNFU (4% shareholding, 1 Director on the Board) • Dedicated Agri business team • On-going initiatives; • Facilities for Commercial farmers • IFC; Emerging farmers • ZNFU; Lima scheme • NAPSSF; Munda Scheme • ADB; Zampip • Relationships with and funds distributed to 5,900 small scale, subsistence and emerging farmers • Between 20% and 30% of the loans and advances portfolio is in Agriculture loans (depending on seasonality) • Improved credit turnaround times 11

12. Recommendation

13. Food and Agriculture sector sustainability • Top 6 issues from Zanaco’s perspective; • refurbish or build silos/warehouses • Enact warehousing finance legislation • Need for consistent and predictable government policies (no policy shifts); no spur of the moment import/export bans • Professionalize/privatize extension services • Focus on yields!!! • Strengthen Regional Commodity markets • Strengthen value chain support infrastructure; land tenure and administration, road network, energy, etc • Incentivize creation of long term funding mechanism for the agric sector (fiscal and/or monetary) • Minimize distorting subsidies and spur of the moment import/export bans • Financial institutions initiatives to create hedging solutions for farmers • Finalize CEEC, DBZ guarantee schemes • Promote bilateral long term funding for irrigation • Work closely with Banks on managing the FSP program

14. Conclusion

15. Zambia should be a bread basket • Lots of land • Fertile Soils • Good water resources and availability if irrigated • Reasonable rains nation wide • Good banks • Good farmers 15