That’ll Do, Pig

Zimbabwe proposes livestock collateral legislation

In an effort to spur lending, Zimbabwe's lower house is debating whether or not to force banks to accept livestock as collateral for loans.

Communal farmers lead cattle as they plant maize crops in Mvuma district, Masvingo, Zimbabwe

Last week, Zimbabwe proposed a law that would allow goats, cows, sheep, and other livestock to count as collateral for bank loans in the credit-starved country. Under the direction of Robert Mugabe’s ruling party, the move came under the broader rubric of encouraging banks to loan to more to under-financed Zimbabweans (only 4% of whom took out bank loans in all of 2014).

Though lending to the cash-strapped nation has significantly increased since the inflation crisis which peaked in 2008, much of that investment has been centered on cash crops such as tobacco, which is good news for tobacco farmers (but less so for consumers).

The proposed law would include livestock as but one of several other “moveable assets” that banks must accept, such as machinery, motor vehicles, TVs, refrigerators, and computers.

All things considered, the move isn’t that strange. Livestock are already accepted as collateral toward loans in Nigeria, Ghana, and Malawi, and have been considered a chief asset across the continent since time immemorial.

The trick, however, will be getting banks to cough up their scarce dollars, which, ever since the central bank “dollarized” the Zimbabwean economy in 2009 after a decade of ruinous hyperinflation, are few and far between.

The move to dollarize the economy also made the Botswana pula and South Africa rand legal tender. In January 2015 the government also moved to legalize the Chinese renminbi, Australian dollar, Indian rupee, and Japanese yen in another attempt to boost foreign trade and encourage investment.

However, due to a combination of de-industrialization and over-reliance upon imports, whatever dollars do come into the country through the government’s aggressive issuance of parallel “bond notes” pegged to the dollar (of which USD110 billion are thought to be in circulation) leave nearly as quickly in what economists and fretful Zimbabwean civil servants are calling “externalization.”

To counter the exodus of hard currency, the government has capped ATM withdrawals at USD50 per day and barred people from leaving the country with more than USD1,000 on hand.

Which is precisely why last Tuesday Finance and Economic Development Minister Patrick Chinamasa proffered the bill for debate in Zimbabwe’s lower chamber, the House of Assembly, to begin with. Should the Movable Property Security Interests Bill pass, it would in theory expand access to credit to millions of unbanked rural Zimbabweans.

After all, one of the signal failures of Robert Mugabe’s massive land reform in the 2000s, in which large white farms were taken over by black tenants, was that the latter were unable to secure title to their lands ex post facto, and hence failed to secure financing.

As a result, agricultural production collapsed over the following decade, with revenue from critical crops like tobacco falling from USD600 million in 2000 to barely USD175 million in 2009, when dollarization was finally introduced.

But thanks to Chinese smokers, at least one industry has access to cash. After practically no financing in the decade following land reform (or expropriation, depending on whom you ask) Zimbabwean tobacco farmers borrowed USD500 million in 2013, a figure that increased to USD720 million in 2014, and an estimated USD1 billion in 2015.

If only their cattle encouraged as much confidence as their nicotine.