Technical Paper No. 82December 1997

SD Publication SeriesOffice of Sustainable DevelopmentBureau for Africa

Jim MaxwellRichard GordonAbt Associates

Innovative Approaches toAgribusiness Development inSub-Saharan Africa

Volume 5: Southern Africa

Final Report

Productive Sector Growth and Environment DivisionOffice of Sustainable DevelopmentBureau for AfricaU.S. Agency for International Development

Innovative Approaches to AgribusinessDevelopment in Sub-Saharan Africa

Volume 5: Southern Africa

Final Report

Jim MaxwellRichard GordonAbt Associates

Publication services provided by AMEX International, Inc.pursuant to the following USAID contract:

Project Title: Policy, Analysis, Research, and TechnicalSupport Project

Project Number: 698-0478Contract Number: AOT-C-00-96-90066-00

Technical Paper No. 82December 1997

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Contents

Foreword vAcknowledgments viiExecutive Summary ixGlossary of Acronyms and Abbreviations xv

1. General Introduction to the Eight Country Study 1

1.1 Background 11.2 Objective 11.3 Analytical Issues to be Addressed 11.4 The AMIS II Approach to Agribusiness Development Research 11.5 Methodology 21.6 Limitations 31.7 Organization of the Innovative Project Reports 3

2. Introduction to the Southern Africa Study 5

Table 2.1 Size Distribution and Focus of Firms, Associations, and Projects Evaluated 6

3. Key Southern Africa Findings 7

3.1 Non-Traditional Agricultural Export Development 73.2 Indigenous Small and Medium Enterprise Development 10

3.2.1 Overview 103.2.2 Findings 113.2.3 General Observations 133.2.4 Other Indigenous SME Development Findings 133.2.5 Conclusions 14

3.3 Association Development 153.4 Financial Services Development 163.5 Monitoring and Evaluation 183.6 General Recommendations 193.7 Key Issues Deserving Further Study 20

4. Zimbabwe 21

4.1 Entities Selected for Study 214.2 Lessons Learned and Implications for USAID Planning 22

4.2.1 Non-Traditional Agricultural Export Development 224.2.2 Indigenous SME Development 254.2.3 Association Development 284.2.4 Financial Services Development 294.2.5 Monitoring and Evaluation 304.2.6 General Recommendations 304.2.7 Key Issues Deserving Further Study 31

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4.3 USAID Zimbabwe Agribusiness Development Recommendations 31

Table 4.1 Zimbabwe Innovative Projects and Their Areas of Focus 22

5. Mozambique 35

5.1 Entities Selected for Study 355.2 Lessons Learned and Implications for USAID Planning 36

5.2.1 Non-Traditional Agricultural Export Development 365.2.2 Indigenous SME Development 375.2.3 Association Development 425.2.4 Financial Services Development 425.2.5 Monitoring and Evaluation 435.2.6 General Recommendations 445.2.7 Key Issues 45

5.3 USAID Mozambique Agribusiness Development Recommendations 45

Table 5.1 Mozambique Innovative Projects/Associations and Their Areas of Focus 36

6. Tanzania 47

6.1 Entities Selected for Study 476.2 Lessons Learned and Implications for USAID Planning 48

6.2.1 Non-Traditional Agricultural Export Development 486.2.2 Indigenous SME Development 516.2.3 Association Development 576.2.4 Financial Services Development 586.2.5 Monitoring and Evaluation 596.2.6 General Recommendations 606.2.7 Key Issues Deserving Further Study 61

6.3 USAID Tanzania Agribusiness Development Recommendations 62

Table 6.1 Tanzania Innovative Entities and Their Areas of Focus 49

Appendixes

Appendix A - Detailed Profiles - Zimbabwe 67Appendix B - Detailed Profiles - Mozambique 95Appendix C - Detailed Profiles - Tanzania 111Appendix D - Contacts 137

Notes 143

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Foreword

The creation of the Development Funds for Africa(DFA), and, more recently, funding constraints havechallenged the U.S. Agency for International Devel-opment (USAID) to scrutinize vigorously the effec-tiveness and impact of its development assistanceprograms in Africa and to make adjustments neededto improve on the record of the past. Structural Ad-justment programs have been adopted by many sub-Saharan African countries, albeit reluctantly, and somesignificant economic development progress has beenmade. As donor agencies face severe cutbacks andrestructuring of their own and as less assistance be-come available to developing countries, in sub-Sa-haran Africa and elsewhere, new ways must be foundto channel the declining resources to their most effec-tive and productive uses. Donor agencies like USAID,therefore, are increasingly looking at the private sec-tor for new and innovative ways of improving com-petitiveness, and often to agriculture as the potentialcatalyst for generating broad based, sustainable eco-nomic growth. In the light of the DFA and sub-Saharan African countries’ recent development expe-riences under Structural Adjustment Program, theUSAID Africa Bureau’s Office of Sustainable Devel-opment, Division of Productive Sector Growth andEnvironment (formerly ARTS/FARA), has been ex-amining the Agency’s approach to the agriculturalsector.

In January 1991, the Africa Bureau adopted “AStrategic Framework for Promoting AgriculturalMarketing and Agribusiness Development in sub-Saharan Africa” to provide analytical guidance toUSAID/W, REDSOs, and field missions. The frame-work suggested that:

(a) while technical and environmental problems mustcontinue to be addressed, a major cause of poorperformance of the agricultural sector has beenthe inefficiency of the market structures and strat-egies;

(b) improvements in marketing efficiency require agood understanding of the structural arrange-ments, organization and operating strategies avail-able to those entrepreneurs who constitute themajority of the business entities;

(c) such improvements could have a significant ben-eficial impact on incomes, foreign exchange earn-ings, domestic consumption and food security.

To enhance the analytical guidance and technicalsupport that the African Bureau provides to the field,SD/PSGE initiated a series of assessment of donoragencies’ innovative agribusiness projects in a num-ber of sub-Saharan Africa countries to develop casestudies of agribusiness firms targeted by or benefit-ting from these projects. The objective of the assess-ments was to provide the Africa Bureau and FieldMissions with an understanding of the role and sig-nificance of new, innovative agricultural marketingand agribusiness programs being implemented, andto synthesize a cogent set of lessons learned and theirimplications for USAID agribusiness project designand implementation.

This document is Volume 5 of a five-volume setpresenting the Southern Africa (Mozambique, Tan-zania and Zimbabwe) research findings. While theSouthern Africa research addressed all of the keyfocus areas of the Innovative Approaches activity, itplaced special emphasis on SME development andNTAE development. These topics are, therefore, cov-ered in more detail in this report.

Abt Associates, under the Global Bureau’s AMISII project, conducted the field research and reportpreparation. The USAID field mission in each coun-try collaborated with PSGE/PSD and Abt Associates,the contractor, and was particularly helpful in provid-ing counsel and direction of the field research andreviewing of the field draft report.

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SD/PSGE believes that the findings and recom-mendations of this report will help the Africa Bureau,field missions, host country governments, and pri-vate sector groups make more informed decisions onfuture project design, implementation, monitoring,and evaluation.

David AtwoodChief, Productive Sector Growthand Environment DivisionOffice of Sustainable DevelopmentAfrica BureauUSAID

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Acknowledgments

Abt Associates, the AMIS II team, and the authorswish to thank the many individuals in Zimbabwe,Mozambique, and Tanzania who contributed theirtime and experience to this study. A list of individualsinterviewed is included as Appendix D. Of specialassistance were Robert Armstrong and AlexanderShapleigh at USAID/Zimbabwe, David Newberg andFernando Pixiao at USAID/Mozambique, and DianaPutman and Thomas Tengg at USAID/Tanzania.

John Holtzman of Abt Associates enhanced thereport with his technical review and Jack Hopper didthe final edit. Otilia Santos of Abt Associates spentmany long hours formatting and finalizing the report.

Dr. Charles Whyte of AFR/SD/PSGE/PSD is theInnovative Approaches activity manager and was asubstantial and ongoing contributor to all phases andaspects of the activity, especially analysis and draftenhancement.

The overall Innovative Approaches activity ismanaged by Jim Maxwell of AMIS II/Cargill Tech-nical Services, who was also the principal analyst andauthor of sections of this report other than thoserelating to SME development. Dr. Richard Gordonwas the principal contributor of the material on SMEdevelopment.

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The purpose of this activity was to assess donoragencies’ innovative agribusiness projects in a num-ber of Sub-Saharan Africa (SSA) countries and todevelop case studies of agribusiness firms targeted byor benefiting from these projects. The objective is toprovide the Africa Bureau and Field Missions with anunderstanding of the role and significance of new,innovative agricultural marketing and agribusinessprograms being implemented, and to synthesize acogent set of lessons learned and their implicationsfor USAID agribusiness project design and imple-mentation.

The methodology used for this activity consistedof the following four basic steps: (Step 1) identifyand select Key Focus (apparent high-opportunity)Areas for research based on current USAID interestsand the anticipated potential to have a positive affecton agribusiness development. The four Key FocusAreas chosen, based on a literature review, inter-views in Washington, and a field survey, were non-traditional agricultural exports (NTAE) develop-ment, association development, small and mediumenterprise (SME) development, and financial ser-vices to agribusiness; (Step 2) select countries wherethere are projects, associations, and financial institu-tions that are relevant to activity objectives and theKey Focus Areas and that are sufficiently developedto yield lessons learned; (Step 3) complete a field tripto the selected countries to collect detailed informa-tion on the relevant projects and perform case studieson target beneficiaries, primarily via in-depth inter-views with project, association, and financial inter-mediary managers, donor management, and selectedbeneficiaries; and (Step 4) analyze the informationcollected, extract lessons learned, and suggest theimplications for enhancing the design, implementa-tion, and monitoring and evaluation of USAIDagribusiness projects.

The entire Innovative Approaches activity hasfive components, and research findings are reported

in separate volumes. Volume 3 covers East Africa(Kenya and Uganda), Volume 5 Southern Africa(Zimbabwe, Mozambique, and Tanzania), and Vol-ume 4 West Africa (Ghana, Mali, and Senegal). Thereare also separate volumes reporting on the SecondaryResearch Findings (Volume 2) and Overall ProjectSummary and Conclusions (Volume 1).

While the Southern Africa research addressed allof the key focus areas of the Innovative Approachesactivity, it placed special emphasis on SME develop-ment and NTAE development. Therefore, these top-ics are covered in more detail in this report.

SOUTHERN AFRICA FINDINGSSUMMARY– BY KEY FOCUS AREA

Non-Traditional Agricultural Exports Development

There is significant potential for non-traditional agri-cultural exports (NTAE) development in the coun-tries included in this research. Opportunities in devel-oped country (primarily the EU), second-tier (e.g.,Singapore and the Middle East), and regional marketsare currently being successfully developed by firmsbased in Southern Africa. While the developed coun-try markets are very competitive and require tightcost and quality control, some of the other marketsare less complex, and therefore, more available tosmaller size firms. NTAE promotion also representsan opportunity for broad-based economic develop-ment and for increasing the access of the indigenouspopulation to the commercial economy because, un-der the right conditions, indigenous smallholders andSMEs can successfully participate.

Development of NTAE is constrained by a lackof entrepreneurial equity/collateral, inadequate infra-structure (especially roads, airports, and communica-tions), and poor organization (i.e., the lack of a clearunderstanding of the highest priority opportunities

Executive Summary

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[products and markets] and the optimal strategies andstructures for capitalizing on these opportunities).

Despite the opportunities offered by NTAE andthe potential benefits, there is very little direct donorinterest and support for NTAE development in thecountries studied. There is some focus on the produc-tion aspects, and some support for medium- or small-size firms that happen to be in agribusiness, but noth-ing specifically targeted toward agribusiness or NTAEdevelopment. However, such programs are under con-sideration in Zimbabwe and Mozambique.

Donor activities designed to support and stimu-late the development of NTAEs should consider thefollowing components:

n NTAE associations can facilitate achieving scaleeconomies by providing services such as techni-cal assistance and in some cases implementingtransactions (e.g., shared equipment, provisionof inputs, and consolidation and marketing ofoutput), and increasing “voice” to enhance theenabling environment.

n Both commercial (smaller firm to larger firm)and project (project management to larger firm)linkages with executives of successful largerNTAE companies will help develop SME mana-gerial and business capabilities and assist projectmanagement to better understand the opportuni-ties and challenges in the business

n A project must integrate financial (debt and eq-uity), technical, and managerial services into aone-stop-shop concept that can address a firm’sconstraints in an orchestrated manner, otherwisethe entrepreneur will have to visit several differ-ent sources with differing requirements, and/orone missing service will result in the others beingless than optimally effective.

n Projects must identify and target the highest op-portunity subsectors (e.g., in Mozambique andTanzania this may involve rehabilitation or for-ward integration of an old/existing export busi-ness) and markets and pay particular attention tointegrating indigenous firms into the business.

Monitoring and evaluation (M&E) for NTAE

development projects should focus on the success offirms, associations, or other entities supported. Na-tional export statistics are often not a highly relevantmeasurement of project performance.

Small and Medium Enterprise Development

There is a strong need for agribusiness SME devel-opment in Southern Africa, especially in support ofindigenous entrepreneurs. Agriculture accounts for avery large proportion of both employment and GDPin all three countries studies; therefore agribusinessesplay an essential role in serving and stimulating pro-duction agriculture. SMEs often are the most respon-sive to changes that are taking place in the SouthernAfrica business environment. There is a strong need,therefore, to increase the role of indigenous people inthe economies of the subject countries, but it will bedifficult for them to do so without outside (donor)help, given government budget problems. The factthat most SMEs operate in the informal sector shouldnot inhibit donors from providing them much neededassistance.

The most significant constraints Indigenous SMEsface are a shortage of management skills, particularlyin marketing and cost control, and the lack of equity/collateral, especially in rural areas where valuation isdifficult and there are land tenure problems.

There are quite a few donor programs for sup-porting commercial SMEs, but none of them offer thefull range of services required by a fledgling ISME.They are not focused on agribusiness and none cur-rently operate outside the capital cities. Therefore,the impact of these programs on agribusiness (thelargest portion of the economy), employment, and thegeographic areas with the greatest need, is minimal.There are PVO-supported rural microenterprise pro-grams, but these represent more social than economicdevelopment. However, some of the PVOs (e.g.,CARE) are beginning to help develop commercialISMEs.

Donor activities designed to support and stimu-late the development of ISMEs should consider thefollowing components:

n An integrated services approach (as mentionedabove for NTAE development) is necessary. This

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necessitates an extensive network of alliance part-ners who help to provide the broad range ofservices needed.

n Because an integrated approach is resource in-tensive, significant leveraging is necessary. Thisincludes involving several donors who can con-tribute financial, technical, and managerial assis-tance. Extensive private sector input should beincluded in both project design and implementa-tion, and local consultants should be developedso that they can competently provide services(particularly as related to marketing and costcontrol) on an ongoing basis.

n SME entrepreneurs need significant help to de-velop a highly functional business plan and touse that plan as the basis for an application forfinancing. Therefore, this service should be apart of the services offered.

n The project must provide close monitoring of andproper mentoring for clients, especially after fi-nancial assistance has been provided.

n It is unlikely that an entity that provides servicesto start-up and micro and small clients can everbecome self-supporting, unless such an entity isan umbrella organization.

M&E for this type of project should focus on thefinancial success of clients, the number of clientsassisted, the employment generated, and how well itis able to meet its own agreed budgets.

Association Development

Association development in Southern Africa offersconsiderable positive impact potential because asso-ciations can be an effective and efficient way to helpindigenous small producers and ISMEs leverage sup-port for development of subsectors opportunities. Suc-cessful associations will eventually become self-sup-porting.

The main constraints to association developmentsuccess are: the legacy of former socialist govern-ments’ control of cooperatives in Mozambique andTanzania, the tendency for producer-based associa-tions to be concerned only with production issues, thelow level of training (especially financial) and part-

time status of most association management, mem-bers’ lack of finance and financial viability, and dif-ficulties association management has in determiningmembers’ priority needs and developing programs toeffectively serve their highest priority needs.

Donor involvement in agribusiness associationdevelopment is minimal in the three countries stud-ied. EU donors support chambers of commerce, butthese are usually composed of urban-based traders.USAID is considering support for reorganizing theHorticultural Promotion Council in Zimbabwe, andUSAID supports The Business Center project in Tan-zania, which helped an NTAE association get orga-nized.

Donor activities designed to support and stimu-late the development of agribusiness associationsshould consider the following components:

n Assistance to help determine the priority needs ofmembers and potential members and to developprograms that serve a limited number of theirhighest priority needs.

n Help train association management in how tomanage a sustainable association with a focus onsources and uses of funds, maintaining positivemember relations, and effective lobbying.

n Encourage a vertically integrated structure thatinvolves producers, packers/processors, export-ers, and others to enable a greater number ofmembers and better industry coordination.

n Assist the formation of a multilayer structurewherein small groups of producers form self-help groups, that belong to a subsector associa-tion, which in turn belongs to a sector associa-tion. This will enable donors to support theumbrella sector association, which in turn cansupport and develop the levels below it. Theumbrella association can afford professional man-agement and will have a greater “voice” due tothe large number of members it represents.

M&E for association development projects shouldemphasize the membership-defined success (as de-fined by members) and progress toward sustainabilityof supported associations. The results of an annual

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membership satisfaction survey, conducted by a thirdparty, should be one of the most important criteria forcontinued donor support of an association.

Financial Services to Agribusiness

Because the lack of access to financing is widelybelieved to be the greatest initial constraint to busi-ness formation and expansion for all but the largestfirms, there is a major need for financial services tosupport ISMEs, especially in Tanzania andMozambique where the financial sector is nearly non-functional (at least for SMEs). Without financingsupport the agribusiness sector will not develop inthese countries and therefore the development of theagricultural sector will be inhibited.

The main constraints to agribusiness financing,according to the potential borrowers, are lack of eq-uity/collateral (especially in rural areas), poor record-keeping practices, inability to develop a viable busi-ness plan and proper financing application based onthat plan, and missing types of needed financing suchas trade credit or venture capital. Institutional con-straints are a non-supportive legal environment, thehigh cost of experienced financing and fund manag-ers versus the average size and volume of viablefinancing opportunities, the transaction and follow-up costs of small-scale financing, and the generalshortage of investable projects (although there is nota shortage of funds).

Donor supported financing is fairly significant inMozambique and Tanzania. EU donor microenterprisefinancing and World Bank SME financing are nearlythe only formal sources available to those groups inMozambique, and the World Bank SME program isabout to lose its intermediaries since, once privatized,their loan practices will have to be dramataicallyaltered. Donor-supported financial institutions in Tan-zania are also the only sources of finance for microsand SMEs, but none of these institutions focus onagribusiness. The commercial financial sector in Zim-babwe is well developed, but it does not focus onagribusiness ISMEs.

Donor activities designed to support and stimu-late the development of agribusiness financial ser-vices should consider the following components:

n Loan officer training to help them assess financ-ing applications on bases other than theborrower’s balance sheet/collateral.

n Assistance for borrowers to develop viable busi-ness plans and financing applications based onthose plans, and ways to enhance post-financingfollow-up and support. This means providingmanagement and technical services to clients.

n Creative and flexible products such as sweat andin-kind equity, income notes, convertible debt,and so forth.

n Group lending for small borrowers.

n Using existing successful institutions where pos-sible.

n Provide multidonor support due to the minimumsize project needed to afford top-quality manage-ment. Consider making managers responsible formultiple projects/funds in one country or regionalprojects/funds.

The M&E of financial services projects must bevery commercially oriented (i.e., focused on assetgrowth and ROI/ROA).

Monitoring and Evaluation

There are opportunities to enhance the M&E of agri-business projects or project components that supportagribusiness development. However, more benefitwould be derived from a greater focus on more effec-tive design and implementation than on increasedemphasis on formal M&E systems.

USAID agribusiness development projects mostoften have the objective of stimulating firm-leveldevelopment over a usually rather short term (three tofive years). That is insufficient time to have anysignificant effect on macro-level economic growth,employment, or even NTAE volume.

Fortunately, USAID projects are rarely imple-mented through government entities. Other donors,whose policy is to work through such agencies, havea very difficult time assessing the results of theirefforts because the results are heavily dependent onthe effectiveness of the agencies’ implementation,over which the donors have minimal control. This is

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especially true in countries where civil servants aregrossly underpaid and must work two jobs and/or usetheir government position as a source of additionalincome.

