Tuesday, May 8, 2012
Let Tobbaco growers operate foreign currency accounts, they are exporters!
The tobacco selling season is here again and the prices have been somewhat satisfactory though not the best. The IMF has been on a strong collision with the Reserve Bank decision to get tobacco dollars straight from the auction floors. Its not the first time RBM has done this. I am not sure whether it has achieved the core issues of foreign exchange shortage. It appears like fire fighting. The IMF argues that the tobacco dollars be left with commercial banks. The essence of the thought remains that banks can effectively allocate foreign exchange to private business and individuals. Sounds like a very compelling argument to keep the Reserve Bank out of the tobacco auction floors but in all this talk I pose a serious question. Who effectively owns these tobacco dollars? It’s the farmer. Let them have US dollar accounts.Bingu wa Mutharika fought wars against tobacco buyers. He argued farmers were given a raw deal. He went further to chase out of the country a tobacco company senior executive. To him was attached the buyer-collusion theory that exploits farmers. But the late head of state was economic with the truth or carefully selected his arguments. Either he devalued the Malawi kwacha so that a dollar sale of the green leaf gave the farmer a lot of kwachas or let the farmers get the dollars straight into their accounts. He never instructed RBM to stop getting dollars from the auction floors yet he was fighting for the farmer. The former president never liked any talk of devaluation and so went ahead to fight the tobacco buyers. Farmers in Chipata even called on the Zambian government to follow the Malawi example as reported The Post of Zambia sometime last year. For some reason, I believe that the tobacco industry, its regulatory bodies, and the government of Malawi exploit farmers as well. They buyer is not the worse devil or satana.Consider the way Malawi has been running foreign currency accounts over the years. Exporters are allowed to keep a certain portion of foreign currency in their foreign currency accounts. This protects them from major changes in the local currency. Consider exports of sugar, in which Malawi has over the years enjoyed preferential access to the European market. Sugar is produced by a multinational company in this country and they receive their proceeds in foreign currency and keep it comfortably in our banks. The money doesn’t go to RBM but is available to them anytime they want from their respective dealer banks. Similarly, we can think of tea exports by the various tea growers in the Thyolo-Mulanje area, mostly foreign owned or have origins from foreigners. Such companies comfortably export their tea and receive their proceeds in foreign currency. Again, the Reserve Bank does not get their forex. Tea growers happily maintain their foreign earnings. The same applies to the Uranium mining in Karonga, though the situation is slightly different in the sense that they keep their foreign earnings offshore. It could be the same case with the other businesses such tea, sugar and hotels.Back to the tobacco farmer. Who are these tobacco farmers? I prefer to put them into two groups. The “big” farmers with huge hectares of land and the average “small” with possibly a hectare of land. In my mind, both of these growers are tobacco exporters. They sell their tobacco at the Auction Floors to foreign buyers in US dollars that consequently ship it all over the world. These growers/exporters should be allowed to keep their proceeds in the currency of sale, the US dollar in this case. After all foreign currency accounts are meant for exporters to receive their proceeds. A tobacco farmer is no different from the tea growers or other multinationals involved in exports. RBM should have no business to get their money and give them the Malawi kwacha. They never sale their tobacco in Malawi kwacha. Why should we blame the buyer when infact it is our own public institutions and banks that are screwing the farmer? Commercial banks have been at it all, giving all sorts of “tobacco accounts” to farmers wooing them with dubious incentives that are nothing but mere serpent minded banking. Remember the smiling assassin? These dealer banks have never liked the idea of RBM getting forex from the auction floors and have selfishly argued that tobacco dollars should go to them. Both are wrong and are part of the equation that is exploiting the farmers. Tobacco dollars do not belong to RBM or Commercial banks but to the exporters, tobacco growers in this case. In anything if the tobacco dollars go the banks, it should be in the accounts of the growers.Why do we always pick up a fight with tobacco buyers? Infact it is our own institutions that are partly exploiting our growers. Is it because most of tobacco farmers are peasants scattered across the country? Sometimes I wonder the hypocrisy of politicians. They can pretend to fight for the street man when in essence do promote interests of conglomerates or capitalists. Why should multi-nationals enjoy such privileges but deny tobacco farmers the same opportunities? The farmers can decide for themselves when to redeem their dollars into Malawi kwacha cash equivalent. When it suits them, and not when RBM or banks think it is right for them. Tobacco farmers also require safeguards against inflation by managing their proceeds in foreign currencies just like other single major exporters. Allocative efficiency is only attainable if returns to businesses are given to the rightful owners in a manner of their choice, and not an RBM-Commercial Banks pre-thought. That is how market forces work.Don’t shoot the buyer but have a closer look at the banks: from the mother bank to all of them.