Public Debt Management Office Advisory Note ‘SAKUNDA FACILITIES Introduction ‘The fact that there are Local companies e.g. Sakunda, that are willing to avall funds to Government for stimulating the economy is very welcome. Such companies should be commended for exploiting opportunities in the home front. ‘The Government of Zimbabwe signed two agreements with Sakunda Holdings for Special Maize Programme which include the US$85 Million (irrigated land) ‘and US$75 Million (non-irrigated land). There are similar proposed facilities for the winter wheat and roads rehabilitation, The following issues are of concern: 1. There is capitalisation of interest up front, then an additional coupon rate of 5%. Interest and facilitation fee charged on the Loan Agreement are capitalised at signature date before interest is accrued, ie. the principal ‘amount on the TBs issued is the capitalised amount which then carries a coupon rate of 5%, 2. Given the above, the effective interest rate on this facility Is 15% (interest 16%, facility fee 1,5% & coupon rate 5%) and therefore it should benegotiateddownwards in-line with the 2017 Monetary Policy Statement and considering, that the facility is targeted to the agricultural sector. ‘The Agreement assumes a bullet disbursement. However, disbursements are being staggered and therefore Government is paying interest on uncisbursed funds. Government should either issue a TB or contract @ loan, instead of duplicating the two instruments concurrently. ‘The agreement does not have a schedule of actual inputs and their respective prices, making it difficult to assess the magnitude and cost of the Facility. In the implementation ofthis Facility, there is potential conflict of interest, lack of checks and balances and no competitive bidding, which is against ‘good corporate governance and in violation of State Procurement Board Regulations. For example, the Financier is responsible for procurement of all inputs and there is a huge risk of overpricing. ‘There is need for proper verification of hectarage to be planted inorder to avoid over commitment, which would result in extra costs to Government from the committed funds, Sakunda have traded all the issued TBs in breach of the non-tradabilty features on the TBs. In other words, the trading of TBs by Sakunda plus the repayments of the loan through both the NOCZIM Debt Redemption Fund and the Budget is tantamount to Government funding the whole programme albeit, at avery high cost. Government should have traded its TBs directly to the market without involving third parties.9, There have been notable delays in the procurement and distritution of inputs thereby reducing productivity; 10.there is notable delay in payment of suppliers by Sakunda, yet Government is being charged interest on the full amount of the loan. This has resulted in some supplier suspending delivery of inputs, 11.Lack of monitoring and evaluation mechanisms on the utilisation of the facilities, 412.The Facilities include inputs and administration costs (including vehicles, motorbikes, e.t.c), which have been proposed tobe passed on tothe Farmer. ‘This will result in a sharp increase in the cost of inputs, above the market prices, yet selling price of maize expected to go down because of abundant supply of maize locally and in the region. 13.Stop Order arrangements have not been signed between the Farmers and GMB, making it dificult to recover the costs of inputs from the farmer. The delay has been a result of lack of consolidated list of all beneficiaries of the facility. This will make it difficult for Government to recoup from the beneficiaries thereby promoting the culture of not payment and worsen Government's indebtedness. 14.Government is exempting Sakunda inputs procured from taxation, yet there is no corresponding reduction of the input prices charged to Farmers, 15.There are no risk mitigating measures in case: i) the farmer falls to pay due to unfavourable weather conditions, unwillingness to pay and any reason Including natural disasters; and il) Sakunda fails to deliver inputs on time;116.Requests for payment are being forwarded to Treasury and the NOCZIM redemption fund without invoices and list of inputs distributed by Sakunda, Recommendations 1. Government needs to be proactive, than being reactive, in designing programmes and mobilizing funding for economic growth, and iming is essential. 2. Government needs to improve on its capacity to negotiate better deals. 3. Before Government contracts a new facility, it is prudent to review the existing facilities in-order-to draw any lessons especially to assess any possible shortcomings, successes ete. 4 The implementing agent should avoid add-ons to the facilities which are not included in the intial scope to avoid the ballooning of costs. It's therefore important to come up with a comprehensive set of requirements for the entire programme covering the targeted hectarage, procurement, disbursement, planting, harvesting and marketing. 5. There should be a computerised, up-to-date and secure database of all beneficiaries and all inputs distributed; 6. The inputs procurement should either be done by Government or be subjected to competitive bidi 7. Alternatively, these facilities should be implemented through normal banking channels where Sakunda avails funds/loans to Government upfront for procurement of the inputs.a, Ther heed to design and negotiate agricultural facilities well aheed of the farming season. It is then possible to negotiate for lengthening of the maturities and stagger repayment of the facility to reduce pressure of the Fiscus. 9, Repayment of the facility should only be made if there are supporting documentation to the claim in the form of invoices, delivery notes, etc. 10.Given the support given to agriculture it is prudent for the Goversment to ‘also mobilise funding for other sectors especially to complimentary sectors such as manufacturing for value addition and beneficiation as enunciated in Zim Asset.