The more effectively managed the organization,the more specific its M&E programs will be. M&Efor agribusiness development projects must be pre-dominantly focused on commercial measurementssuch as sales and earnings growth, net asset growth,and return on investment for both the developmententity and its clients. M&E for donor-supported ven-ture capital funds should be based on financial perfor-mance (the fund and that of its investments) as wellas on the number of clients served and investmentsassessed. Over the long term, the ability to sell invest-ments at an acceptable price will also be important.Group lending project M&E considerations shouldinclude: unit transaction costs, repayment rate,sustainability of the credit entity, growth in the capitalbase of entities, and the savings rate of members/clients.

Very few agribusiness projects have been able todevelop effective M&E approaches that can isolatethe effect of external variables such as drought orsignificant changes in the enabling environment or themarket.

General Recommendations

An ongoing, formal, and SSA-wide information ex-change should be established on agribusiness devel-opment lessons learned and the implications for USAIDproject/activity design and implementation. This wouldincorporate the experience of all SSA donors workingin the area and could be initiated based on the findingsof this Innovative Approaches activity.

Multidonor agribusiness development projects (es-pecially if financing focused) should be exploredespecially where cooperatives are responsible for anarea where they have extensive experience. Also,some PVOs (e.g., CARE in Zimbabwe andMozambique) may be able to move beyond produc-tion agriculture and social development into seriouseconomic development, and should therefore be con-

sidered as partners for agribusiness developmentprojects, especially in rural areas.

Agribusiness development projects must be man-aged by individuals with considerable successful com-mercial agribusiness experience. Local staffing shouldtake place from the highest positions downward sothat as much local input as possible can be incorpo-rated into the staffing process. All expatriate posi-tions must have a local counterpart.

Country-level agribusiness opportunities thatUSAID should assist in supporting are an integratedservices horticulture development center focused onISMEs in Zimbabwe, a cashew and coconut rehabili-tation project focused on the role of SMEs inMozambique, and an integrated services, NTAE-fo-cused Food and Agribusiness development Centerlocated in the Arusha/Moshi area in Tanzania.

Key Issues

What is the best way to assess the feasibility of and,if feasible, to install a model of an integrated services,widely supported Agribusiness Development Centerin Southern Africa, and where is the highest opportu-nity location?

Why do Tanzanian cashew producers receive amuch higher portion of the export value per kg thando cashew producers in Mozambique, and how canthe share going to the producer in Mozambique beincreased?

What is the best way to determine the viability ofand to develop highly leveraged (multidonor and ex-tensively networked with the private sector) agribusi-ness projects (especially NTAE) in geographic areasthat apparently have potential for a broad-based,positive impact?

How can the success, future prospects, andspecific agreements of apparently functional outgrowerand subcontractor schemes (e.g., in the Arusha/Moshiarea) be further assessed?

How can the success of CARE’s high-potentialand very innovative “village trader” project in Zimba-bwe be best monitored and evaluated by USAID?

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ACP African Caribbean and Pacific countries (of the Lome Convention)

AFC Agricultural Finance Corporation

AMIS II Agribusiness and Marketing Improvement Strategies Project II

APDF Africa Project Development Facility

ARDA Agricultural and Rural Development Authority (various)

ASC Agribusiness Service Centers

BSBC Barclay’s Small Business Center

CARE Care International in Zimbabwe

CDC Commonwealth Development Corporation

CdZ Companhia da Zambezia

CFU Commercial Farmers Union

DANIDA Danish International Development Authority

DM Deutsche Mark

EDESA Economic Development in Equatorial and Southern Africa Societe Anonyme

EIM Equity Investment Management Ltd.

EU European Union

FADC Food and Agribusiness Development Centers

FAO Food and Agricultural Organization

FAO/AgMin Food and Agricultural Organization of the UN/Mozambique Ministry of Agriculture

GTZ German Technical Assistance

HPC Horticultural Promotion Council

ICFU Indigenous Commercial Farmers Union

IDIL Instituto Nacional de Desenvolvimento de Industria Local

IFAD International Fund for Agricultural Development

IFC International Finance Corporation

ILO International Labor Organization

IRR International Rate of Return

ISME Indigenous small and medium enterprise

Glossary of Acronyms and Abbreviations

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K-MAP Kenya Management Assistance Program

LIBOR London Interbank Offered Rate

M&E Monitoring and Evaluation

NGO Non-Government Organization

NTAE Non-Traditional Agricultural Exports

OCA Operational Constraints Analysis

ODA Overseas Development Administration

PVO Private Voluntary Organization

REDSO Regional Economic Development Support Office of USAID

ROI Return on Investment

SD/PSGE Sustainable Development/Productive Sector Growth & Environment

SHG Self-Help Group

SIDA Swedish International Development Authority

SME Small and Medium Enterprise

SSA Sub-Saharan Africa

TBC The Business Center

TDFL Tanzania Development Finance Limited

TVCF Tanzania Venture Capital Fund

USAID United States Agency for International Development

VCCZ Venture Capital Company of Zimbabwe

WB World Bank

ZED Zimbabwe Enterprise Development Project

ZFU Zimbabwe Farmers Union

ZimBank Zimbabwe Banking Corporation Limited

ZIMMAN Zimbabwe Manpower

ZimTrade Zimbabwe Export Promotion Program

ZOPP Zimbabwe Oil Press Project

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1. General Introductionto the Eight Country Study

1.1 BACKGROUND

USAID Missions, and to a lesser extent other donors,are designing and implementing programs with theobjective of developing more efficient agriculturalproduct marketing systems. The Africa Bureau’s Ag-ricultural Marketing and Agribusiness DevelopmentStrategic Framework calls for examining marketingconstraints and identifying ways to improve marketingefficiency. USAID does not yet have effective moni-toring and evaluation mechanisms for recently estab-lished agribusiness development programs nor ways todisseminate the lessons learned from these innovativeprojects to Missions in other countries.

USAID’s Africa Bureau therefore requested theAgribusiness and Marketing Improvement Strategies(AMIS II) project to carry out surveys of innovativeagribusiness projects in a number of Sub-SaharanAfrica (SSA) countries for the purpose of providingthe Bureau and Field Missions with: (a) a compilationof lessons learned to assist in developing future mar-keting and agribusiness development activities and (b)an effective monitoring/evaluation mechanism for itspresent and future activities.

1.2 OBJECTIVE

“The objective of this research activity is to increaseunderstanding of the role and significance of new,innovative agricultural marketing and agribusinessprograms that Missions are implementing, and to syn-thesize a cogent set of ‘lessons learned’. In an era ofscarce development resources it is primordial that de-sign innovations and project successes be dissemi-nated rapidly and replicated elsewhere. As agribusi-ness development projects have grown more complex,the need for monitoring and evaluation has risen ac-cordingly. The research activity will focus on twocategories of innovative programs to support agricul-

tural marketing development: supporting services andinstitutions; and financial systems and services.”1

1.3 ANALYTICAL ISSUES TO BEADDRESSED

The research activity calls for the consultant to moni-tor in the targeted countries the impact of new andinnovative programs implemented by any donor agencyand to carry out case studies of agribusiness firmstargeted by a project or benefiting from a project.

As called for in the Statement of Work referencedabove, the major analytical issues to be addressed are:

1. What are the major constraints that the program ormechanism was designed to address?

2. What are the performance indicators to measureimpact and how do they relate to the goal andpurpose of the mechanism/project?

3. What has been the effect of the mechanism/projecton private sector investment levels, export promo-tion, and people-level impacts?

1.4 THE AMIS II APPROACH TOAGRIBUSINESS DEVELOPMENTRESEARCH

The AMIS II Project was designed to provide USAIDaccess to private sector commercial expertise that wouldhelp improve agribusiness marketing efficiency.

The major focus of the project is on stimulatingprivate sector led economic development, not onenabling environment enhancement or social develop-ment. Although enabling environment enhancement/social development is an important aspect of economicdevelopment, the AMIS II project addresses it onlywhen it acts as a constraint to commercial develop-ment. AMIS II focuses primarily on the provision of

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inputs to production agriculture and all aspects ofagriculture after the farm gate. The project does notlook at production agriculture issues unless so dictatedby market requirements. The project utilizes a marketled or demand pull approach.

The AMIS II approach is to address agribusinessmarketing efficiency improvement and agribusinessproject impact measurement and evaluation from acommercial/analytical perspective. Thus the report ismore prescriptive in nature and less descriptive thana typical USAID project report. In other words, itdeals more with the “so what?” and less with the“what’s so” of agribusiness development activities.

The principal authors of this report (Maxwell andGordon) are first and foremost agribusiness opera-tions and consulting professionals,with between themmore than 50 years of international private sectorfood and agribusiness development experience, muchof which was gained while living and working outsidethe United States. Most of this experience was inmanagement positions with leading food, agribusiness,and agribusiness supply firms such as Beatrice Foods,ConAgra, Cargill, and Monsanto, and was focused onbusiness expansion and market entry in developingcountries. Dr. Gordon is currently Professor ofAgribusiness Studies at the Arizona State UniversityCentre for Agribusiness Policy Analysis. Jim Max-well currently works for Cargill Technical Services,Cargill’s Africa operations include fifteen agribusi-nesses located in eight different African countries.

The result of the above orientation is a presenta-tion style that is not academic, but crisp, authorita-tive, and judgmental. It is based on the authors’intimate and extensive knowledge of agribusinessfirm operations, investor/financier perspectives, andtheir significant business development/market entryconsulting experience. Therefore, the presentationstyle used herein utilizes pointed observations andrepresents the best business judgment of highly expe-rienced and successful practitioners.

1.5 METHODOLOGY

The methodology adopted by the AMIS II team forthis activity consisted of the following steps:

1. Identify and select Key Focus (apparent highopportunity) Areas for research based on majorareas of current USAID interest and the antici-pated potential of a key focus area to positivelyaffect agribusiness development. The four areaschosen, based on a literature review, interviewsin Washington, and a field survey, were Non-traditional Agricultural Export Development,Association Development, Small and MediumEnterprise Development, and Financial Ser-vices. The first three fall into the category of“supporting services,” as mentioned in projectobjectives (see section 1.2), while the fourthrelates to the second category — financial sys-tems and services.

2. Conduct a literature search on all identifiableUSAID and other donor-supported agribusinessprojects in SSA countries.

3. Based on (1) and (2) above, select the SSAcountries that have agribusiness projects or ac-tivities, sponsored by any donor, that relate to theKey Focus Areas. Solicit USAID Mission supportto work in those countries that have both relevantprojects and activities and sizeable agribusinesssectors.

4. Arrange and complete an initial field trip to coun-tries where USAID Missions invited the consult-ants to work, and that have apparently relevantagribusiness projects and activities being imple-mented. Collect additional information on the se-lected projects and on any others suggested byfield personnel. Confirm Mission and REDSO-level Key Focus Area interest.

5. Screen the identified projects or activities andselect those that have aspects relevant to projectobjectives and to the Key Focus Areas and thatare sufficiently developed to start yielding les-sons learned.

6. Arrange and complete a field trip to collect de-tailed information on the most relevant projectsand do case studies on target beneficiaries, pri-marily via in-depth interviews with project man-agers, donor management, and beneficiaries.

7. Analyze the information collected, extract les-

3

sons learned, and suggest the implications forenhancing the design, implementation, and moni-toring and evaluation of USAID agribusinessprojects.

8. Expand the geographic coverage and increase thedepth of analysis in countries and Areas of Focusdetermined to be of high potential to USAID agri-business activity design and implementation.

This Southern Africa report represents the addi-tion of three countries and a particular focus on SMEand NTAE development.

1.6 LIMITATIONS

Research was limited to the countries that respondedpositively to the SD/PSGE/PSD request for collabora-tion. The contractor invested considerable time obtain-ing permission from Missions to travel to their coun-tries.

USAID has been the only donor interested in agri-business development and this interest is quite recent.Therefore there are very few USAID projects with asufficient track record for in-depth evaluation (i.e.,any results are very short term in nature). Very re-cently, the World Bank and some German donor foun-dations have focused on private sector development,which often includes agribusinesses.

1.7 ORGANIZATION OF THEINNOVATIVE PROJECTREPORTS

The entire Innovative Approaches project had twophases. Phase I covered East Africa and Phase IIadded West Africa and Southern Africa, (this report),and three secondary literature studies.

Innovative Approaches research findings are re-ported in separate volumes for East Africa (Kenyaand Uganda-[Volume 3]), Southern Africa (Zimba-bwe, Mozambique, Tanzania-[Volume 5]), and WestAfrica (Ghana, Mali, and Senegal-[Volume 4]). Thereare separate reports on the Secondary Research Find-

ings (Volume 2) and Overall Project Summary andConclusions (Volume 1).

Each of the regional reports are organized asfollows:

n Introduction

n Key Regional Findings (organized by the fourareas of focus plus monitoring and evaluation,general recommendations, and issues deservingfurther study)

n Country-Specific Studies (separate chapters)

— Entities/Case Studies Selected

— Findings on Donor Projects

— Findings on Associations

— Findings on development Finance Organiza-tions

— Findings on Private Agribusiness Firms

— Lessons Learned and Implications for USAIDPlanning

— Each of these sections is organized by thefour Areas of Focus. There are also sectionson Monitoring and Evaluation, General Rec-ommendations, and Issues Deserving Fur-ther Study.

Findings on the larger projects and associationswere analyzed based on the specific research ques-tions listed in the Scope of Work. The research ques-tions, as interpreted by the consultants, are as follows:

1. What project or activity objectives are relevant tothe areas of focus chosen for study?

2. How are these aspects of the activity innovative?

3. What performance indicators were or are beingused to monitor/measure impact of the activity?

4. How are external influences being managed?

5. How successful have the relevant interventionsbeen?

6. What new agribusiness opportunities have resultedfrom the activity?

7. What monitoring and evaluation mechanisms, sys-

4

tems, and indicators can be suggested?

8. What relevant lessons can be learned from thisactivity? What mechanisms worked and did notwork, and how could the impact be improved/enhanced?

9. What are the relevant implications for USAIDproject design and implementation?

10. What new mechanisms or interventions can besuggested to increase the effectiveness of theseprojects or activities?

11. What indicators of project success can be sug-gested, and what is the best way to monitor thoseindicators?

12. What other useful information should be reportedand what are the main unresolved issues?

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2. Introduction to theSouthern Africa Study

Individuals representing entities from a broad rangeof sizes and stage of participation in the food systemwere interviewed during the fieldwork in Zimbabwe,Mozambique, and Tanzania. A list of these individu-als appears in Appendix D; the entities they representare categorized in Table 2.1. With respect to thistable, please note that:

n The focus of the AMIS II project is on quadrantsV, VI, VIII, IX, and XI.

n In general, the viability of commercial entitiesdecreases from the top right (III) to the bottom left(X) quadrant, with commercial, project, and asso-ciation risks increasing (due to the vagaries of

nature, lack of management capacity, and tightermargins) in a very similar manner.

n One objective of the Innovative Approaches ac-tivity is to identify, based on lessons learned,sustainable interventions that will make agribusi-ness ventures more viable and vibrant, particu-larly in quadrants V, VI, VIII, and IX. However,very few firms, projects, or associations were iden-tified in quadrants VI and IX.

n Given the relatively undeveloped nature of theprivate sector in Mozambique and Tanzania, mostprojects are focused on quadrant X.

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Table 2.1 Size Distribution and Focus of Firms, Associations, and Projects Evaluated

Enterprise Size

Tier 1> 100 full-timeemployees:

Established exporter

Tier 2a (SMEs)10-100 full-timeemployees:

New exporters (or notexporting at all)

Tier 2b (SMEs)10-100 full-timeemployees:

Established exporters

Tier 3 (MSEs)< 10 full-timeemployees

New or interested inexporting

ProductionAgriculture

Quadrant IZimBank (Z)

Quadrant IVWorld Bank/FAO (M)TechnoServe (T)SIDA (T)The Business Center (T)SAT (T)1st Adili (T)ZED (Z)ZIMMAN (Z)

Quadrant VIIARDA (Z)TANEXA (T)

Quadrant XCARE (M & Z)Agrarius (M)AgMin/FAO (M)World Vision (M)ATI (T & Z)NEVEPA (T)GTZ (T & Z)DANIDA (Z)AFC (Z)ZDB (Z)ZFU (Z)

Agribusiness

Quadrant IIInterposto (M)Lomaco (M)Compania da Zambezia(M)Standard Chartered (T)Sluis (T)TISCO (T)APDF (Z)VCCZ (Z)Favco (Z)Selby (Z)CFU (Z)CTI (T)

Quadrant VIDIL (M)LAKE (T)Sun Flag (T)Barkley’s SBC (Z)ICFU (Z)

Quadrant VIIITDFL (T)TVCF (T)World Bank (Z)EU/Mashonaland (Z)HPC (Z)

Quadrant XIGev’s Flowers (Z)Hortpack (Z)A&S Consultants (Z)IDIL (T)

High Value-AddedProcessing

Quadrant IIIHortico (Z)Flair (Z)

Quadrant VIEDESA (Z)

Quadrant IXZimTrade (Z)

Quadrant XII

Where: (M) Mozambique (T) Tanzania (Z) Zimbabwe

Firms are boldfaced; projects are in italics; associations are underlined. Classifications are based on the majority of

the entity’s focus.

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3. Key Southern Africa Findings

This section presents the lessons learned and theimplications to enhancing the design and implementa-tion of USAID agribusiness development projects basedon research and analysis in all three Southern Africacountries. Where appropriate, the lessons learned arecategorized. All lessons learned discussed in this chap-ter are relevant to more than one case study and inmany instances more than one country. The implica-tions presented at the end of each section are based onthe lessons learned from the entire Southern Africastudy (i.e., not just those listed in this chapter).

Most of the lessons learned and implications arepresented as brief statements with minimal support orexplanation. More detailed information on the state-ments can be found in the profile of the case studyfrom which the lesson learned was drawn and in thechapter on the country where the entity is located.The entity or entities most relevant to each lessonlearned is shown in parentheses at the end of eachlesson learned. Table 2.1 can be used to identify thecountry for each entity and section X.1 of eachcountry chapter lists the full name of the entity. Referto the Appendix Table of Contents for the location ofthe entity’s profile.

The NTAE development and SME developmentAreas of Focus were of primary interests in the South-ern Africa portion of the Innovative Approaches activ-ity; therefore, these sections are the most developed inthis report. Association development and Financial Ser-vices development Areas of Focus are presented on asurvey basis. In all cases except NTAE development,agribusiness should precede the noted Area of Focus,(e.g., Agribusiness SME development).

3.1 NON-TRADITIONALAGRICULTURAL EXPORTDEVELOPMENT

Non-Traditional Agricultural Exports (NTAEs) arewell developed in Zimbabwe, but need to be redevel-

oped in Mozambique and are embryonic but growingrapidly in Tanzania. All three countries have substan-tial potential for NTAE development because theyhave a current or historical base of NTAE businessand because growing conditions are above averagefor SSA, although water availability problems need tobe resolved in Zimbabwe. There are no major en-abling environment problems that cannot be over-come, but significant transport system–related (air-ports, roads, and ports) constraints exist in all threecountries.

None of the countries have developed an orga-nized and integrated approach to NTAE develop-ment, even though agriculture represents a significantportion of GDP and employment, and additionalsources of foreign exchange and employment arebadly needed. The Horticultural Promotion Council inZimbabwe is currently being restructured to make itmore responsive to the interests of smaller partici-pants. Despite numerous private enterprise–basedefforts to involve indigenous small and medium enter-prises (Indigenous SMEs) in the production, packag-ing/processing, and marketing of NTAEs in Zimba-bwe, the business is still dominated by largecommercial (white) farmers and companies controlledby them. This situation must be resolved to achieveeconomic and political stability.

In Mozambique, rehabilitation of its once largecashew and coconut businesses is as important forits economy as is the development of shrimp aquac-ulture and value-added processing. Tanzania has sig-nificant potential for producing specialty NTAEs,especially in the Arusha/Moshi area.

