Stakeholders in the tobacco industry have described local financial institutions' interest rates as prohibitive and impeding Government's efforts to localise funding for the sector.
The rates, they said, significantly exceeded those of the international market.
The local interest rate is 16 compared to an average 8 percent elsewhere.
This came out during the recent tobacco conference hosted by Zimpapers in Harare, where various speakers spoke of the need to reduce the rates. In a panel discussion titled: "Is offshore financing right for the tobacco industry? A balanced look", stakeholders lamented lack of local funding options due to high interest rates and tenure.
Chevron Tobacco Company executive director, Mr Tapiwa Masedza, urged the Government to take a leading role in ensuring that there was local funding.
"The current financing model is not balanced, and is not what we want for our 140 000 predominantly small-scale tobacco farmers.
"Local interest rates are around 16 percent against those obtaining on the international market of between 6 and 8 percent.
Mr Masedza said if the country produced 300 million kilogrammes of the golden leaf at an average price of US$3,50 per kg, over US$1 billion would be required in the whole tobacco value chain, a figure that local banks do not have for one sector.
"Currently contractors are getting off-shore money, not from banks, but from buyers of the golden leaf (a pre-financing arrangement) at zero percent interest rate to produce, process and deliver the product. Do local banks provide competitive financial terms? Surely, no," he observed.
He noted that there was a mismatch between the loan repayment period and agriculture production season, with many local banks requiring all loan settlements within a year.
For production and export of value-added products, there was need for Government to set up toll manufacturing plants for cigarettes, he added.
University of Zimbabwe senior lecturer, Dr Kingstone Mujeyi, concurred saying the 12,5 percent export retention for all the crop shipped outside the country was worrisome.
"We need to harness local resources to increase the retention by actors along the value chain. We need to introspect our financing model and make use of pension and insurance funds in tobacco production in addition to agro-bills," Dr Mujeyi said.
Zimbabwe Farmers Union secretary general, Mr Paul Zakariya, said though off-shore funding had some benefits to the economy, relying on it presented challenges.
"Funding brings in some of the export proceeds in the form of inputs thereby generating business for foreign companies at the expense of locals.
"The inputs in most instances are over-priced, catching farmers in a vicious debt-trap," Mr Zakariya noted.
He said although local tobacco financing had immense benefits for the economy, farmers were relying more on external funding, as home-grown supporting mechanisms were not favourable to agriculture with high costs and insensitive loan tenures to the seasonality of agricultural production and collateral requirements.
Zimbabwe Tobacco Growers Association (ZTGA) chairman, Mr George Seremwe said fertilisers and chemicals were the highest cost drivers in tobacco production and if Government could assist in that regard, there would be no need for foreign funding.
Said Mr Seremwe: "Government initiated the Tobacco Input Credit Scheme (TICS), which failed because the structure was handed over to the industry, not to farmers. Give us another chance through the US$60 million tobacco revolving fund and allow farmers' unions to administer it for transparency."
In 2021, the Government crafted the Tobacco Value Chain Transformation Plan (TVCTP) with the ultimate objective of achieving a US$5 billion tobacco industry by 2025 through implementation of various measures.
One of the actions was that of addressing limited local financing as the sector was dependent on off-shore prefinancing facilities. The plan seeks to accelerate localisation of tobacco funding to 70 percent of the cost of production by 2025 from the current 40 percent.
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The Reserve Bank of Zimbabwe (RBZ) last year localised tobacco financing by removing restrictions on the use of locally sourced funds to support the production of tobacco in the country.
Presenting the mid-term monetary policy statement last year, former RBZ governor, Dr John Mangudya said locally sourced funds could now be used to fund tobacco production.
"In terms of Section 4 of the Exchange Control (Tobacco Finance) Order, Statutory Instrument 61 of 2004, tobacco merchants are required to source offshore financing to produce and buyback green leaf tobacco. Tobacco merchants who fail to secure offshore financing are required to apply to the RBZ for authority to raise funds on the local market. With immediate effect, there will be no restrictions on the use of locally sourced funds to support the production of tobacco in the country," said Dr Mangudya, then.