Lessons Learned

Market Related

n More than 50 percent of the imported vegetablessold in the European Union (EU) are imported bywholesalers for resale to large supermarket chains.

n Successful participation in this large NTAE busi-

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ness requires strict quality control, large-scaleoperations, and close linkages with the big EUimporters and retail packaging at the site of prod-uct origin.

n EU horticulture and floriculture markets will con-tinue to be well supplied; only those competitorswith high quality, high yields, a consistent supply,and low labor and transport costs will survive.(WB)

n Because transportation costs are a significant pro-portion of the total for NTAEs (30–40% of thelanded price), air freight, and to a lesser extent seafreight, costs must be very competitive. For airfreight, this is significantly dependent on passen-ger traffic volume. (WB)

Although the EU is a large market for NTAEs,there also are viable regional NTAE markets and othernon-African NTAE markets such as the Middle Eastand Singapore. (Favco)

Constraints Related

n Two major constraints to NTAE development arethe shortage of entrepreneur working capital andthe poor transportation system.

n Other important constraints to export develop-ment in general, and to NTAE specifically, arepoor performance (e.g., long delays) of the cus-toms service, inadequate and inconsistent en-forcement of tax laws, and excessive customsduties on inputs that are to be re-exported.

n For Indigenous SMEs, a shortage of high-qualityplanting materials and other input supply inad-equacies, as well as a very limited domestic mar-ket for off-specification production, constrain thedevelopment of NTAE businesses. (CTI/SIDA/WB)

Successful Indigenous SME export horticulturedevelopment requires the following:

n A large number of well organized producers in asmall geographic area with access to irrigation

n Cold storage units at collection points to removefield heat and store the produce

n Producer-owned transport/collection system

n Readily available qualified TA, primarily as relatedto quality control

n Access to a good communications system

n Focus on higher value products

n Shared production-related equipment such assprayers

n Access to a local fresh or processed market foroff-grade product and overproduction (Hortico)

Linkages Related

n When locals producers are risk averse and inex-perienced in NTAE production and marketing, thebest way for them to develop is via outgrower orsubcontractor relationships with large, experi-enced firms. (NEVEPA)

n There is considerable misunderstanding and dis-trust on the part of small producers concerningthe price that packers or exporters pay for pro-duce, especially as related to product grade-outand the appropriate price for the various terms ofsale (e.g., FOB factory versus field pick-up, CODversus consignment, and TA provided versus noTA). Price transparency is important to maintaina credible relationship between small producersand big exporters. (ZFU/Selby)

n Large agribusiness firms may find it easier toestablish their own production in developing coun-tries when technological advances enable inten-sive, commercial agriculture, rather than to de-velop and manage outgrower arrangements. (CdZ)

n Indigenous SMEs will be best able to participatein higher value NTAE business if they shareexpensive fixed assets and consolidate their out-put and marketing efforts. Chances for the finan-cial success of marketing projects involving small-scale producers would be improved if there werea joint packer/small farmer–owned center in agrowing area that was responsible for land prepa-ration, spraying, TA, output consolidation, coldstorage, and transport. (WB/Mashonaland/Hortico)

n Due to high interest costs, it is difficult to useextensive debt to finance new NTAE businessesthat are not fully integrated; that is, can capture

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most of the margins available between the pro-ducer and the consumer. (ZimBank)

Project Development Related

n Innovative business propositions by entrepreneurswith an intimate knowledge of locally availableraw materials and a reasonable understanding ofinternational markets deserve further evaluation,especially when they can have a significant broad-based local impact. (Sun Flag/Sluis)

n A large up-front investment and significant ongo-ing operating costs are needed for a broad-basedexport promotion and information service.

n Because government funding is unreliable, a smallsurcharge on imports and exports is a good wayto fund an export development entity. (ZimTrade)

n Low literacy significantly increases the cost oftraining farmers and NTAE processing facilityemployees, making it difficult to operate and main-tain these facilities. (Lomaco)

Implications

Before providing support to an NTAE association,donors must determine how much export experienceassociation members have, their export opportunitiesand potential, the status of the export-related enablingenvironment, the extent to which association organiz-ers and leadership understand members’ priority needsand have viable programs to serve these needs, andthe quality of association management.

Because support to Indigenous SMEs for NTAEdevelopment requires considerable, diversified, andongoing “hands-on” assistance, an institution thatoffers the necessary integrated (finance, TA, andmanagement) services (e.g., a horticultural develop-ment center) is needed, especially one that has thesupport of the larger exporting firms.

When an NTAE development project is matureenough for project management to understand whichsubsectors have the best potential to support theirobjectives, managers should have the flexibility totarget some of their resources on these sectors.

Developing local counterparts through the effec-tive transfer of project/activity know-how from for-

eign advisors to locals is essential for projectsustainability and must be a key component of allprojects.

NTAE projects with Indigenous SMEs as theprimary beneficiary should include services that helpIndigenous SMEs join together to:

n Share expensive fixed assets.

n Purchase inputs jointly.

n Consolidate output, at least at the local level.

n Establish linkages with larger exporters to markettheir output.

n Negotiate subcontractor or outgrower relation-ships, especially for lower technology/higher la-bor requirement products.

This type of project also must ensure that whenlarge exporters are buying from small producers ortheir representatives (e.g., an SHG), or from SMEmiddlemen/wholesalers, all participants understandthe basis for establishing prices and terms. This mayrequire donor assistance for communication materialsand meetings to explain the basis for pricing and thedifferent terms, as well as to determine how pricesetting can be made transparent on an ongoing basis.

Projects should investigate, and where viable de-velop, the less difficult to serve regional and mediumsize (e.g., Singapore and the Middle East) exportmarket opportunities, especially for Indigenous SMEexporters. Also, local markets should be assessed fortheir potential as outlets for off-specification andexcess production so that at least some value isrecovered for all production.

Sources for working capital and reasonable costdebt should be made available to NTAE project benefi-ciaries, either by the project itself or from members ofthe project’s support network and/or cooperators. Fi-nancial services are especially important for IndigenousSMEs, and reasonable cost debt is very useful for non-integrated entities, since they are capturing a limitedamount of the total available margin on a product, andfor firms that are not directly exporting and therefore donot have access to debt at offshore rates.

Two very important enabling environment com-

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ponents that NTAE projects should focus on are:

n Transportation, both domestic roads and ports/airports as well as freight rates, especially airfreight; helping the government stimulate tourist/passenger traffic, deregulate the air cargo busi-ness, and maintain low refueling and airport land-ing fees, which will stimulate air freight availabil-ity and help keep rates competitive.

n Optimization and proper enforcement of customsactivities, including quick clearance of outboundgoods and low/no duties on imported raw materialsthat are used to produce goods that are reexported.

Donor involvement in a major agribusiness exportpromotion project will require substantial funding, along-term commitment, and the development of alterna-tive sources of funding (e.g., a cess on imports and/orexports). The size of commitment needed means thatmultidonor support may be required. Support by donorsfrom countries that are the target market for some of theexports would be very helpful.

A donor-supported mechanism is needed to fi-nance, most likely on a matching grant basis (whichwould be recoverable if the project became success-ful), the assessment of broad-based benefit NTAEpropositions developed by successful local agribusi-ness entrepreneurs. A mechanism should also bedeveloped to tap the experience of the few successfulNTAE entrepreneurs in a given geographic area, andwith their help determine how to accelerate the rateof NTAE development in that area.

Rehabilitation of NTAE industries (e.g., the cashewand coconut industries in Mozambique) that were oncequite large will be very costly and require joint and well-coordinated efforts by donors, the government, privatesector participants, and producers.

3.2 INDIGENOUS SMALL ANDMEDIUM ENTERPRISEDEVELOPMENT

3.2.1 Overview

Reforms being undertaken by the governments of Zim-babwe, Mozambique, and Tanzania have been self-

absorbing to a large degree; that is, occupying all gov-ernment attention to the exclusion of most other activi-ties.

While governments are thus preoccupied, local fi-nancial institutions (originally government owned) are invarious stages of slow restructuring, due largely topressure from donors and the World Bank. These finan-cial institutions, especially the domestic banks, have littleor no liquidity and many, if not most, are technicallyinsolvent. If lending at all, they are almost certainly notlending to food and agribusiness Indigenous SMEs.While business lending centers are being established insome of the major urban centers in the three countriesvisited, there are only nascent plans to do the same atpopulation growth centers in rural areas.

Institutional lending to agriculture-related firms iscomplicated and constrained also by continuing shiftsin land ownership and tenure policies. Even in Zim-babwe, with its tradition of large (white) landhold-ings, the problem of furnishing credit to communallyowned land is still a problem (which the World Bankplans to address). Access to land, determination of itsvalue, and the livelihood that can be derived from it,are crucial issues that must be addressed in each ofthe three countries.

An unexpected finding from recent fieldwork isthat the preoccupation of national governments withdonor-mandated reforms has inadvertently createdgenuine opportunities for entrepreneurship. Concernsthat the regimes would have had with private enter-prise in former years now pale before the demands ofinternational donor groups. Consequently, private sec-tor initiatives are alive and well. Further, where do-nors have consulted with each other and with themore entrepreneurial elements of the business com-munity (particularly in Tanzania and Zimbabwe), theclimate is quite favorable for accelerating the start-upand development of Indigenous SMEs.

Certain constraints to Indigenous SME develop-ment, however, apply across the board:

1. There is no focus on integrated food and agribusi-ness Indigenous SME development per se.

2. The lack of knowledge of modern managementtechniques and the lack of integrated marketing,

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financial, and technological services to attain spe-cific business objectives is a very large IndigenousSME development constraints.

3. The World Bank and many donors are required towork through government agencies or institutions,which in many cases (especially in Mozambiqueand Tanzania) such services are not effectivelyavailable.

Complete privatization could have one drawbackin that there will be a need for “government endorse-ment” or for donor funds to be channeled directlythrough a government vehicle. It is not clear howthese privatized and commercialized institutions willbe regarded by the World Bank and other agenciesthat traditionally work through governmental struc-tures.

In Mozambique, there is a government-owneddevelopment company (IDIL) that the World Bank,SIDA, and other EU donors are using as a vehicle toevaluate and recommend entrepreneurs for fundingvia state-owned and private commercial banks. How-ever, this approach is not working particularly wellfor two reasons. First, because neither the apex unitat the Bank of Mozambique, the state-owned banks,nor IDIL, are seriously screening projects and therehas been no serious effort to pursue nonperformingloans; and this results in default rates near 80 percenton WB-funded SME loans. Second, private bankslend only to customers they know well, which usu-ally does not include new or growing IndigenousSMEs.

As governments reduce their holdings in andcontrol of large parastatal agribusiness firms, theypay little attention to the entrepreneurial ventures thatneed to take the place of the parastatals. Wheredonors are sponsoring private sector initiatives, thereis very little, if any, direct participation by govern-ment-controlled entities. Therefore, as is pointed outin each country summary, there are many privatesector development approaches that can be pursuedindependently of the governments’ activities.

3.2.2 Findings2

Facilitating Integrated Indigenous SMEAgribusiness Development

For example, a review of past projects (Gordon andShaffer) indicated USAID has added business incu-bation projects to various programs, but these projectsare not far enough along for their results to beevaluated. It has been found that when a venturecapital approach to equity funding is taken, the resultshave been disappointing (Fox, J.W.), and this ap-proach has been especially true in developing coun-tries. The literature suggests several reasons for theinappropriateness of venture capital at the start up formost businesses, among which are:

1. The requirement that the entrepreneur give upboth management control and majority ownershipwhen the venture has high risk or less than spec-tacular payoff possibilities and entrepreneurs typi-cally are not willing to relinquish control.

2. Most enterprises in their early stages of develop-ment need tighter day-to-day oversight and finan-cial control than is provided by venture capitalmanagement or donor staff.

3. The funding required by an individual SME forstart-up or expansion is typically much lowerthan the amount of investment made in any onefirm by venture capital funds.

4. The approach of donor organizations can be quiteantithetical to the way venture capital managersanalyze enterprise potential. Often donor organi-zations, assuming that entrepreneurs are compe-tent and accountable, have exercised lax over-sight, with the result that by the time they learnthat an enterprise is in trouble, it is too late tointervene and help the enterprise back to health.Most enterprises in their early stages of develop-ment need tighter day-to-day oversight and finan-cial control than is provided by venture capitalmanagement or donor staff. This is particularlytrue with inexperienced entrepreneurs and in ar-eas where communication is difficult. Businessincubators/development centers can provide suchday-to-day oversight and control, while at the

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same time providing technical assistance and train-ing.

5. The funding required by an individual SME forstart-up or expansion is typically much lowerthan the amount of investment made in any onefirm by venture capital funds. Further, venturecapital funds traditionally do not fund start-ups.Business incubators or development centers, how-ever, are well situated to provide small-scale fund-ing in the form of “seed capital” or “bootstraploans” to the SMEs they are assisting.

Fox’s findings certainly apply to private sectordevelopment projects in developing countries spon-sored by USAID and many other donors. Reasons forthis include the following:

1. Donors often do not exercise enough control oversponsored enterprises to ensure that they hireappropriate and qualified staff,

2. Career donor agency staff usually lack privatesector business experience and do not have theexpertise to evaluate the proposed enterprise’sstaff and business plan,

3. USAID has difficulty with a five-year horizon, letalone the up to ten years that enterprise funds andmany venture capital operations may require todemonstrate unequivocal “success.”

The secret of success for incubators/develop-ment centers is that they deal with these well-knownproblems head-on by employing the following guide-lines:

a. Where possible they obtain financial, legal, andother support services (often pro bono in theUnited States), pooling them in a common facilityor operation. This approach, in fact, is beingincorporated in the British-sponsored LAKEproject in Tanzania.

b. Enterprises are given a very short rein from initialfeasibility exploration until they reach profitabil-ity. They are held to objectively measurable, per-formance milestones expressed in terms of time,budgets, output, sales, and so on, which, if notachieved, can terminate any funding commit-ment. Thus, enterprises are judged strictly on a

business development or commercial basis be-cause that is the basis on which they will succeedor fail.

c . Because business incubators/development cen-ters are usually part of a broader local, regional,or national economic development plan, their long-term objectives are usually to achieve a break-even point (where revenues are equal to operatingcosts) within a five-year period. Their goal is tobecome self-sustaining through positive cash flowreceived from rents, royalties, licenses, a spreadon loans, and modest sales of small equity hold-ings in the supported ventures. This is in contrastto the traditional venture capital objective of real-izing an average 30-percent annual return on in-vestment from a portfolio of new enterprises.

d. Investors in business incubators/development cen-ters usually have broader objectives and are morepatient than venture capital investors. For ex-ample, the former are often benevolent donors(foundations, major banks, and local or nationalgovernments) interested in the overall, long-termeconomic development of an area, region, orcountry. Their support typically consist of grantsand seed capital funding. Other such investorsinclude companies (including venture capital firms)interested in observing a development center’soperations, usually with an eye toward contract-ing with or investing in promising individual en-terprises as appropriate; and government pensionfunds, whose investments may be carefully lim-ited to not more than 4-5 percent of total invest-able assets. Funds may make such investments inpart to stimulate local economic development andemployment.

e. Management of an incubator/development centeris vested in at least one senior experienced indi-vidual, with a distinguished business record, whomaintains day-to-day operational oversight of eachventure. This person is also responsible for analy-sis of entrepreneurial proposals and recommendsenterprises he thinks worthy of support to theboard or funding committee of their incubator/development center.

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f. Entrepreneurs are notoriously independent andself-opinionated, rarely recognizing or acknowl-edging when they have failed to put together acredible management team or practicable busi-ness plan. The incubator/development center man-agement is expected to work step-wise with eachentrepreneur, helping them develop an investableplan, a balanced management team, and sustain-able operations.

All enterprises, whether starting up or expanding,require a “package” of business services that consistsof both long- and short-term debt, equity, and mana-gerial services tailored to fit that specific venture.Some effort should be expended to determine if theSouthern Africa Enterprise development Fund andthe several bureaus with access to USAID loan guar-antees could collaborate with Missions’ TA/manage-ment assistance programs and deal with Africanprojects from a common point of view. This wouldinvolve delivering these Indigenous SME businessdevelopment services in a highly integrated mannerand as appropriate for each individual venture. Ide-ally, a common staff directorate could be developedso that enterprise evaluation and funding could becoordinated through, if not actually integrated into,one decision making process.

3.2.3 General Observations

1. Indigenous SME development projects move fast-est when donors work together, pooling theirresources and agreeing on common procedures.Such donor coordination means that applicantsmust satisfy only one set of requirements (i.e., fillout only one set of forms). While all donor agen-cies must be accountable for their own resources,they must not encumber the enterprises theyassist with “home port” criteria. Whatever theindividual donor requirements, jointly fundedprojects must have one set of performance crite-ria that all donors agree to use.

2. Given the situation in the three countries, donorsshould also work together to enhance and facili-tate communications between the governmentand the private sector. In addition, a united posi-tion by the donors will be useful when donors

must protect their funded agencies or projectsfrom governmental inaction, interference, orthoughtless rule-making.

3.2.4 Other Indigenous SME DevelopmentFindings

Lessons Learned

Market Related

Domestic supply/demand balancing opportuni-ties should be thoroughly investigated, especially thepotential role of indigenous SMEs therein. (A&S)

Constraints Related

Entrepreneurs’ and managers’ lack of experienceand lack of management training are major con-straints in the early stages of private sector develop-ment, especially to SMEs. These constraints are usu-ally more significant than technical skill shortages andmake it very difficult for an entrepreneur to managea business in a way that enables repayment of financ-ing. (StanChart/TechnoServe/ZIMMAN/TBC)

Many donors view very limited equity availabilityand undercapitalization as the major constraint toSME development. However, inadequate infrastruc-ture (especially power, telephones, and roads), highduties on imports of processing inputs, lack of ac-cess to finance (to pay for needed imports), poorlocal business services and input supplies (especiallypackaging), and competition from imports that oftencome in without duties are also important constraintsto SME development. (LAKE/Sluis/World Bank)

Project Development Related

Microenterprises, SMEs, and even local govern-ment entities find it difficult to pay for the full cost ofbusiness advisory services, especially those wherethe provider is not able to leverage expensive staff.(TechnoServe)

Micro and SME development programs managedby indigenous people can succeed, even in verydifficult environments, if they are properly managedand if donor relations so that the programs are care-fully handled, are not perceived as a threat to thegovernment. (IDIL)

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Implications

If SME entrepreneurs must work with several differ-ent institutions rather than with one institution toobtain their business support needs (e.g., financing,TA and managerial advice), the burden on them ismuch greater, paperwork much more complicated,and coordination problems (e.g., inconsistent require-ments) much more likely. Therefore, a fully inte-grated (financing, TA and management assistance)project is needed.

In environments where there are very few suc-cessful private sector enterprises to use as models,SME development programs that links new entrantsto the few successful enterprises will increase therate of SME development by creating more modelsand mentors. This would include subcontracting re-lationships and other very localized SME develop-ment activities sponsored by successful large privatesector firms. There is also a significant need toenhance the cost competitiveness enhancement, pos-sibly via training or mentoring by successful entre-preneurs. Without donor assistance, achieving sig-nificant tonnage sales via SME linkages/outgrowerschemes will be achieved.

Projects that effectively and successfully supportclients, especially SMEs, at a reasonable cost mayhave difficulty “graduating” these clients as theirbusiness services needs expand along with their com-panies and they face new challenges. Turning thesemore developed clients over to qualified local consult-ants would enable the project to expand its coverageand reach, (i.e., serve new, younger SME clients).However, the more developed the client, especially ifthey are exporting, the more sophisticated their con-sulting needs, and local consultants in these environ-ments are unaccustomed to providing pragmatic busi-ness services, especially regarding ongoing operations.Therefore, a donor can effectively leverage its re-sources in these circumstances by developing localbusiness consulting capacity. Local consultant train-ing should be an ongoing component of SME devel-opment projects.

An institution that helps entrepreneurs prepare afinancing proposal and then operate their businesses

in a manner that ensures financing repayment/in-creasing share values will make a significant contri-bution toward stimulating more new SMEs and thegrowth of existing enterprises. Therefore, there is astrong need for USAID to sponsor an activity to helpdevelop and package proposals and business plansfor entrepreneurs seeking financing. This coulitiesinterested in providing this service, possibly modeledafter USAID-supported training provided to AfricaDevelopment Bank (AfDB) new private sector devel-opment unit officers. Donor-provided special fundsto help SMEs apply for equity investment and todevelop local business services capacity represents apartially integrated approach to SME development.

For donor-supported projects where SMEs areto be the beneficiaries, it is likely that financing willhave to be provided at a preferential rate and that fundmanagement costs will have to be subsidized, be-cause serious “hands-on” management support of theinvestments, both pre- and post-financing, will beneeded.

There is a unique opportunity to help establishSMEs shortly after a change from socialism andparastatal-managed marketing to a private enterprisebased economy. However, “supported” training pro-grams are needed to help entrepreneurs develop theirmanagement and financial skills beyond the limitedscope of their former positions, especially in econo-mies emerging from parastatal control of agribusiness.

3.2.5 Conclusions

Lessons learned and implications of this initial re-search in the three countries are indicated in theindividual country chapters. The following are high-lighted as priorities that emerged from all three of thecountries:

1. Building on and/or Collaborating with Estab-lished Private Sector Development Entities

a. IDIL . USAID in Mozambique should be ableto persuade present donors to give IDIL re-sponsibility for both operational and fundingoversight, including equity investment of anagribusiness development center. Certainlythe Southern Africa Enterprise developmentFund (SAEDF) should explore using IDIL to

15

screen enterprises in which it is consideringinvesting.

b. The Venture Capital Funds in Tanzania andZimbabwe are tightly controlled by their boardsand donors. USAID and SAEDF should con-sider involvement with these operations andthereby gain additional experience in privatesector financial services facilitation. Otherpartners and facilities are available to workwithin support of SME development projectsin all three countries (e.g., the World Bank,which has a substantial private sector invest-ment fund needing near-term placement).

2. Facilitation of Large Processor Indigenous SMELinkage Projects. In Zimbabwe, two of the larg-est processing companies (Hortico and Selby’s)are actively working with small growers to de-velop new sources of higher value, non-tradi-tional food exports. Donor support could acceler-ate establishment of subcontractor arrangementsby both new landowners and communal produc-ers by providing extension personnel, cold stor-age, and trucks. In Mozambique, where the pri-vate sector is just reviving after the long war, theUSAID Mission has already provided funds to acashew processor, who in turn made available tosmall growers cashew trees to replace those dam-aged by the war or by a recent devastating hur-ricane. A large coconut grower and processorwould also like to develop, in collaboration withsmallholders and present plantation employees, awood harvesting and processing enterprise toreclaim land (cut down the old trees) for newplanting. There are likely to be more projects likethese in both countries. More specific investiga-tion should be undertaken and plans of actionformulated with the local Missions to capitalize onthese opportunities to enhance links between largefirms and Indigenous SME agribusinesses.

3. Lack of Entrepreneurial Orientation and “Knowl-edge of Business” Gap. One theme that recursthroughout this report regarding constraints isthat conversion of each economic sector to onefocused on markets and private enterprises can-not be ordered from above. This attitude change

can be influenced with customized managementtraining. Donors must determine how to helpfocus management training on specific high-op-portunity ventures. It is the experience of incuba-tor and FADC management everywhere that themore specific the training to the entrepreneur’senterprise, the more successful it is. Further,broader principles are then more easily grasped.

4. Selection of NGOs and Appropriate Projects. InZimbabwe and Mozambique, CARE and one ortwo other NGOs appear to be operating quiteeffectively. For example, in both countries, CAREis developing self-help programs that involve bothcommunal cooperation and pay-as-you-go opera-tions. CARE also is interested in promoting pri-vate, rural development, and with USAID supportand AMIS II participation agribusiness develop-ment programs could be established with theseNGOs to assist start-up indigenous SMEs in suchareas as further processing and distribution oflocal production and improved inputs (e.g., seed).The selection of an NGO in which the USAIDMission has confidence, and further discussionwith them of the various options, would be alogical first step.3

3.3 ASSOCIATION DEVELOPMENT

The development of associations (often called unions)in Zimbabwe is quite advanced, but tends to be veryproducer based. Difficulties perceived by smallerproducers of the large commercial farmer (white)dominated and very powerful Commercial FarmersUnion (CFU and the Horticultural Promotion CouncilHPC that it supports), which serves a broad base ofagriculture and agribusiness interests has led to theformation of unions with narrower interests. HPC isnow being reorganized outside of the CFU in anattempt to structure it so that it can serve the needsof the entire horticulture industry. The success ofthis undertaking will be interesting to assess.

Associations in Mozambique and Tanzania arevery undeveloped, but there is a substantial need andpotential. However, the negative attitude toward as-

16

sociation-type entities, caused by the involvement inand control of cooperatives by former socialist gov-ernments, will have to be overcome.

Effective donor support for agribusiness asso-ciation reorganization and sustenance in Zimbabwe,and for association development targeted on high-opportunity agribusiness subsectors in Mozambiqueand Tanzania, are high-impact opportunities. Thelatter is especially true if NTAE- focused, verticallyintegrated associations can be developed to pursuethese opportunities.

Lessons Learned

Past problems with government control of coopera-tives makes it difficult to organize producer-basedassociations. Also, members of producer-based NTAEassociations tend to want to focus on production andnot to bother with processing, marketing, or othernonproduction functions. Producer-owned market-ing entities/associations can be very successful inter-national marketing organizations. The key to theirsuccess is the professionalism and quality of manage-ment and the competitiveness of members. Producerassociations can even develop in difficult economicand political environments. However, the ability ofproducer-based associations to provide members withthe needed production, and especially postharvest,services will likely depend on outside support. (Sluis/TANEXA/Flair/Agrarius)

It is very difficult for Indigenous SME exportersto gather the technical and market information neededfor successful development of NTAEs. Groupingthemselves into associations makes this much easier.(TANEXA)

Leadership and financial training are very impor-tant for association management. (Mashonaland)

New associations must achieve a detailed under-standing of members’ priority needs and develophighly efficient programs to serve the highest priorityneeds. Because of limited resources, new associa-tions must focus on a few, high-positive-impactmember services. (Agrarius)

NTAE association group lending schemes oftendo not require large amounts of capital because mem-

bers’ export volume is usually quite modest. Propercash management techniques will help reduce theamount of working capital required. (TANEXA)

Implications

Donor support for integrated producer/packer/ex-porter associations seems to be a viable way toovercome the tendency for producers to focus onlyon production-related functions. This support shouldalso help exporters gather the technical and marketinformation needed for successful development ofNTAEs, and provide association leadership withmanagement and financial training.

A well-organized and well-managed multi-asso-ciation structure, with an umbrella association as itsapex unit, can improve the performance of associa-tions and significantly enhance association develop-ment project leveraging.

Donor support to new associations should focuson helping association leadership achieve a detailedunderstanding of members’ priority needs and de-velop highly efficient programs to serve a limitednumber of the highest priority needs.

Association-sponsored and donorsupported grouplending is a viable way to overcome members’ sub-stantial financing constraints. This can be accom-plished with a relatively small amount of funding orguarantees, but the sponsoring donor must help theassociation management develop and administer thegroup lending program, especially follow-up on bor-rowers.

3.4 FINANCIAL SERVICESDEVELOPMENT

The financial sectors in Mozambique and Tanzaniahave current account and balance-of-payments prob-lems. While the financial sector in Zimbabwe is welldeveloped and diversified, offering specialized financ-ing, venture capital, and special Indigenous SMEsources, drought and borrowing by the GOZ havecaused balance sheet and high debt-to-equity ratioproblems at the firm level, and high inflation and

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interest, as well as a credit squeeze, at the macrolevel. The financial sectors in Mozambique and Tan-zania are so weak that they offer little potential foragribusiness finance, except for the largest interna-tional firms. In Mozambique there are almost nosources of formal finance for SMEs. The situation inTanzania is better due to innovative projects by do-nors, specifically TDFL, TVCF, and the new RMPSfund. In fact, donors’ efforts in Tanzania should bea useful model for what is needed in Mozambique,especially because (a) the only two state banks thatwere lending to (but not collecting from) SMEs arebeing privatized, and (b) considerable financing assis-tance will be needed to rehabilitate the coconut,cashew, and other agribusiness subsectors, and tosupport the participation of MSEs therein.

Lessons Learned

Constraint Related

Lack of entrepreneurial experience and equity,poor bookkeeping practices, and the lack of know-how to develop satisfactory financing proposals andthe associated business plans are major constraints tofinancing agribusiness SME ventures; and these limitthe ability of donors to disburse development financeto these firms. (TDFL/WB)

Difficulty identifying investable projects, not thelack of finance, is the major constraint to donor-supported financial services projects focused on SMEdevelopment; that is, the lack of investable ideas is agreater constraint than the lack of available financing.(TDFL/VCCZ)

The lack of debt financing and entrepreneur eq-uity are both important constraints to the success ofventure capital projects. Other important factors thatlimit a venture capital fund’s ability to invest itsavailable resources include entrepreneurs’ lack offamiliarity and comfort with the concept of venturecapital, inadequate record-keeping practices, the un-availability of buyers for shares of firms the fund hasinvested in, and restrictions the fund may have onclient size, business sector, or owner nationality.(TVCF/SAT)

Lack of trade finance is a very common privatesector agribusiness development constraint in econo-

mies emerging from socialist systems. (WB)

Operations Related

Financial service organizations working withlarger borrowers (e.g., APDF) can afford to carryout more complete feasibility studies, have less diffi-culty sourcing funds, and incur lower transactioncosts as a percentage of financing value. (LAKE/APDF/TBC)

Loan officer knowledge of the geographic area,the references of the borrower, and the businessbeing financed is essential for financing provided onbases other than collateral. Lending on criteria otherthan collateral also requires specially trained loanofficers, preferably with an intimate knowledge ofthe market they are serving. This neighborhood net-working approach for screening small loan applicantsworks, and can be especially effective in rural areaswhere everybody knows everybody. (BSBC)

Professional management and a very clear focuson asset growth and return on investment will havea very positive impact on economic developmentprojects, even without subsidies or grant-based assis-tance. (EDESA)

Checking the veracity of project proposals, espe-cially as related to market share assumptions and themarketing plan, and hands-on mentoring and over-sight management after financing are critical to thesuccess of an investment, particularly in rural areasand in agribusiness. (VCCZ)

Financial development projects that require theborrower to have a low debt-to-equity ratio will findfew investable projects available in private sectorsthat are in the early stages of development. Convert-ible debt and income notes, along with loan officerswho have a good understanding of the applicant’sbusiness, will help reduce this constraint. (TVCF)

Loans granted through state-owned banks, evenwhen commercially oriented entities perform the feasi-bility studies, are often not repaid due to borrower andbank management attitude problems regarding the needto repay government-related debt (i.e., the prevailingattitude that if the loan came from the government or adonor it does not need to be repaid). (World Bank)

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Implications

Because equity/collateral limitations are the major initialconstraint to both micro and Indigenous SME formationin emerging private sectors, projects that allow sweatequity (equity credit for labor) and in-kind contributionsto equity by entrepreneurs will help offset this con-straint, although they cannot eliminate it. Governmentguarantees for initial entrepreneur equity may be a sourceof assistance, but if such assistance is provided it mustbe closely monitored by project management to makesure the borrower understands that the loan must berepaid, unlike, in the past, when financing provided bythe government was not repaid.

High-quality management and support from adonor who is experienced with business developmentand finance in developing countries will make a majorcontribution to the success of a venture capital project.New venture capital projects should investigate theexperience of other USAID venture capital projects inSSA before finalizing a design.

The management team of a financial services entityneeds to be involved with either a large single fund/institution or several funds/institutions to spread the highcost of their services and keep the cost from being aburden on any one project. Given the cost of high-quality fund managers, a regional fund (debt and equity)would enable better leveraging of management.

Financial services alone will not stimulate eco-nomic development as much as integrated financial,managerial, and technical assistance. Therefore, whilereasonable availability of funds will stimulate microand Indigenous SME formation, TA and managementassistance will be needed for them to be successful.

For optimal effectiveness and efficiency as wellas for making the most rapid progress, existing, well-managed financial intermediaries with a good trackrecord (when they are available) should be used fornew private sector development programs.

Cooperation among donor-supported debt pro-viders (e.g., TDFL), equity providers (e.g., TVCF),and TA projects (e.g., TBC) with similar objectiveswould prove beneficial and should be pursued bydonor-supported financial services projects.

Keeping smallholder transaction costs low andrepayment ratios high is difficult even for well-man-aged institutions. Group lending via intermediaries(such as NGOs) appears to be one way to controlthese costs. For group lending, the optimal group sizerange is 10 to 25 members. Group lending can alsohelp overcome collateral problems based on commu-nal land ownership. Community-based group lendingprograms are an alternative to local traders’ controlof commerce, cash flow, and informal lending (i.e.,where the local trader extends credit for daily neces-sities and it is repaid from the farmers harvest).Group lending projects to be successful in societiesevolving from socialist models, however, will requiremuch education and training.

All credit projects should include a savings com-ponent as a means to generate funds for future loans.

3.5 MONITORING AND EVALUATION

In general, USAID places much more emphasis onformal M&E systems than do other donors. Thatportion of other donors’ support that is intended toimprove a country’s balance of payments is coordi-nated with other donors and the World Bank and usesprogress on conditions precedent as an impact mea-surement. However, it is unusual for other donors’projects and project-related activities to use macro-economic measurements to assess the impact.Progress on the project objectives is usually assessedon at least an annual basis, but not necessarily usingextensive quantitative measurements. Rather, consid-erations such as the satisfaction level of the benefi-ciaries and government entities involved play an im-portant role.

Lessons Learned

Agribusiness Project Related

Separating an agricultural bank’s developmentactivities from its commercial activities will facilitatebetter monitoring and evaluation of the developmentactivities. In addition, it will be easier for donors towork with the new development-focused entity theywill have very similar objectives. (ARDA)

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Project Development Related

Project M&E must be basic and simple. It mustestablish the starting point/baseline and producemonthly accounts of progress versus budget forassisted clients. Collection of social benefits and sec-ondary information is usually not cost effective, butsome balance between quantitative and qualitativeinformation can be achieved. (TechnoServe)

Microenterprise Related

The M&E used by most local PVOs involved inMSE financing projects is informal, but includes thenumber of proposals screened, number recommendedfor funding, amount of funding approved, the suc-cess of funded enterprises, and the continued satis-faction of and support by donors. (IDIL)

International PVOs’ M&E systems formicroenterprise development projects are most oftenbased on a review of annual accomplishments versuspreviously established very localized objectives.(WVM)

General

Donors other than USAID usually do not usemacro measurements to monitor and evaluate theimpact of their activities or projects. (All)

Implications

The more effectively managed the organization themore specific their M&E programs.

A focus on commercial measurement would makeM&E for agribusiness development projects moremeaningful for both the development entity and itsclients.

M&E for TA and business consultancy develop-ment projects should include the number of managerstrained, number of consultants trained and certified,the extent to which training and consulting fees coveractual costs, the success of clients’ businesses orassociations, the increase in client employees, and theamount of financing sourced for clients.

M&E considerations for MSE developmentprojects should include: the extent to which commu-nity-level (versus regional-level) processing and trad-

ing enterprises develop and are able to sustain them-selves, and the extent to which enterprises evolvefrom pure trading and toll processing to principal(possession taking) processing and adding value.

M&E for donor-supported venture capital fundsshould be based on financial performance of the fundand its investments as well as on the number of newinvestments assessed. In the long term, the ability to sellinvestments at an acceptable price is also important.

Group lending project M&E considerations shouldinclude: unit transaction costs, the repayment rate,the sustainability of the credit entity, growth in thecapital base of entities, and the savings rate of thegroups’ members/clients.

3.6 GENERAL RECOMMENDATIONS

The following recommendations are also relevant tothe overall Innovative Approaches activity, but do notfit in the above categories.

A formal and ongoing SSA-wide information ex-change should be established on agribusiness devel-opment lessons learned and the implications for USAIDproject/activity design and development. (TBC)

Donor programs based on a well-established ca-pability for that donor have good prospects for suc-cess. Conversely, new development areas should beapproached with considerable care, and possibly incooperation with other donors who have experienceand competence in that area. Therefore, the apparentsuccess of a production agriculture–focused donoragency or PVO does not mean that it will be able tosuccessfully evolve into postharvest development,especially without considerable outside assistance.(WVM)

Donors can use their experience in more devel-oped industries to help rehabilitate agribusiness indus-tries destroyed by political strife and/or civil war(World Bank/FAO/AgMin). In situations of emergingdemocracies and free market systems, unique oppor-tunities for cooperation between the private sectorand donors may emerge, often with considerable

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mutual benefit characteristics. Innovative, largeagribusiness companies represent a good way fordonors to leverage their agribusiness and infrastruc-ture development efforts in rapidly evolving coun-tries, especially when the agribusiness firm is willingto cooperate on projects of mutual benefit and inter-est. Private agribusinesses can be used to identifyhigh-yield business and geographic opportunities, andcan often be effective partners in developing theseopportunities. (CdZ/Lomaco)

The Tobacco Development Trust in Zimbabwe isa good model of cooperation between commercialfarmers, communal farmers, and the government,and merits further assessment. (World Bank)

Effective staffing is absolutely essential to aproject’s success. Professional management and astrong interest in localization of most operating posi-tions will enable agribusiness projects to get off to asolid start. Hiring higher level counterpart and localstaff first will facilitate more local input into designrefinements and lower level staff selection. Africansfrom other countries may be able to supplement thesupply of local agribusiness managers while localsare trained and gain more experience. (Mashonaland/CARE/StanChart)

Pragmatic leadership and good donor relationswill help PVOs and other intermediaries survive verydifficult political and economic conditions. (IDIL)

Shortly after the shift from socialist to demo-cratic systems is a good time for donors to determinewhere they have a comparative advantage to assistagricultural ministries because at that time these min-istries are often quite open to ideas and will cooperatewith well thought out programs. (FAO/AgMin)

Improvements in government industrial policiesmust be accompanied with significant input from theprivate sector, especially when a country is evolvingfrom a parastatal-based economy. (SIDA)

All aspects of projects’ and beneficiaries’ activi-ties (production, organization, management, market-ing, finance, etc.) must be properly served for opti-mal project or firm success. Also, the donor mustconduct a careful and multidimensional viability analy-sis before choosing the geographic area for a projector activity. (Mashonaland/CARE)

Donors should investigate opportunities to useinternational expertise to improve the access of pro-ducers, especially those in communal areas, to avail-able water resources. Need to conserve scarce waterresources on an on-going basis, a la Israel. (WorldBank)

3.7 KEY ISSUES DESERVINGFURTHER STUDY

The following issues are believed to be sufficientlyimportant to agribusiness development in SouthernAfrica that an effort, possibly USAID-led, should bemade to resolve them.

What is the best way to determine the viability ofand to develop agribusiness, and especially NTAEprojects, in geographic areas (e.g., the Arusha/Moshiin Tanzania) that have serious potential for a broad-based, positive impact? (Sluis/Sun Flag/NEVEPA)

How can the success, future prospects, andspecific agreements of apparently functional outgrowerand subcontractor schemes (e.g., in the Arusha/Moshi area) be further assessed? (NEVEPA)

Why do Tanzanian cashew producers receive amuch higher portion of the export value per kilogramthan do producers in Mozambique? (WB)

How can the success of CARE’s high-potentialand very innovative “village trader” project in Zimba-bwe be best monitored and evaluated by USAID?(CARE)

How can AFC of Zimbabwe play a more impor-tant role in agribusiness development and agribusinesscommercial lending, and what is the most effectiveway to reorganize and finance AFC’s two majorareas of interest? (AFC)

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4. Zimbabwe

While the long-term importance of agribusiness to thegrowth of Zimbabwe’s economy is widely recog-nized, there is a profound lack of supporting infra-structure and market-oriented management expertisewithin the country. Government of Zimbabwe (GoZ)ministries understand the need to increase productionagriculture, but they have not focused on opportuni-ties to export NTAE crops such as flowers or spe-cialty vegetables and fruit to meet the requirements ofvalue-added markets. These market opportunities arerecognized to some extent by donors, some parast-atals, private sector processors, and the HorticulturalPromotion Council, but not by the government.

Communal areas in Zimbabwe are characterizedby a profound lack of both infrastructure and know-how. There is a severe shortage of management, mar-keting, and finance expertise, aggravated by insecureland tenure policies and a lack of critical physicalinfrastructure such as good roads, irrigation, cold stor-age, and facilities for further processing.

4.1 ENTITIES SELECTED FOR STUDY

For Zimbabwe case studies, the consultants selectedten donor-supported innovative projects, four asso-ciations/unions, seven development finance organiza-tions and seven private agribusinesses for review.These entities, and where appropriate the donor sup-porting them, are listed below. The case study pro-files for each of these entities are presented in Appen-dix A.

Projects: (with supporting donor in parenthesis)

ARDA — Agricultural and Rural Development Author-ity (various)

CARE — Care International in Zimbabwe

DANIDA — Danish International Development Author-ity

GTZ — German Technical Assistance Mashonaland

and Manicaland Projects - (EU - European EconomicCommunity) World Bank Projects - (World Bank)

ZED — Zimbabwe Enterprise Development Project(USAID)

Zim Trade — Zimbabwe Export Promotion Program(EEU)

ZIMMAN — Zimbabwe Manpower Development IIProject/Academy for Educational Development (AED)– (USAID)

ZOPP — Zimbabwe Oil Press Project/ATI – Appropri-ate Technologies International (USAID)

Associations/Unions:

CFU — Commercial Farmers Union

HPC — Horticultural Promotion Council

ICFU — Indigenous Commercial Farmers Union

ZFU — Zimbabwe Farmers Union

Development Finance Organizations:

AFC — Agricultural Finance Corporation (GoZ, et al.)

APDF — Africa Project Development Facility (IFC)

BSBC — Barclay’s Small Business Center

EDESA — Economic Development in Equatorial andSouthern Africa Societe Anonyme

VCCZ — Venture Capital Company of Zimbabwe

ZDB — Zimbabwe Development Bank

ZimBank — Zimbabwe Banking Corporation Limited

Private Agribusiness Enterprises:

A&S Business Development and Promotion

Favco Limited

Flair Limited

Gev’s Flowers

Hortico

Hortpack

Selby Enterprise

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Most donor-supported entities have multiple ar-eas of focus (see Table 4.1). Therefore, an assess-ment of each project, association/union, and privateorganization was performed for each area of focus.

4.2 LESSONS LEARNED ANDIMPLICATIONS FOR USAIDPLANNING

In the following sections, Lessons Learned and Im-plications for USAID planning derived from analysesof the entities profiled in Appendix A are presented.They are grouped into priority categories based on(1) the anticipated positive impact on USAID objec-tives and operations if they were successfully adopted,and (2) the extent to which the lessons learned orimplication is broadly applicable, that is, applicable toSSA agribusiness projects in general. While thisprioritization is subjective, it represents the studiedopinion of the research analysts and draws upon theirmany years of experience in agribusiness develop-

ment in developing countries. The primary source ofthe lessons learned or implication is shown in paren-theses. In the NTAE and indigenous SME develop-ment sections, the major focus of the Southern Af-rica portion of the Innovative Approaches activity,the material is divided into Lessons Learned andUSAID Implications sections.

4.2.1 Non-Traditional Agricultural ExportDevelopment

NTAEs from Zimbabwe to the EU have exhibitedremarkable growth in the past decade. Fresh vegetableexports increased from 340 tons to over 8,000 tonswith a value of $27 million during this period, whilecut flower exports grew from 400 tons to 8,400 tons,valued at $42 million. Citrus exports are valued atapproximately $9 million. Further increases are ex-pected because market conditions remain favorable inEurope for this off-season production and becauseZimbabwe has many of the characteristics needed tocompete in this market.

Table 4.1 Zimbabwe Innovative Projects and Their Areas of Focus

Project (Donor)

ARDA(EU+Others)

CARE (Private)

DANIDA

GTZ

Mashonaland/Manicaland (EU)

World Bank

ZED (USAID)

ZIMMAN (USAID)

ZimTrade (EU)

ZOPP (USAID)

NTAE Promotion

Yes

No

Production Only

No

Some

Some

Yes

Indirectly

Yes

No

AssociationDevelopment

Yes

Yes

No

Yes

Yes

No

Yes

Some

No

No

SMEDevelopment

No

Yes

Minor

Minor

Yes

Yes

Yes

Indirectly

No

Yes

FinancialServices

Development

Indirect

Some

No

No

Minor

Yes

Yes

Indirectly

Minor

Indirect

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The major constraints to NTAE development,especially horticulture, in Zimbabwe include the fol-lowing:

n Less than optimal industry coordination. The Hor-ticulture Promotion Council (HPC) has supportedthe industry, but while it has a diverse member-ship, its basic support has come from the Commer-cial Farmers Union (CFU), which is composedprimarily of large commercial (white) farmers.HPC is being reorganized outside of the CFU, butuntil that reorganization is successful there isminimal industry-wide coordination.

n NTAE production and export activities are domi-nated by the large commercial farmers and theirforward integration activities. Two of the threelargest packer/exporters are owned by large com-mercial farmers. While this does not necessarilyconstrain NTAE development, it does limit therange of those who can benefit from NTAE suc-cess.

n Air freight costs are high, primarily becauseAffretair (a parastatal about to be privatized) con-trols air cargo availability and rates.

n There is a shortage of trained personnel at theextension, fieldworker (except on large commer-cial farms), and marketing levels.

n National-level quality and phytosanitary/chemi-cal/residual inspection is less than adequate, espe-cially for products destined for developed mar-kets.

n Constraints particular to Indigenous SME partici-pation in NTAEs include the weak position ofsmall producers and middlemen relative to that ofthe large exporters; poor access to the financingneeded to purchase equipment such as sprayersand trucks; lack of NTAE marketing knowledgeand information; limited access to water from ir-rigation projects, especially in communal areas;and inadequate business management training.

These constraints must be addressed and over-come in order to accelerate the rate of NTAE devel-opment in Zimbabwe.

High Perceived Impact

Some form of product consolidation is necessaryfor the financial success of NTAE marketing projectsinvolving small-scale producers. (Mashonaland)

The NTAE “service company” concept, which wassuccessful in Mashonaland East, should be tried else-where. This is a joint packer/small farmer owned centerthat is responsible for land preparation, spraying, TA,consolidation, cold storage, and transport. (Hortico)

Selby Brothers Inc. seems to have established thebasics of a good NTAE outgrower scheme, whichcould be further developed with the help of more capi-tal investment and greater price transparency. (Selby)

The Affretair airfreight cost issue needs immedi-ate investigation because it is a significant problem forall air exporters. (Selby/Flair/HPC)

There is considerable misunderstanding and dis-trust on the part of small NTAE producers as relatedto the price packers or exporters pay for produce,especially related to product grade-out and the appro-priate price for various terms of sale (e.g., FOB fac-tory versus field pick-up, COD versus consignment,and TA provided versus no TA). (ZFU)

A large up-front investment and significant ongo-ing operating costs are needed for a broad-based NTAEpromotion and information service. (ZimTrade)

Joint government funding for NTAE promotion isunreliable, but a small industry-supported surchargeon imports and/or exports is a good way to fund anexport development entity. (ZimTrade)

There is a viable regional NTAE market, and thereare available non-African markets other than the EU.There seems to be excessive emphasis placed on theexport market for horticultural products, especially whenthe domestic market is underserved and less difficult tosupply. Indigenous SMEs find developed NTAE mar-kets very high-risk business. (Favco/Zimman)

A horticultural development center could offer theintegrated services necessary for Indigenous SME suc-cess in export horticulture, especially with the support ofa firm such as Hortico or Selby. (Hortico/Selby)

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Donor-supported Indigenous SME NTAE devel-opment requires considerable and ongoing “hands-on”assistance. (ZimTrade)

Due to high interest costs, it will be difficult to usedebt to finance new NTAE businesses that are notfully integrated (i.e., that can capture most of themargins available between the producer and the con-sumer). (ZimBank)

For successful development of Indigenous SMEexports the following are needed:

n Large number of well-organized producers in asmall geographic area with access to irrigation.

n Cold storage unit at collection points to removefield heat and store the produce.

n Producer-owned transport/collection system.

n Readily available qualified TA, primarily as re-lated to quality control.

n Access to a good communications system.

n Focus on higher value products.

n Shared production-related equipment such assprayers.

n Access to the local fresh or processed market foroff-grade product and overproduction. (Hortico)

NTAE outgrower schemes have potential in Zim-babwe, but the optimal arrangements (e.g., agreementsand support systems) for them have yet to be identi-fied. (World Bank)

Medium Perceived Impact

To minimize administration costs, horticulturalproducers associations may need to act as principalsrather than as agents, which is often the current prac-tice. Developing an association that purchases mem-bers’ production may be of particular interest to mem-bers. (Mashonaland)

Where infrastructure is inadequate, less perish-able NTAE products must be produced. (ARDA)

An HPC-supported extension service (possible viaalliance with Agritex) is feasible and has merits, butshould be investigated.

If NTAE associations become large enough andwell organized enough to develop their own packing/processing facilities and to act as a principal for mem-bers’ inputs and outputs, APDF could help assess thefeasibility of the operation, develop a business plan,and source both equity and debt financing. (APDF)

Production of shade roses can be financially re-warding but requires a large capital investment, rela-tively high technology, and very professional interna-tional marketing management. (Flair)

The merits and feasibility of an HPC-supportedextension service (possibly via an alliance with Agritex)is feasible and has merits, but should be investigated.(A&S)

Indigenous SMEs can be successful in the NTAEbusiness if owners/management have talent and tapinto all sources of assistance. (Gev’s)

Possible NTAE development interventions thatUSAID could pursue independently include assistingfarmers to buy spraying equipment, and investing incold stores and an office at the assembly point for thegrowers’ representative (to keep track of shipments).Farmers also need help acquiring irrigation equipmentsuch as pumps, though these would have to be poweredby gasoline engines in the many growing areas wherethere is no electricity. (Hortico)

Lower Perceived Impact

Marketing NTAEs should be the responsibility ofan entity closely associated with production ratherthan with an administrative entity (e.g., the Tea Estateversus ARDA). (ARDA)

Not all domestic buyers are willing to pay a pre-mium for better quality produce. (Mashonaland)

Implications

The design and implementation of NTAE develop-ment projects should take into account the following:

n Marketing and Promotion components should fo-cus on:

— Consolidating product from MSE producersor middlemen in order to achieve economiesof scale.

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— Minimizing freight costs, especially air, bystimulating passenger volume and reducingAffretair control over air cargo.

— Investigating and developing regional mar-kets, especially for product from SMEs.

— Ensuring that marketing responsibility restswith qualified and experienced managers andwithin day-to-day operations entity, not witha bureaucracy or non-commercial entity.

— Ensuring that any export promotion entity hasenough financing and technical support forthe long-term effort required.

n A financial component should offer at least work-ing capital to NTAE participants who do not haveaccess to foreign exchange–based loans. How-ever, new participants should be discouraged fromacquiring too much debt (i.e., attempting to oper-ate with a high debt-to-equity ratio) because theirlack of vertical integration usually does not enablethem to capture sufficient margin to service aheavy debt burden.

n Developing and supporting sustainable NTAE as-sociations is an excellent way to leverage scarceproject resources. An assessment should be madeof associations which function as a principal tosupply inputs, own shared fixed assets and pur-chase output from members. These may then gettiered into a multilevel association structure headedby a project- supported umbrella association.NTAE related extension services can be supportedby the most appropriate level association (e.g., aFlower Producers Association, which is under aHorticulture Association, which may be under anExport Promotion Association). APDF can beasked to assess and, if viable, develop a businessplan and source financing for larger commercialassociations.

n Link small producer or middleman with larger,successful NTAE exporters. This may include jointproducer/exporter ownership of the equipment orservices needed to facilitate the alliance, subcon-tracting, and/or outgrower arrangements. It isimportant to ensure ongoing price transparency

and develop trust between the alliance partners asrelated to how price is determined, the options and“costs” associated with different terms, and howgrade-out is determined.

n Enabling environment components of the projectshould focus on enhancing transport (i.e., roads,airports and seaports) and telecommunications in-frastructure.

n Institutions that should be assessed on the basis oftheir ability to help accomplish project objectivesinclude not only associations but also NTAE de-velopment center so which could offer fully inte-grated services (i.e., finance [debt and equity],technical assistance, and managerial developmentand consulting). Indigenous SMEs will require asignificant amount of ongoing “hands-on” supportto be successful in NTAEs.

n An industry cess on exports and/or imports can beused to help finance the program components thathave the highest degree of industry support.

4.2.2 Indigenous SME Development

Developing agribusiness Indigenous SMEs in Zimba-bwe is especially important from both political andeconomic perspectives. Commercial agriculture andagribusiness have traditionally been controlled by theminority whites and more recently by parastatals. Aboutone-third of the non-urban indigenous population liveson commercial farms, the other two-thirds (represent-ing about 50% of the total population) live in commu-nal areas, most of which are very short on resourcessuch as water, infrastructure, and other services. De-veloping agribusiness Indigenous SMEs (especiallyones that benefit communal areas) would stimulatedemand for communal-produced raw materials, pro-vide employment for both communal and urban fringeresidents, and enhance the livelihood and life style ofa large portion (6 million+) of the population, whichwould in turn lead to improved political stability. Be-cause a large portion of the Zimbabwean population isinvolved in agriculture and food production, it wouldbe easier to develop Indigenous SME agribusinessesthan other types of businesses and it would benefit alarger portion of the population.

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While limited water availability and unreliable rain-fall present a challenge for agribusiness in Zimbabwe,the country is reasonably well endowed with otheragriculture-related resources (e.g., arable land) andconditions.

High Perceived Impact

Undercapitalization is the major constraint to mostIndigenous SMEs. Limited access to capital (collat-eral, debt, or investor equity) and a serious shortage ofthe skills needed to manage a business in a way thatenables sustainability and repayment of loans are im-portant constraints to Indigenous SME success in Zim-babwe. There is a significant need to enhance the costcompetitiveness of Indigenous SMEs, possibly by train-ing or mentoring by successful entrepreneurs. As themarketing boards decline in importance and their func-tions are taken over by the private sector, major amountsof training are required to enable new managers tofunction effectively and efficiently. Training programsare also needed to help other new entrepreneurs de-velop their managerial and financial skills beyond thevery limited scope of their former positions. (WB/ZIMMAN/AFC/VCCZ)

An institution that helps Indigenous SME entre-preneurs prepare financing proposals and then operatetheir businesses in a manner that ensures financingrepayment/increasing share values will make a signifi-cant contribution toward stimulating more new SMEsand the growth of existing enterprises. (VCCZ)

The development of specific programs to link SMEsand large enterprises needs to be a high priority of therestructured HPC. However, achieving significant ton-nage sales via linkages/outgrower schemes, withoutdonor assistance, is challenging. (HPC/ZFU)

Domestic supply/demand balancing opportunities(i.e., moving excess production in irrigated areas tolocations where there is a shortage of that same prod-uct) should be thoroughly investigated, especially therole of Indigenous SMEs therein. (A&S)

CARE’s “village trader” project is very innovative,has considerable potential, and should be monitored byUSAID because it has the potential to enhance thestructure of marketing at the village level. (CARE)

There is an acute shortage of Indigenous SMEfinancing (i.e., short-term credit, intermediate-termdebt, and equity).

In the short-term, resistance by the GoZ to pressurefrom the World Bank for austerity and downsizing pre-vents higher levels of unemployment, but by not imple-menting these measures the GoZ uses most availabledomestic credit and crowds out private borrowers.

Implications

USAID could (1) join the donors being organized bythe World Bank to pool development funds, then steersome percentage of that pool to Indigenous SME de-velopment (alternatively, USAID could itself createIndigenous SME financing pools and vehicles); (2)through the SAEDF, and using existing intermediaries(e.g., the Venture Capital Company of Zimbabwe),provide investment guarantees, debt, equity, and so on;and (3) continue to support World Bank pressure onGoZ to restructure, reduce taxation, and free up debtcapacity for the private sector.

Implications

Capabilities under USAID’s AMIS II project in FADCdevelopment when teamed with NGOs’ knowledge ofrural communities could be an important developmentmode for indigenous SMEs.

Lesson Learned

Some processors and exporters are working withsmallholders to develop new sources of supply, butthese efforts have yet to generate a significant volumeof Indigenous SME-sourced business volume.

Zimbabwe exporters have a genuine interest inworking with small growers who can supply them withproducts, but their efforts have so far had minimalimpact. The firms interviewed seem to be sincerelylooking for persons willing to dedicate themselves tothe production of higher value crops that require a lotof plant-by-plant individual attention. Constraints onthese firms to do more of this supplier development arelargely cost and time related.

Implications

USAID could (1) use well-established matching grantmechanisms to reduce the cost to large exporting

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firms of reaching out to small landholders and com-munal organizations in rural areas; (2) earmark (re-serve) TA funds for those smallholder enterprises orother Indigenous SMEs opting to become suppliers tolarger firms; (3) support the creation of FADCs asfacilitating institutions to help large processors anddistributors reach and assist rural Indigenous SMEs,thereby linking them with distribution channels, tech-nical support, and so forth; (4) fund the developmentof a rural network of FADC substations with a resi-dent extension agent, manager, support staff, andprocessing equipment, cold storage, and office equip-ment that could be shared by local Indigenous SMEentrepreneurs; and (5) provide incentives to localentrepreneurs who wish to become private truckowners, provided that they agree to deliver localagribusiness products to processors.

Lesson Learned

There is a severe Indigenous SME “knowledge gap”with respect to business and financial managementknow-how.

Smallholders, particularly in communal (rural)areas, are essentially without managerial or financialknowledge, even to the point of noting how to putexploratory proposals together.

Medium Perceived Impact

Certain NGOs want to increase their economicdevelopment work in rural/communal areas. A fewNGOs are beginning to move out of their classical“charity” mode as they recognize the potential of ru-ral, for-profit enterprises to generate sustainable, com-munity-based economic development.

Implications

Rather than expand traditional business training pro-grams, such as USAID has supported all over theworld, training should be an integral component ofsupport provided to every new venture, focused strictlyon practical needs of each venture and designed totransfer specific operational know-how.

Lesson Learned

Infrastructure in most rural areas is in poor condition.

In many of the areas in Zimbabwe suffering fromdrought, the water table is within a few meters of thesurface. In view of the likely continuation of droughtconditions, this groundwater resource needs to be tappedfor local use rather than for a nationwide system,which was proposed previously. The rural areas wheremost of the communal holdings are found are reachedonly with difficulty on very poor roads.

Implications

Sustainable irrigation development and road buildingshould be supported by the GoZ and/or private devel-opment. However, projects of this nature need consid-erable donor help. USAID needs to select projects thatare cost effective and politically feasible with respectto implementation.

Lesson Learned

Low Perceived Impact

The GoZ remains securely entrenched in theeconomy, and is still trying to control the agriculturesector through commodity production and selling.

While the GoZ is slowly liberalizing its hold onthe economy, its various marketing boards are evolv-ing into “privatized” parastatals. The extension ser-vice, now reorganized as Agritex, is still dysfunc-tional. Overall, no agency seems to have assumed theresponsibility to develop agribusiness or even to bringmanagement and financial expertise to the communalareas. In fact, the opposite appears true, as there arestill a large number of laws and regulations that con-trol and restrict private sector initiatives. The GoZ andits parastatals are uncomfortable with entrepreneursmoving in directions not previously planned and ap-proved by the government, particularly in rural areas.

Implications

Unlike the governments in Mozambique and Tanza-nia, the GoZ often attempt to insert itself into a pro-gram by insisting on government “permitting” or li-censing of private sector initiatives. USAID shouldwork with the GoZ to clear the way for projects USAIDwishes to support. Failing that, USAID should workwith the World Bank and other donors to minimizeGoZ involvement.

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General Implications

A special activity/project/fund is needed to convertthe debt of viable agribusiness Indigenous SMEs toequity so that they can establish themselves on asustainable basis, especially during difficult economictimes, such as that caused by the current drought.(AFC)

SME entrepreneurs who are willing to submit todetailed scrutiny by banks and who have good per-sonal recommendations are usually good risks, evenwith minimal collateral. (BSBC)

Privately funded PVOs can be very effective andinnovative if they are well managed. They shouldtherefore be considered as partners in rural Indig-enous SME agribusiness development work. (CARE)

A focus on training to help entrepreneurs developbusiness plans that are intended exclusively for finan-cial institutions is not useful due to the limited avail-ability and cost of financing. Training to develop busi-ness plans for their own use (i.e., as a basis formanaging their business) will achieve a high yield.(ZIMMAN)

The lack of financing and marketing assistancecan restrict the overall success of a pure technologytransfer project. (DANIDA/Fuva)

Donor-supported communal-level work must in-volve both local chiefs and relevant GoZ officials.(A&S)

Therefore, USAID agribusiness Indigenous SMEdevelopment activity in Zimbabwe should include:

n A component that looks for and develops domesticsupply/demand balancing opportunities, especiallyfor horticultural products.

n Assistance for entrepreneurs to develop businessplans and financing proposals, especially businessplans that they can themselves use as a basis formanaging their businesses.

n Direct or indirect (referrals or guarantees) accessto financing including equity, working capital, anddebt, as well as the ability to convert debt toequity.

n Management skills development, especially costcontrol, managerial finance, and marketing.

n A program for developing and sustaining link-ages and alliances involving small producergroups and large firms that can be their custom-ers, mentoring of SME managers by successfulmanagers of similar, larger firms, and opportuni-ties for SME forward integration and/or subcon-tracting. This program must be developed andimplemented in a manner that accommodates theeconomic and political pressures affecting link-age/alliance partners.

n Support for the organization and sustainability ofa broad-based HPC, which may include horticul-ture-related extension and highly applied R&Dservices.

n Cooperation with privatized former parastatals(e.g., ARDA and AFC) well-managed and com-mercially oriented NGOs (e.g., CARE) and suc-cessful private sector entities that have at leastsome objectives that are consistent with those ofUSAID (e.g., Hortico, Selby, EDESA, VCCZ andBSBC).

n The efficient and effective integration of financial,technical, and managerial services into a singleentity that can serve the range of Indigenous SMEneeds from one location.

4.2.3 Association Development

Agribusiness associations are reasonably developedin Zimbabwe but are dominated by producer-basedinterests (four of which are profiled in Appendix A).As mentioned above HPC is undergoing a majorreorganization; and it is important that a broad base ofsupport be developed for the new HPC. Associationsin relevant areas other than production agriculture orhorticulture do not seem to be active.

High Perceived Impact

Local producer associations can succeed in Zimba-bwe. Producer-owned, marketing-focused entities/asso-ciations can be very successful international marketingorganizations. The key to their success is the profession-alism and quality of entity/association management andthe competitiveness of its members. Leadership and

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financial training are essential to develop successfulassociation management. (Mash East/Flair)

Well-organized and well-managed multilayer as-sociations can improve project leveraging. For ex-ample, ZFU works with subassociations called Horti-cultural Producers Associations (HPAs) to enable theleveraging that make its operations more effective andefficient. (Mashonaland/ZFU)

Medium Perceived Impact

Membership loyalty is a requirement for associa-tion sustainability. (Mashonaland)

Lower Perceived Impact

While the ZFU is willing to work with the CFU,it wants to retain its own identity. The logic of produc-ers paying dues to their HPA, the ZFU, and the HPCmay be difficult for some members to understand, andthe responsibilities and services of the various organi-zations must be carefully coordinated to avoid dupli-cation. (ZFU)

4.2.4 Financial Services Development

While the long-term situation in Zimbabwe appearspromising, most banking and business leaders antici-pate continuing high inflation and deterioration in pri-vate sector balance sheets. With declining revenues,the GoZ raises taxes, but resists World Bank and otherdonor pressure to cut back expenditures. The GoZ thususes much of the debt capacity of the country to coverits own deficit spending. Consequently, there is insuf-ficient credit available for any major expansion of theprivate sector. In fact, with the cost of debt high, debt-to-equity ratios are worsening for most large firms.This situation has been exacerbated in the agribusi-ness sector by persistent drought conditions, whichhave reduced agricultural production considerablybelow “normal” or expected levels.

Although there is money available for debt fi-nancing, most agribusiness firms are in no position toadd debt. Further, even though there is an increasingamount of money available for equity investment, thebalance sheets of most smaller and some largeragribusiness firms are generally not strong enough toattract new investors.

High Perceived Impact

A lack of investable ideas is most often a greaterconstraint to agribusiness finance than a lack of avail-able financing. (VCCZ)

Financial services by themselves will not stimu-late economic development as much as integratedfinancial, managerial, and technical assistance. (VCCZ)

As demonstrated by EDESA, professional man-agement and a very clear commercial focus (assetgrowth and return on investment) will have a verypositive impact on economic development projects,even without subsidization or nonrecoverable assis-tance beyond initial equity and guarantees. This in-cludes checking the veracity of project proposals, es-pecially as related to market share assumptions and themarketing plan, and hands-on mentoring and oversightmanagement after financing. Both of these are criticalto the success of a donor-supported direct or indirect(via a financial intermediary) investment, particularlyin rural areas and in agribusiness. (EDESA/VCCZ)

Loan officers’ knowledge of the geographic area,the borrowers’ neighborhood-sourced references, andthe business of the firm being assessed is essential iffinancing is to be provided on criteria other than col-lateral. This neighborhood networking approach forscreening small loan applicants works, and should beeven more effective in rural areas where everybodyknows everybody. Therefore, lending on criteria otherthan collateral requires specially trained loan officers,preferably with an intimate knowledge of the marketthey are serving. (BSBC)

Keeping smallholder transaction costs low andrepayment ratios high are difficult even for well-man-aged institutions. Group lending via intermediaries(such as NGOs) appears to be one way to control thesecosts. Group lending can also help overcome collateralproblems based on communal land ownership and landtenure difficulties. The optimal group size for grouplending is 10 to 25 members. (AFC/WB/ZFU)

Medium Perceived Impact

A high debt-to-equity ratio puts severe interest costand ROI pressures on new/rapidly expanding businesses,especially in high interest rate environments. (VCCZ)

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The new HPC should be a good intermediary fordonor-supported training and/or financial assistanceactivities. The reorganized HPC will need to includefinancial assistance, direct or indirect, in its range ofservices. (HPC)

The lack of clear title to land necessitates grouplending schemes, possibly via associations such as theHPAs. (ZFU)

Based on AFC experience, producers and Indig-enous SMEs will respond favorably to constructivenew financial concepts. (AFC)

When the commercial and development parts ofAFC are separated, the development portion will rep-resent a good intermediary for joint donor support ofindigenous enterprise development. AFC has solidexperience in a range of financial support mechanismsand is also experienced working with donors. How-ever, its agribusiness experience is limited. (AFC)

Financing (initial and ongoing) and managingcommunal irrigation networks is a significant chal-lenge. (AFC)

Lower Perceived Impact

The commercial portion of AFC will likely be ina better position than ZDB to support agribusinessdevelopment. (ZDB)

A financial parastatal can work effectively withdonors and can become involved in somewhat innova-tive and more risky lending. But it is difficult for aparastatal to view agriculture on a broader-than-production basis. (AFC)

4.2.5 Monitoring and Evaluation

USAID places much more emphasis on formal M&Esystems than do other donors. That portion of donors’support intended to improve Zimbabwe’s balance ofpayments is coordinated with other donors and the WorldBank and uses progress on conditions precedent as animpact measurement. However, it is unusual for otherdonors’ projects and project-related activities to usemacroeconomic measurements to assess the impact.There are two primary reasons for this: (1) other donorstend to disburse their assistance through local govern-ment entities whose performance they cannot control,and (2) activities are most often broken down into

individual targeted projects or activities that have theirown set of narrower (non-macro level) objectives.

Progress on these objectives is usually assessedon at least an annual basis, but not necessarily usingextensive quantitative measurements. Rather, consid-erations such as the satisfaction level of the beneficia-ries and government entities involved play an impor-tant role.

Lessons Learned

Separating ARDA’s developmental activities from itscommercial activities will enable better monitoringand evaluation of the development activities, anddonors will be better able to work with the newdevelopment entity. (ARDA)

Input/output assessments or cost-effectivenessevaluation of ARDA projects is difficult to assess.(ARDA)

Implications

The World Bank’s Enterprise development Fundshould be monitored by USAID for successful ap-proaches to SME export financing and to determineif a finance-only project can succeed. (World Bank)

The Republic of South Africa (RSA) marketseems to have some potential and it would be worth-while to investigate Selby’s basis for success there.(Selby)

The sustainability and secondary benefits of ZOPPmay offer insight. (ZOPP)

Further analysis of the GTZ/CARD M&E systemmay suggest adaptable ideas. (GTZ)

4.2.6 General Recommendations

The following recommendations are believed to berelevant to the overall Innovative Approaches activityin Zimbabwe, but do not fit under the above catego-ries.

High Perceived Impact

All aspects of a project’s and beneficiaries’ suc-cess (production, organization, management, market-ing, finance, etc.) must be properly served for optimalsuccess. Any one missing component missing, it willlimit the success of the others. (Mashonaland)

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Effective staffing is absolutely essential to aproject’s success. (Mashonaland)

Is a good model for achieving cooperation be-tween commercial farmers, communal farmers, andthe government is the Tobacco Development Trust.(World Bank)

Based on observations of how water is managedand conserved in Zimbabwe versus places that tradi-tionally have a water deficit for agriculture (e.g., Israeland the American Southwest), there are opportunitiesto improve water management beyond those associ-ated with the current drought. (World Bank)

Medium Perceived Impact

Because the CFU has not adequately served theinterests and needs of indigenous commercial farmers,they are forming their own organization, the ICFU.This will make donor work with the CFU more diffi-cult since its support base is a minority (predominantlywhite farmers) group. (ICFU)

An export development project’s quantitativesuccess will be enhanced if it focuses on commercialconsiderations. (ZimTrade)

4.2.7 Key Issues Deserving Further Study

The following issues are sufficiently important toagribusiness development in Zimbabwe that an effortshould be made to resolve them.

High Perceived Impact

How can AFC be encouraged and assisted to playa more important role in agribusiness development(versus production agriculture) and agribusiness com-mercial lending? (AFC)

What is the most effective way to reorganize andfinance AFC’s two major areas of interest? How canthe sustainability of the commercial lending companyby established? Want is the best way to privatize andsustain ARDA? (AFC/ARDA)

Medium Perceived Impact

What is the best way to monitor the effectivenessof CARE’s “village trader” activity? (CARE)

How would the ICFU “fit” into the restructuredHPC? (ICFU)

4.3 USAID ZIMBABWEAGRIBUSINESS DEVELOPMENTRECOMMENDATIONS

Based on the very brief work of the AMIS II team inZimbabwe, the following is offered as a very prelimi-nary input to Mission agribusiness development pro-gram enhancement.

Issues

The most important agribusiness issues, on thebasis of fieldwork and interviews, appear to be:

1. What is the best way to improve the economicaccess and agribusiness-related success of the in-digenous population? Improved access to sourcesof agribusiness income will likely involve helpingIndigenous SME entrepreneurs identify viablebusiness opportunities in food and agribusinesssubsectors with good Indigenous SME potential,and enhancing their managerial capabilities sothat they can take advantage of these opportunitieson a sustainable basis.

2. What is the best way to improve the efficiency,effectiveness, and reliability of production agri-culture so that agribusinesses have an ongoing,competitive cost and acceptable quality supply ofthe specific inputs they need?

Two of the several areas of focus here are im-proving water, and to a lesser extent soil, utiliza-tion and management, and improving the maizeyields of communal farmers so they can focuson cash crops.

3. What is the best way to improve the internationalcompetitiveness of Zimbabwe agribusiness firms(i.e., enable them to improve their quality, reducetheir costs, and increase their domestic and ex-port sales)?

4. What is the best way to stimulate the furtherdevelopment and competitiveness of the horticul-tural subsector and the role of Indigenous SMEstherein?

This will likely include: (1) resolving the air freightlicensing and cost problem, (2) determining how

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domestic supply and demand for horticultural prod-ucts can be better balanced, and (3) determining howto restructure and gain broad-based support for theHPC in a way that enables it to take a truly leadershiprole in horticultural development, and incorporate theneeds, interests, and potential of all participants.

Interventions

Some of the specific interventions that should beconsidered to address the above issues are:

1. Develop models for and help establish viable andongoing commercial linkages between IndigenousSME producers and/or groups of producers (e.g.,SHGs and associations), middleman firms, or in-dividuals and the large agribusiness firms. Ex-amples of such linkages are contract production,outgrower or service supply (e.g., collection, chill-ing, storage, delivery) agreements, subcontract-ing, and mentoring. The potential for links be-tween large commercial farmers and communalfarmers should also be investigated.

2. Helping to design a horticulture sector develop-ment strategy in concert with producers, packers,exporters, and the government and helping to imple-ment the strategy in a way that ensures the supportand involvement of a broad base of participants,especially indigenous producers and IndigenousSMEs. This would include resolving the air freightavailability and cost issue.

3. Investigate and, where viable, develop alliancesbetween established, agribusiness-related devel-opment projects and successful commercial firmsso that the capabilities and experience of the firmscan be used by the projects. An example would behorticulture sector development alliances betweenproject-type entities (e.g., ARDA, AFC, CARE,and World Bank) and established commercialexport companies (e.g., Favco, Flair, Hortico,and Selby).

4. Reinforce and expand the Indigenous SME man-agement and marketing training programs cur-rently being implemented and extend their reachbeyond Harare to rural areas. These programsshould include association and SHG management

training, especially in membership needs assess-ment, the development of programs to serve mem-bers’ priority needs, sources and uses of fundingmanagement, effective lobbying, and financialcontrol.

5. Investigate and, if feasible, help develop ways tobalance the supply and demand for perishabledomestic food products. This seems especiallyneeded for horticultural crops where some areashave access to irrigation and others do not. Oftenthere is an excess supply of product in the areawith access to irrigation and prices are very low,while at the same time there is a shortage in areaswithout irrigation and prices are very high. Theprice difference can justify the movement of prod-uct to the areas with the shortage, but the marketinformation, traders, and equipment (cold storesand trucks) needed lacking.

6. Assess the viability of and, if feasible, develop aFood and Agribusiness development Center(FADC) focused on a high-opportunity subsectorsuch as horticulture and a target beneficiary groupsuch as Indigenous SMEs. An example of such anFADC, called the Zimbabwe Horticultural devel-opment Center follows. It is important to note thatsuch a center would offer one-stop-shopping (debtand equity financing, technical assistance, andmanagerial consulting) to Indigenous SMEs inter-ested in horticulture and would do so by helpingclients access a network of existing services,some of which are now available to target benefi-ciaries. The center would offer to clients onlythose services that could not be obtained fromexisting sources. In some cases the center wouldwork with its network of sources to provideclients with access to services that they couldnot utilize without center support. Therefore, theHorticultural development Center would workwith entities such as AFC (debt), ARDA (accessto irrigated land or medium-scale production fromirrigated land), CARE (access to small-scale pro-duction), BSBC (MSE debt), EDESA/UAL (leas-ing), VCCZ (equity for larger investments), andFavco, Hortico, Flair and Selby for export mar-keting.

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Example: Zimbabwe Horticultural DevelopmentCenter (a type of FADC)

Staff (initially expatriate):

n Center Manager and Horticultural Export FirmManagement Specialist

n Horticulture Production and Input Supply Special-ist

n Horticultural Products Postharvest (grading, sort-ing, processing, packing, etc.) Specialist

n Horticultural Products Marketing (local, regional,and developed markets) Specialist

n Financial Specialist (with both debt and equityexperience, focused on SMEs)

n Local counterparts for all positions

Major Objectives:

n Help Indigenous SMEs fully participate in horti-cultural development by establishing effective link-ages between existing large exporters and Indig-enous SMEs

n Help Indigenous SMEs achieve the economies ofscale they need to be sustainable horticultural prod-ucts business participants

n Develop and help implement programs that willenable Indigenous SMEs access to irrigated landand products therefrom

n Identify and develop suggested changes in the en-abling environment needed for clients to succeed

n Help the HPC fully incorporate the needs andinterests of Indigenous SMEs into their programsand lobby the government for an improved en-abling environment for Indigenous SME horticul-tural businesses

n Priority would be given to firms with some horti-cultural products postharvest experience (versusstart-ups)

Services (to be provided by network partners or di-rectly when not elsewhere available):

n Technical assistance: Production, processing, mar-keting, etc.

n Managerial assistance: Business plan developmentand management, financial control, developmentof financing proposals, human resources develop-ment, etc.

n Debt: Working capital, foreign exchange, inter-mediate term, long term

n Equity: Start-up equity would be provided withreluctance, expansion equity with pleasure

n Financial services available only if a managementservices contract is signed by client

n If necessary and feasible, lease/rent shared fixedassets such as office space and services, sprayingequipment, cold storage facilities, trucks, packingplant, etc.

Financing/Support Network:

n USAID: $300,000 for feasibility study and imple-mentation plan, $200,000/year for four years foroperations

n World Bank: $500,000/year for operations forfour years via the Agricultural Finance Corpora-tion

n EDESA: $1 million line of equity funding plusequity finance technical assistance

n ZimBank: $2 million line of credit at LIBOR

n ARDA: Assistance to help organize and coordi-nate the efforts of producers and agribusinesses onnewly irrigated lands

n CARE: Assistance to involve producers and agri-businesses on CARE’s dam reclamation projects

n Hortico: Joint export marketing and export techni-cal assistance

n Horticultural Promotion Council: Assistance instimulating needed enabling environment modifi-cations

35

5. Mozambique

Mozambique is still recovering from the aftermath ofa sixteen-year civil war. The economy is strugglingdespite the Government of Mozambique’s (GoM) ac-ceptance of a stringent Economic and Social Rehabili-tation Program (ESRP) initiated in 1987. Industrialoutput has declined steadily, commodity exports con-tinue to drop, and the loss of markets in the formerSoviet Union and the Eastern Bloc has severely hittextile exports. Therefore, the policy environment inplace at the end of 1994 did not facilitate a reversal ofthe continuing decline of output and concomitant dete-rioration of the economy.3 Even with continual “carrotand stick” pressure from the World Bank and interna-tional donor organizations to accelerate reforms, itappears unlikely that there will be much change in thenear term.

During the past two years, much of the populationthat fled war-torn areas has begun to return. Becauseland title was never clearly vested in individuals, there islittle acrimony between present and past occupants ofthe land. Generally, former smallholders returning to theprecise areas in which they formerly lived and farmedhave been able to reclaim “their” acreage.

Consequently, truck garden production, largelyfor local consumption, is being reestablished, in addi-tion to row crops such as maize and cotton. Unfortu-nately, with the government under pressure to reduceits payroll, extension services are being severely cutback, and there seems to be no concerted effort (in-cluding by donors or the GoM) to reestablish ruraleconomies and enterprises on a basis that reflects cur-rent economic and political realities. However, therewas one activity carried out by Lomaco,4 in concertwith the government and small farmers (some of whomwill become contract growers), to develop an areaimprovement plan.

It is only recently that the USAID Mission andother donor agencies feel that they have met the needsof war refugees, road rebuilding, providing food secu-rity, and the like. Now the USAID Mission is consid-

ering, in addition to infrastructure rehabilitation andpolicy enhancement efforts, the facilitation of long-term economic development through support for theestablishment and expansion of private sector food andagribusiness enterprises.

Implications

Work in rural areas to facilitate establishment ofprivate-sector agribusiness-oriented Indigenous SMEsis apparently not among the GoM’s top priorities.USAID, the World Bank, and other members of thedonor community should therefore be prepared tostimulate support for and work in concert with enter-prise development programs with particular minis-tries or parastatals, which could involve obtainingblanket approvals and authorizations at the ministrylevel on behalf of SMEs being assisted. New SMEswill need representation and policy help on suchmatters as tariff collection on competitive imports,corporate tax law enforcement, and reducing thenegative influence on Indigenous SMEs of the rem-nants of exploitative colonialism by Portuguese-con-trolled firms.

5.1 ENTITIES SELECTED FORSTUDY

Mozambique is in a much earlier stage of agribusinessdevelopment than Zimbabwe or Tanzania. It is justcoming out of a very difficult period of civil war andsocialist, anti–private sector policies. Thus, there arefew entities that are relevant as case studies for theInnovative Approaches project.

Five donor-supported innovative projects, one as-sociation, and three private agribusinesses were se-lected for case studies; no development finance orga-nizations were identified.

The selected entities, and where appropriate thedonor supporting them, are listed below. The case

36

study profiles for each of these entities are presentedin Appendix B.

Projects: (with supporting donor in parenthesis)

CARE — CARE International em Mocambique (privateand donors)

FAO/AgMin — Food and Agricultural Organization ofthe UN/Mozambique Ministry of Agriculture (FAO)

IDIL — Instituto Nacional de Desenvolvimento de In-dustria Local (various EU)

World Bank Projects (World Bank)

World Vision — World Vision Mozambique (private)

Associations:

Agrarius — Associacao dos Produtores Agrarios deMocambique (none)

Development Finance Organizations:

None

Private Agribusiness Enterprises:

Companhia da Zambezia

Interposto

Lomaco Companhia Agro-Industrial Lonrho Mocambiqe

Most of the above entities have multiple areas offocus (see Table 5.1). Therefore, an assessment ofeach project, association, and private organizationwas performed for each area of focus.

5.2 LESSONS LEARNED ANDIMPLICATIONS FOR USAIDPLANNING

In the following sections, the lessons learned andimplications for USAID planning, which were de-rived from analyses of the profiles included in Ap-pendix B, are presented by Key Focus Area. Eachsection is divided into general lessons learned andimplications and those specific to Mozambique. Thelessons learned and implications are listed in approxi-mate order of priority based on the anticipated posi-tive impact on USAID objectives and operations ifthey were to be successfully adopted, and, for thegeneral sections, the extent to which the lesson learnedor implication is broadly applicable, that is, appli-cable to SSA agribusiness projects in general. Thisprioritization is subjective, but represents the studiedopinion of the research analysts and draws upon theirmany years of experience in agribusiness develop-ment in developing countries. The primary source ofthe lesson learned or implication is shown in paren-theses. In the NTAE and SME development sections,the major focus of this report, the material is dividedinto Lessons Learned and USAID Implications.

5.2.1 Non-Traditional Agricultural ExportDevelopment

Cashews, tea, and sugar were historically Mozam-bique’s main foreign exchange earners, although there

Table 5.1 Mozambique Innovative Projects/Associations and Their Areas of Focus

Project (Donor)

CARE (private)

FAO/AgMin (FAO)

IDIL (various EU)

World Bank Projects(World Bank)

World Vision (private)

Agrarius (none)

NTAEPromotion

No

Yes

No

Yes

Minimal

Some

AssociationDevelopment

Yes (informal)

No

No

Some

Yes (informal)

Yes

IndigenousSME

Development

Yes

Some

Yes

Yes

Minimal

Indirectly

FinancialService

Yes

No

Indirect

Yes

Minimal

No

37

were significant coconut exports until the civil warended sustained production. Exports of cashews, tea,and sugar have not recovered from the disruption ofproduction and marketing systems caused by thewar; nor have they recovered from the agglomerationof the tea and cashew firms into large state-ownedconglomerates. Currently, the cashew, tea, and sugarparastatals are the largest delinquent debtors of thebanking system. Further, lack of working capital hasstopped factory operation as well as restoration offarm-level production to economic levels of output.

General

Rehabilitation of large NTAE industries, such ascashew and coconut in Mozambique, will likely bevery costly and require the joint and well-coordinatedefforts of donors, the government, private sector par-ticipants, and producers. (CdZ)

Low literacy significantly increases employeetraining costs and makes it much more difficult tooperate and maintain food processing/agribusinessfacilities. (Lomaco)

Large agribusiness firms may find it easier toestablish their own production in developing countrieswhen technological advances enable intensive com-mercial agriculture. (CdZ)

The long lead time needed to import supplies sig-nificantly increases the risk of export-focused agri-businesses in developing countries. (Lomaco)

Specific to Mozambique

CdZ’s pallet kit potential business appears to be awin-win opportunity. SMEs can be formed to cut anddeliver trees/logs to the pallet kit–making company.The plantation will be rehabilitated, cash flow will begenerated for replanting, and Mozambique will havea significant new source of foreign exchange. Thisproject deserves special analysis by donors to deter-mine how SMEs could be formed, financed, andsupported to form coconut tree culling businesses.This is both a short-term (plantation rehabilitation)and long-term (plantation maintenance) opportunity.(CdZ)

Cashew, coconut, and shrimp processing all rep-resent good food and agribusiness opportunities and

areas where donor support for industry rehabilitationand/or development would be welcome. (FAO/AgMin)

Interposto is a potential cooperator with whom toinvestigate the formation of a Cashew Industry devel-opment Association or a Cashew Marketing Board.However, their commitment to integrated operations,the diversity of their businesses, and the extent towhich they are part of the old “colonial school” maylimit their interest in this approach. (Interposto)

Because Lomaco has considerable experienceworking with outgrower schemes for cotton and iswilling to work with outgrowers for tomatoes, theyrepresent a good potential partner for donors to financeand develop outgrower and marketing schemes fortomatoes and possibly citrus. Other large agribusinesslinkages should also be pursued. (Lomaco)

Access to Republic of South Africa (RSA) fruitmarkets will likely require government-to-governmentinvolvement, since the primary motivation for the RSAto import Mozambican fruit is political rather thancommercial (i.e., trade balancing-based). (Agrarius)

World Vision Mozambique (WVM) has a com-paratively poor idea of postharvest NTAE develop-ment opportunities. (WVM)

5.2.2 Indigenous SME Development

Indigenous SME development is at the embryonicstage in Mozambique. Large portions of the popula-tion have just recently returned to their homes afterthe long civil war, and much of the country’s infra-structure has been destroyed and basic rebuilding isunder way. The good news is that many IndigenousSME opportunities exist because there are very fewestablished businesses and because people’s first pri-orities include a reliable supply of reasonable qualityfood — something that agribusinesses can deliver.Mozambique, except for the southern third of thecountry, has good growing conditions and good ar-able land. Therefore, there is an excellent basis forestablishing Indigenous SME agribusiness focusedon both the domestic and export markets. In addition,the existence of several large agribusiness compa-nies, which are remnants of Portuguese colonial daysbut are in poor condition due to the war, presentsopportunities for cooperative ventures between these

38

giants and SMEs to help rehabilitate and provideservices to the large agribusiness companies.

Lesson Learned

The transitional difficulties of the GoM may, surpris-ingly, create an opportunity for SME formation.

The GoM and its parastatals are still in disarrayfrom the civil war and are under continual pressuresfrom the World Bank and the donor community toliberalize and restructure. Further, it is widely agreedthat the civil service is not functioning effectively. As inTanzania, parliamentary democracy is so new that leg-islators have trouble visualizing what a law is supposedto do or which governmental bodies should be respon-sible for what. Thus, laws passed by the legislativebranch often contradict prior laws, and the resultantconfusion neutralizes the government much of the time.

Implications

This confusion can be viewed as a blessing in dis-guise if USAID and other donors take this opportu-nity to emphasize private sector development ofgrassroots agribusiness inputs, processing, packag-ing, and distribution. Outputs from Indigenous SMEsshould, in general, not fall within the GoM’s pur-view. There are so many rules and regulations, some-times conflicting, that it takes a very clever managerto get through the minefield of conflicting laws, bu-reaucratic proscriptions, and so on. As in EasternEurope, the collapse of the command economies hasleft the large state-owned agricultural production andmarketing firms in trouble, but has created a majoropportunity for new Indigenous SME’s.

Lesson Learned

An in-country support network for Indigenous SMEsalready exists.

Given past problems and the level of private sec-tor development it is surprising to find a countrywidenetwork, IDIL, already functioning to help IndigenousSMEs prepare credible business plans and requests forloans. Funding for their SME loans comes from theWorld Bank via the Bank of Mozambique. IDIL itselfis funded by SIDA and several other EU donors (butnot USAID). SME loan approvals are partially basedon IDIL’s analysis and recommendations, but the

commercial banks take the credit risk. The successof IDIL’s SME loans, drawn primarily on the state-owned commercial banks, is quite poor (80%+ de-fault rate on loans that have passed the grace period).Their microenterprise loan recommendations are ap-parently performing much better as reportedly 90percent of the loans are being repaid on schedule.

Currently under the Ministry of Industry andCommerce, IDIL has positioned itself to evaluate andrecommend enterprises for financing. It has a net-work throughout the country consisting of some 80employees who could be upgraded as screeners andevaluators of prospective enterprises. IDIL agentscould function also as entrepreneurial promoters andtrainers.

IDIL wants and needs additional funding so itcan assume greater responsibility for ongoing techni-cal assistance (post-funding) for its client enterprises.

Implications

Through its AMIS II Project, USAID could supportand upgrade IDIL’s personnel located in the ruralareas and could help establish a network of rural FADCsfacilitate the formation of agribusiness IndigenousSMEs. If this network could be registered as a finan-cial institution it is quite likely that it would attractfunding from the World Bank and other donors.

The USAID Mission could explore the followingstrategy:

1. Perform a detailed assessment of IDIL’s opera-tions, accountability, past performance, and po-tential to serve as an Indigenous SME develop-ment partner. Of particular interest are the reasonsfor the very high default rate on World Bank SMEloans, the success rate of microenterprise loans,and detailed analysis of their sources and uses offunds over the past three to five years. IDIL’s EUdonors should be consulted on these issues. If theresults of this assessment are positive, USAIDshould proceed to the following.

2. Launch an exploratory project (with AMIS II as-sistance) to specify alternative options for work-ing with IDIL in the agribusiness area. This shouldidentify:

39

a. What organizational format would be permit-ted by the Ministry of Industry and Com-merce for IDIL participation in FADC man-agement, Indigenous SME funding decisions,operational oversight, and such.

b. Which regions should be given priority forSME development (e.g., Zimbabwe andNampola).

c. What portion of IDIL’s agents have the po-tential (with and without further training) tocompetently manage FADCs.

d. What manpower and other resources will haveto be added to IDIL to develop and rationallyimplement the program.

e. Potential roadblocks. With World Bank help,consult with senior levels of the GoM to iden-tify actual or potential roadblocks to the es-tablishment of an FADC network and waysthat these roadblocks could be overcome.

f. Potential GoM support. Assess the possibilityof gaining GoM endorsement and support (cashor in-kind) for an FADC network project.

3. Determine if there is likely to be enthusiastic orgrudging collaboration from the World Bank,SAEDF, and other donors, thus determining ifthere will be adequate long-term funding withminimal or no restrictions on the structuring offinancial packages appropriate for investable en-terprises.

4. Assess if and how AMIS II can furnish directtechnical assistance to IDIL in order to accelerateand upgrade the general business management andfinance training of IDIL’s rural agents. Determineif and how the SAEDF technical assistance com-ponent can be used.

In essence, USAID could evaluate putting addi-tional resources into IDIL to accomplish two impor-tant objectives: (1) accelerate the IDIL agent network’sefforts to help train local entrepreneurs and/or to helporganize and manage local FADCs to facilitate Indig-enous SME formation and (2) create a better vehiclefor an expanded IDIL management team to serve

both as board members and as stewards of debt fromthe present donor network and equity investmentsfrom the SAEDF, World Bank/IFC, and others.

Lesson Learned

A few of the NGOs now operating in Mozambiquecould serve as SME developers or as part of FADCmanagement in rural areas.

The leading NGOs in the country (CARE, ATI,WVM, etc.) are trusted by much of the rural popula-tion because most NGO staff remained in the ruralareas even during the worst days of the civil war, doingwhat they could to support the people in the villages.

Implications

Given this respect and knowledge base, it is reason-able to use one or more NGOs as an additional vehicleor collaborator for SME development. Such participa-tion or collaboration would have to fit a particularNGO’s agenda. Therefore NGOs would have to becarefully selected based on the quality and appropri-ateness of their management and the consistency oftheir objectives with those of an FADC.

In summary, with a great deal of discipline, thedevelopment of FADCs or similar institutions in col-laboration with in-country NGOs like CARE and/orWVM and IDIL could be expedient, efficient, andproductive.

Lesson Learned

A few large companies are developing approachesthat could be used to help establish SMEs in ruralareas.

Discussions with three private agribusiness firmsbrought to light a positive phenomenon, also observedin Zimbabwe. To provide themselves with cost-effec-tive sources of raw product, large private firms aredeveloping mutually beneficial cooperative or collabo-rative relationships with small growers and enterprises.Three instances of such collaboration are mentionedbelow.

1. Lomaco, a large producer of cotton, tomato paste,and other specialty products, is interested in shar-ing the development of irrigation and specialty

40

crop systems with small growers. This optimizesthe use of labor, land, and water resources withoutLomaco having to own and be responsible for anentire area of infrastructure development. Lomacois working with some of these growers to securethe supply of tomatoes it needs and, at the sametime, the small growers are a good source of refer-rals for reliable people to become employees inLomaco’s processing plants.

2. Compania da Zambezia is a major producer andexporter of coconuts. In the wake of the civil war,major tree cutting and land clearing is needed toreplant and rehabilitate the company’s plantationsafter years of neglect. The company is consideringa venture, in which it would also invest, wherebynew SMEs, substantially owned by localsmallholders and/or plantation employees, wouldcut the trees and deliver them to a company thatwould produce pallet kits for fabrication into pal-lets after shipment to South Africa. This wouldfree up company capital to develop new processesfor copra and other coconut byproducts.

3. Entreposto, under contract from USAID, hasdistributed a large number of conventional cashewtrees to smallholders, and is expending consider-able effort to identify and establish a Braziliandwarf variety in Mozambique. The dwarf cashewis much easier to cultivate and harvest than thelarger trees in the present stands. If Entreposto canestablish the economic viability of the dwarfcashew, it could help finance the establishment ofnew stands by small growers in return for someform of purchase agreement, which would offergrowers more favorable terms than those of EastIndian traders, who are currently the dominantbuyers from producers.

Evidence indicates that such large firm IndigenousSME enterprises could proceed without interferencefrom the GoM. The main challenges will be how tostructure and finance the new businesses, taking intoaccount that each has quite different agendas.

Implications

The Mission, AMIS II could work with to explorewhat would be required for Lomaco, Compania da

Zambezia, and others to form ventures with smallfarmers and those in rural areas. Donor participationin the form of technical assistance and seed funding(e.g., from the SAEDF) and development assistance(e.g., from IDIL), could catalyze the formation of anumber of significant new Indigenous SMEs. TheMission could assess the potential cost effectiveness oforganizing FADCs to support large firm IndigenousSME agribusiness opportunities in the region.

Lesson Learned

The South African market is opening up rapidly.

Not only are South Africa’s exports increasingdramatically, but various RSA entities are searchingfor new sources of supply in Sub-Saharan Africa, asclose to South Africa as possible. The RSA also wantsto reduce its trade surplus with neighboring countries.

Implications

Opportunities to obtain both debt and equity fundingfrom various RSA entities are beginning to appear.Food and agribusiness-related enterprises should beable to obtain bankable supply contracts from custom-ers in South Africa. Such contracts, which would guar-antee a buyer for future production, could be used tosecure loans to finance production and operating costs,as well as future expansion. South Africa could in thisway become a major market for FADC clients.

In-Country Resources for Indigenous SMEDevelopment

Following is a brief review of the resources neededto support SME development and what resources areavailable or could be developed in Mozambique.

A. Technical Resources

In Mozambique, as elsewhere in much of South-ern African, universities, the Mozambican extensionservice, and other domestic institutions that providetechnical help are undergoing severe budget cuts andretrenchment. To help develop rural agribusiness en-terprises, a few larger, privately owned companies andsome NGOs (e.g., CARE and WVM) seem ready toenlist and train local growers5 and others as part oftheir plans for rehabilitation and expansion. The chal-lenge to USAID will be to channel technical assistance

41

to appropriate enterprises in support of investableventures and not for the support of more traditionaltechnology transfer programs.

B. Management Resources

IDIL views its primary mission as helping enter-prises prepare loan requests,6 but it also believes thatit must train IDIL personnel, located throughout thecountry, to provide management and other advice toputative entrepreneurs after financing. They are al-ready doing this to a very minor degree in Maputo and,hopefully, will be given more direct responsibility bythe lending institutions to whom funding proposals aredirected. This added responsibility could involve moni-toring and participating in the operation of enterprisesthat IDIL recommended for funding, possibly as mem-bers of the boards of directors.

There are several more conventional (and moreexpensive) consulting organizations operating in thecountry, but they tend to sell their services to estab-lished large enterprises or various governmental bod-ies. The few NGOs, such as CARE, that see theiremergent role as stimulating profitable rural enter-prises, could well become an important vehicle toprovide staff and facilitators for rural village or re-gional Indigenous SME development, augmentingIDIL’s capability. Given the level of trust of the lead-ing NGOs by virtually all parties, this possibility shouldbe carefully explored in the near term.

C. Financial Resources

IDIL, which was established primarily to prepareand recommend enterprises for bank financing, is ap-parently the only Mozambican institution with such acharter. The World Bank is the only current source ofIndigenous SME financial resources, a source thatmay not be available after the two state-owned banksare privatized. The World Bank is willing to providefunds to registered financial institutions willing to takethe credit risk, but few intermediaries are currentlywilling to do so.

D. Market Information/Intelligence Resources

Except for the aforementioned larger consultingfirms and IDIL’s due diligence on particular ventureproposals, reliable market information, is difficult to

obtain except for that on large-volume, convention-ally traded crops.

Other Observations

1. An acute problem, brought on by the war, is thevery low level of literacy in Mozambique. Asgovernment redirects its priorities, it is clear thata large concerted effort to develop the entire edu-cational system is required.

2. It was reported that women in Mozambique playa key role in business formation and management.More precise information is needed concerningthe role of women in Mozambican development.IDIL apparently has trained many women in man-agement, finance, and so on.

3. The findings presented above are necessarily gen-eral given the limitations of time imposed by theInnovative Approaches activity in Mozambique.It was difficult to obtain quantitative data from thefirms, agencies, and entities interviewed. The posi-tive findings of this research should be followedup in depth if there is interest in moving in thedirections suggested.

Lessons Learned

Indigenous managed micro and SME formation anddevelopment programs can succeed, even in very dif-ficult environments, if they are properly managed anddonor relations are carefully managed. (IDIL)

There is a unique opportunity to help establishcommunity-level Indigenous SMEs shortly after thechange from socialism and parastatal-managed mar-keting to a private enterprise-based economy. Highlypragmatic and well respected and managed PVOs suchas CARE and WVM can be used by donors to supportthe transition from state controlled to a private sectorbased agribusiness. (CARE)

Specific to Mozambique

IDIL’s provincial network is an excellent model ofhow to combine local presence with good analyticalskills and donor relations to stimulate the developmentof micros and SMEs. Donor help in developing thisprovincial network would be a good use of funds.(IDIL)

42

The World Bank is constrained in its ability todisburse its very significant funding and implementits projects by: (1) the limited institutional capacity ofthe intermediaries it must work with, especially thestate-owned banks; and (2) the limited ability ofpotential beneficiaries to apply for financing, developviable business plans, and manage SMEs. Fundingopportunities will be further constrained with theprivatization of the two state banks that have dis-bursed (but not collected) most of the World Bank’sSME loans. (WB)

WVM’s programs in rural SME development,agricultural marketing, and credit are in the earlystages of development and may need considerableoutside assistance to establish, given the PVO’s tra-ditional technical and production agriculture focus.The demand side of Mozambican agribusiness needsto be better understood by WVM for them to develophighly relevant programs in postharvest agriculture.WVM seems to represent a potential partner forUSAID to cooperate with in postharvest develop-ment. WVM has a good network in agriculture-basedprovinces, very good beneficiary and GoM credibil-ity, and USAID has significant experience inagribusiness development. However, WVM’s lack ofmarket orientation will have to be overcome. (WVM)

Implications

USAID should consider the following:

1. Conduct investigations of the opportunities listedunder Lessons Learned and Implications that areconsistent with Mission objectives.

2. Canvass other donors, particularly the privatesector funding groups at the World Bank, forinterest in joining with USAID in one or more ofthese opportunities.

3. Discretely explore the identification of potentialGoM roadblocks.

4. Develop proposals (with AMIS II help) for WorldBank Private Enterprise Fund, SAEDF, and oth-ers joint projects; particularly both equity anddebt financing for new Indigenous SMEs relatedto food and agribusiness.

5. Test several approaches to agribusiness enter-prise facilitation.

5.2.3 Association Development

Only one relevant association (Agrarius) was identi-fied, and it has just been organized. There is, however,considerable potential for the development of agri-business associations as a means to (i) organize entre-preneurs interested in developing certain subsectors,(ii) help balance the power of the large cashew, coco-nut, and sugar processors through effective resources,(iii) stimulate the development of high-potentialsubsectors, and (iv) involve the private sector in thedevelopment of optimal agribusiness policies and otherenabling environment conditions.

New associations must achieve a detailed under-standing of members’ priority needs and develop highlyefficient programs to serve the highest priority needs.Because of limited resources, new associations willhave to focus on a few, high positive impact memberservices. (Agrarius)

Producer associations can develop in difficult eco-nomic and political environments. However, their abil-ity to provide members with the needed production,and especially postharvest, services will be dependenton outside financial and managerial support. (Agrarius)

Agrarius represents an excellent opportunity fordonor support. It is grassroots-based, is located in anarea that needs considerable agricultural/agribusinessdevelopment, and members need help to break into theRSA market. Agrarius also needs considerable sup-port in postharvest areas, especially for fruit, sincethere is no commercial entity currently available tocollect, grade/sort, package, and market the output.However, caution should be exercised as related to theinterests of the fruit growers versus other members.The fruit growers are larger and have more specializedinterests, so fully integrating them into the larger asso-ciation and keeping them there will require carefulmanagement. Agrarius has apparently not stimulatedany negative reaction on the part of the GoM, butgiven the GoM’s many other problems, significantgovernment help for Agrarius is unlikely. (Agrarius)

5.2.4 Financial Services Development

Mozambique has a very underdeveloped financialsector, consisting of three private and two state-owned commercial banks. The state-owned banks

43

are in the process of being privatized (losing theirsubsidies and government guarantees), which willhave a dramatic effect on their operations. The threeprivate banks are very conservative, which is notsurprising considering the business/credit risks andvery undeveloped legal environment, and then loanprimarily to well-known and established customers.The People’s Development Bank (formerly the Agri-culture Bank) is one of the two state banks throughwhich the World Bank has disbursed SME loans.Two new financial institutions have recently beengranted licenses, the UAL division of EDESA, whichfocuses on leasing, and Credicoop. These new en-trants and the privatization of the state banks may addcommercial vitality to the financial sector.

Equity/collateral limitations are the major initialconstraint to both micro and SME formation in emerg-ing private sectors and agribusinesses. Sweat equityand in-kind contributions can help offset this con-straint, but cannot overcome it. Government guaran-tees for initial entrepreneur equity may be a source ofassistance, but this needs to be closely monitored dueto the tendency for government involvement to lowerthe perceived need for repayment. Reasonable avail-ability of funds will stimulate micro and SME forma-tion, but TA and management assistance will then beneeded for them to be successful. (IDIL)

In embryonic financial sectors it is difficult fordonors to find effective financial intermediaries to helpdevelop the private sector, especially agribusiness andIndigenous SME. State-owned/controlled banks usu-ally have weak loan appraisal and recovery capabili-ties and private banks must operate very conserva-tively, which means they have minimal interest inagriculture or SME-related financing. (WB)

Limitations on a beneficiary’s ability to apply forfinancing and develop the needed supporting docu-mentation, including a business plan, constrains theability of donors to disburse development finance.(WB)

Community-based group lending programs arean alternative to local traders’ control of commerce,cash flow, and informal lending. But, group lendingprojects in societies evolving from socialist models

will require much education and training given theprevailing attitude that loans do not need to be repaid.(CARE)

All credit projects should include a savings com-ponent as a means to generate funding for future loans.(CARE)

Trade finance is a very common private sectordevelopment constraint in economies emerging fromsocialist systems. (WB)

5.2.5 Monitoring and Evaluation

In general, USAID places much more emphasis onformal M&E systems than do other donors. That por-tion of their support that is for improving Mozambique’sbalance of payments is coordinated with other donorsand the World Bank and uses progress on conditionsprecedent as an impact measurement. For their projectsand project-related activities it is quite unusual to usemacroeconomic measurements to assess the impact.

Most donor projects in Mozambique have focusedon resettlement, emergency feeding (especially chil-dren), and road building. In emergency situations andwhere very basic services are being provided, formalM&E systems tend to give way to expedient actions toresolve very obvious and basic problems.

M&E considerations for SME developmentprojects include: the extent to which community-level(versus regional-level) processing and trading enter-prises develop and the extent to which enterprisesevolve from pure trading and toll processing to princi-pal processing and adding value. (CARE)

The more effectively managed the organizationthe more specific its M&E programs. (All)

The M&E used by most local PVOs involved inSME development is rather casual, but includes thenumber of proposals screened, number recommendedfor funding, amount of funding approved, the successof funded enterprises (if there is ongoing involve-ment), and the continued support of donors. (IDIL)

International PVOs’ M&E systems are often basedon a review of annual accomplishments versus previ-ously established objectives. (WVM)

44

Group lending project M&E considerations in-clude unit transaction costs, the repayment rate, thesustainability of the credit entity, growth in the capitalbase of entities, and the savings rate of their members/clients. (CARE)

5.2.6 General Recommendations

The following recommendations are relevant to theoverall Innovative Approaches activity in Mozambique,but do not fit under the above categories.

General

High Perceived Impact

n Projects based on a well-established donor capa-bility have good prospects for success. Conversely,donors should approach new development areaswith considerable care, and possibly in coopera-tion with other donors who have experience andcompetence in that area. Therefore, the apparentsuccess of a production agriculture–focused donoragency or PVO does not mean that it will be ableto successfully evolve into postharvest develop-ment, especially without considerable outside as-sistance. (WVM)

n In situations of emerging democracies and freemarket systems, unique opportunities for coopera-tion on agribusiness development between theprivate sector and donors may emerge, often withconsiderable mutual benefits. Managers of privateagribusinesses can be used to identify high-yieldbusiness and geographic opportunities, and canoften be effective partners in developing theseopportunities. (CdZ)

n Donors can use their experience in more devel-oped industries to help rehabilitate industries de-stroyed by political strife and/or civil war. (FAO/AgMin)

n Large agribusiness companies represent a goodway for donors to leverage their agribusiness andinfrastructure development efforts in rapidly evolv-ing countries, especially when the agribusinessfirm is ready and willing to cooperate on projectsof mutual benefit and interest. (Lomaco)

n Pragmatic leadership and good donor relations

will help PVOs and other intermediaries survivevery difficult political and economic conditions.Staffing senior project management positions firstwill enable more local input into design refine-ments and lower level staff selection. Professionalmanagement and a strong interest in localizationof most operating positions will enable projects toget off to a solid start. (IDIL/CARE)

Medium Perceived Impact

Shortly after the shift from socialist to demo-cratic systems is a good time for donors to determinewhere they have a comparative advantage to assistagricultural ministries in their important work. At thattime the ministry is often quite open to ideas and willcooperate with well thought out programs. (FAO/AgMin)

Conduct a careful and multidimensional viabilityanalysis before choosing the geographic area for aproject or activity. (CARE)

Red tape can be very prevalent and a significantconstraint to project implementation as well as privatesector development, especially in emerging democra-cies. (WB)

Specific to Mozambique

Due to the specific skills required in agribusiness andthe substantial need for agribusiness development inMozambique, a donor-supported, agribusiness-focuseddivision of an entity such as IDIL should be investi-gated. (IDIL)

The World Bank has a serious interest inMozambique and has allocated considerable funds toprojects relevant to private sector, agriculture, andagribusiness development. The World Bank is an idealpartner for helping USAID to leverage their scarceresources. (WB)

Southern Mozambique has a serious food deficit,and sustainable production and marketing enterprisesin this area, (e.g., Agrarius) need to be encouraged.(Agrarius)

WVM’s ARP program appears to be quite suc-cessful in stimulating improved production and is be-ginning to develop community-level self-direction. It

45

should be assessed in detail for lessons learned andimplications for USAID and as a potential jointlysupported project. (WVM)

5.2.7 Key Issues

The following issues are sufficiently important toagribusiness development in Mozambique that an ef-fort should be made to try to resolve them.

General

There is a need to investigate why Mozambican cashewproducers receive a much lower portion of the exportvalue per kilogram than do Tanzanian cashews pro-ducers. Then a program must be developed to in-crease the producers’ share. (WB)

Specific to Mozambique

The alternatives for and cost of rehabilitating CdZ’scoconut plantations, with significant smallholder par-ticipation, should be investigated. How would smallportions of the plantations be “turned over” tosmallholders? How would the TA necessary for re-planting and managing new varieties and productionmethods be transferred? How could CdZ be financedto provide the smallholders with needed inputs such asseedlings, fertilizer, and crop protection chemicals?How can SMEs be formed to support the rehabilitationand ongoing successful operation of CdZ’s coconutplantations and coconut processing operations? (CdZ)

5.3 USAID MOZAMBIQUEAGRIBUSINESS DEVELOPMENTRECOMMENDATIONS

Goal–Increase rural incomes.

Geographic Focus–Nampula and Zambezia Provinces

Objectives

1. Develop the cashew subsector in Nampula andthe coconut sector in Zambezia in a way thatbenefits small producers and agribusiness SMEs.

2. Encourage and support the use of cash earnedfrom coconut and cashew activities in coastal ornear coastal areas to buy maize produced in theinterior.

Methodology/Mechanisms

1. Use association development and linkages be-tween large firms and SMEs and small producersas two of the main mechanisms for stimulatingcashew and coconut development. This may in-clude using SMEs as subcontractors or alliancepartners, and small producers as outgrowers orcontract producers linked as individuals or ingroups such as associations, SHGs, or coopera-tives.

2. Establish effective partnerships with:

a) PVOs to help accomplish the NTAE devel-opment and association development objec-tives in rural areas.

b) The World Bank to help finance new or ex-panding SMEs related to coconut or cashewdevelopment.

c) IDIL and its Nampula and Zambezia branches,if it is determined that they have both thecompetence and interest, to support USAIDobjectives and operating procedures.

3. Determine the feasibility of a Cashew develop-ment Center in Nampula and/or a Coconut devel-opment Center in Quelimane to carry out the fol-lowing:

a) Assess the world market, internal, and com-petitive situation and help determine the opti-mal strategies and structures needed to de-velop a highly viable industry; then act as acatalyst to help implement the strategies andinstitutional structures (associations, promo-tion council, extension, applied R&D, etc.)needed for success.

b) Offer association development services toproducer, processor, or marketing groupings,but preferably to vertically integrated asso-ciations, to help them organize, develop busi-ness plans and member services programs,establish operations, and sustain themselves.

c) Provide integrated services to producergroups and SMEs related to the cashew/coconut business consisting of: (1) financ-ing, both debt and equity (for formal firms)

46

and in special cases matching grants, (2)technical assistance (production, process-ing, etc.), (3) management assistance (busi-ness planning, financing application, market-ing, financial control, etc.), and (4) if deemednecessary and feasible, shared fixed assetssuch as office space and services and trans-port equipment.

d) Identify enabling environment improvementsnecessary for industry success (such as reduc-ing red tape) and work with the associationand the government to achieve the necessaryenhancements.

e) Determine what else is needed for subsectorsuccess such as industry-level quality assur-ance systems, market development/promotion,applied research in varietal development, cul-tural and processing practices, and full croputilization and human resource capacity-build-ing at all levels of the industry. This determi-nation would include deciding who provideswhat is really needed and how it will be paidfor.

f) Employ full-time professionals with exten-sive successful experience in disciplines suchas: (1) coconut/cashew production and inputsupply, (2) postharvest activities such as grad-ing, sorting, processing, and packing (3)coconut/cashew products marketing, (4) fi-

nancing of all types, and (5) SME, associa-tion, and development center management.The number of these professionals and theirdisciplines would be demand driven and de-termined by a development center feasibilitystudy. All expatriate professionals would havelocal counterparts.

g) Offer one-stop-shopping for clients’ businessdevelopment needs and use both its own inter-nal resources as well as those of a well-estab-lished network, both domestic (e.g., WorldBank, IDIL, CARE, World Vision, Interposto,Compania da Zambezia) and international(e.g., SAEDF, EDESA, APDF, IFC), of alli-ance partners who have agreed to support thecenter with technical, managerial, and devel-opment assistance.

h) Be financed initially by donors and other in-terested parties (e.g., long-term investors forequity) but with the objective of becomingself-financing in three to five years by charg-ing fees for management and technical ser-vices, by a spread on debt and the gain onequity sales, and by rental income on fixedassets in excess of costs.

i) Development of the domestic and internationalsupport network would be a prerequisite todevelopment center formation and operation.

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6. Tanzania

Tourism, agribusiness, and mining are the major growthareas in Tanzania. However, investment in these ar-eas, as well as in the economy generally, has laggedbehind expectations. Economic reform commenced in1986 and there has been some progress such as thelicensing of foreign banks, liberalizing interest rates,and instituting a market-based foreign exchange sys-tem. Transition to a market-based economy, however,is still far from complete. Despite the fact that much ofthe requisite policy framework is in place, expectedrevenues associated with export growth have not, ex-cept for NTAE from the Arusha area, materialized ashoped. The problem is that implementation of the newpolicy framework is both politically and functionallydifficult.

Poverty, disruptions to, dislocations of, and anoutright reduction of what was once seen as guaran-teed life employment8 have created much stress in thecountry. Politicians, civil servants, and the generalpopulation all face great uncertainty and difficulty inthis time of economic and political transition.

Donor support remains strong for the Governmentof Tanzania (GoT), accounting for some 60 percent ofTanzania’s development budget. Yet donors, led bythe World Bank, are continuing to push for tough fiscalmeasures to limit ongoing extra-budget governmentexpenditures. These measures are required to sharplyreduce the continuing growth of the annual budgetdeficit.

Collaboration and cooperation between Tanza-nian agencies and the donor community was muchmore evident than between donors and similar institu-tions in Zimbabwe and Mozambique. Private sectorbanks (e.g., Standard Chartered) have not yet movedaway from portfolio management based on short-termdebt and routine trade facilitation for their clients fromother countries. In fact, it is the donor agencies, Tan-zania development Finance Limited (TDFL), and newTanzanian firms and institutions that are most support-ive of private sector development.

Agricultural production, processing, and market-ing continue to dominate Tanzania’s economy, ac-counting for 50-60 percent of GDP over the last threeyears. Although drought conditions are expected tocontinue in some regions, a number of large- andsmall-scale irrigation projects are under way to makethe country less dependent on rainfall. A growingawareness of the opportunities for non-traditional ag-riculture has resulted in major recent increases in theexport of flowers, vegetables, fruit, and fish.

Privatization and the relaxation of rules concern-ing foreign ownership have had a significant impact.International firms are buying former state-owned pro-cessing facilities and upgrading production to be glo-bally competitive in price and quality. The net effect isthat farmers tend to receive more for their crop, beingrewarded for the extra effort it takes to produce a top-quality product.9

6.1 ENTITIES SELECTED FORSTUDY

Agribusiness in Tanzania is in a much earlier stage ofdevelopment than in Zimbabwe and, for different rea-sons, more nearly resembles that in Mozambique. JuliusNyrere, president “emeritus,” had created a paternal-istic socialist society that was antagonistic to privateenterprises (which he nationalized), because privateenterprise was a reminder of the former colonial “op-pressor,” the British, and before them, the Germans.Continuing increases in government spending eventu-ally bankrupted the country. The current regime, re-versing direction, invited back former UK “flag” firms,such as the Standard Chartered Bank, but so far with-out much impact. It is the very large, unrecorded,“informal” sector that provides the majority of incomefor most non-farm families. With GoT absorbed by itsmacro problems there is a favorable climate for privatesector SME development.

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Nine donor-supported innovative projects, twoassociations, five development finance companies andbanks, and three private agribusinesses were selectedfor case studies.10 In the following list the supportingdonor, if any, is shown in parenthesis.

Projects:

ATI — Appropriate Technology International (TanzaniaSwiss Trust Fund and others)

APDF — Africa Project Development Facility (IFC)

TBC — The Business Center (USAID)

GTZ — German Technical Cooperation (German gov-ernment)

NEVEPA — Network Vegetable Production Africa(GTZ)

SIDA — Swedish International Development Authority(Swedish government)

SATF — Social Action Trust Fund (USAID)

TechnoServe — TechnoServe Tanzania (USAID andothers)

World Bank — The World Bank (multinational)

Associations:

CTI — Confederation of Tanzania Industries (SIDAand others)

TANEXA — Tanzania Exporter’s Association(some indirect USAID)

Development Finance Organizations:

1st Adili — First Adili Bank (some USAID)

LAKE — Lake Zone Small Business Support Project(ODA)

StanChart — Standard Chartered Bank TanzaniaLimited

TDFL— Tanzania Development Finance Limited (vari-ous EU donors)

TVCF — Tanzania Venture Capital Fund (various EU+ some early USAID support)

Private Agribusiness Enterprises:

Sluis Bros. (E. A.) Ltd.

Sun Flag (Tanzania) Ltd.

TISCO — Tanzania Industrial Studies and ConsultingOrganization (GoT)

Most of the above entities have multiple areas offocus (see Table 6.1). Therefore, an assessment ofeach project, association, financial institution, andprivate organization was performed for each innova-tive project Area of Focus.

6.2 LESSONS LEARNED ANDIMPLICATIONS FOR USAIDPLANNING

In the following sections, lessons learned and impli-cations for USAID planning derived from analyses ofthe profiles presented in Appendix C are presented bykey area of focus. Each section is divided into generallessons learned and implications and those that arespecific to Tanzania.

The lessons learned and implications are listed ina rough order of priority based on the anticipatedpositive impact on USAID objectives and operations ifthey were to be successfully adopted, and, for thegeneral sections, the extent to which the lesson learnedor implication is broadly applicable, that is, applicableto SSA agribusiness projects in general. Thisprioritization is subjective, but represents the studiedopinion of the research analysts and draws upon theirmany years of experience in agribusiness developmentin developing countries.

The primary source of the lessons learned orimplication is shown in parentheses.

6.2.1 Non-Traditional Agricultural ExportDevelopment

The volume of NTAEs from Tanzania is quite smallbut growing rapidly. The Arusha/Moshi area is lead-ing the way based on its favorable growing conditions,access to both the Kilimanjaro and Nairobi airports, aswell as its proximity to the technical and managerialassistance and other business services in Nairobi.Reportedly, there are a considerable number of butfledgling contract and/or outgrower arrangements in

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Table 6.1 Tanzania Innovative Entities and Their Areas of Focus

Project/Association/

FinancialInstitution

Projects

ATI

APDF

BC

GTZ

NEVEPA

SAT

SIDA

TechnoServe

World Bank

Associations

CTI

TANEXA

FinancialInstitutions

1st Adili

LAKE

StanChart

TDFL

TVCF

AssociationDevelopment

No

No

Yes

No

No

No

Yes

Indirectly

Yes

Yes

Yes

No

No

No

No

No

FinancialServices to

Agribusiness

No

Yes

Indirectly

Indirectly

No

Yes

Yes

No

Yes

No

No

Yes

Yes

Yes

Yes

Yes

NTAEPromotion

No

Indirect

No

Indirectly

Yes

No

No

No

Yes

No

Yes

No

Minimal

No

Indirectly

Indirectly

SMEDevelopment

Yes

No

Yes

No

No

Yes

Yes

Yes

Some

Some

Yes

Yes

Yes

No

Minimal

Yes

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the Arusha/Moshi area. Several other locations (e.g.,in the Lake District located on the shores of LakeVictoria with access to three neighboring countriesand representing the second largest population center)also appear to have good NTAE potential. GivenTanzania’s serious balance-of-payments problem, theimportance of agriculture (50-60 percent of GDP) inthe economy, and the apparent potential and initialsources of current efforts, NTAE development meritsvery serious assessment as a significant component ofUSAID’s economic development strategy in Tanzania.

Lessons Learned

High Perceived Impact

n SMEs will be best able to participate in highervalue NTAE business if they are able to shareexpensive fixed assets and consolidate their out-put and marketing efforts. (WB)

n More than 50 percent of the imported vegetablessold in the EU are imported by wholesalers for thelarge supermarket chains. These chains have verystrict quality and phytosanitary specifications,explicit timing requirements, they buy in largequantities, and often require retail packaging atproduct origin. Participation in this large NTAEbusiness by SSA exporters requires tight control,considerable scale of operations, and close link-ages with these big EU importers. Also, the EUhorticulture and floriculture market will continueto be well supplied, therefore only those competi-tors with high quality, high yields, a consistentsupply, and low labor and transport costs willsurvive. (WB)

Some propositions from innovative entrepreneurswith an intimate knowledge of locally available rawmaterials and a reasonable understanding of interna-tional markets deserve further evaluation, especiallywhere they can have a significant broad-based localimpact. (Sun Flag/Sluis)

When locals are risk averse and inexperienced inNTAE production and marketing the best way for themto develop is via outgrower or subcontractor relation-ships with large, experienced firms. (NEVEPA)

The shortage of working capital and a poor trans-

portation system are two major constraints to NTAEdevelopment. Because of the importance of transportcosts to NTAE (30-40 percent of the landed price), air,freight, and to a lesser extent sea freight, costs must bevery competitive. For air freight, this is significantlydependent on passenger traffic volume. Other impor-tant constraints to export development in general, andto NTAEs specifically, are poor performance (espe-cially very slow clearance) of the customs service,inadequate enforcement of tax laws, and excessivecustoms duties on inputs that are to be reexported.Also, a shortage of high-quality planting materials andother input supply inadequacies, as well as a limiteddomestic market for off-specification production con-strains the development of NTAE businesses, espe-cially those involving SMEs. (CTI/SIDA/WB)

Medium Perceived Impact

A reasonable level of private sector technical andmanagerial expertise is a prerequisite for successfulNTAE development, and that development will besignificantly constrained until this expertise becomesavailable on an ongoing basis. (WB)

Countries with traditional or ethnic-based ties tomedium-size markets should consider using these con-nections as a basis for export development, alongwith major markets. (TANEXA)

NTAE associations need a core of actual export-ers; success will be in doubt if members are predomi-nantly “want-to-be” exporters or non-exporting pro-ducers. (TANEXA)

Lower Perceived Impact

After a socialist government leaves power, thenew government must determine quickly how to bestpromote export-oriented industries and must reducedramatically the regulation, control, and monitoring ofmost exports. (SIDA)

Tanzania Specific

NTAE opportunities exist in cashew and sisal prod-ucts as well as in high-value specialty products such asfennel, coriander, and organically grown planting seedsand finished products, but strong, ongoing relationshipswith destination country importers are needed to capi-talize on these opportunities. (StanChart/Sluis)

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A more detailed assessment of the opportunitiesfor producing and exporting specialty oils from theArusha/Moshi area has considerable merit. (Sun Flag)

The success of NTAE outgrower arrangements inthe Arusha/Moshi area should be further investigated.(Sluis)

Floriculture and grain milling appear to be goodagribusiness opportunities in Tanzania, the latter createdby the reduced role of state marketing boards. (TDFL)

Implications

n A donor-supported mechanism is needed to de-termine the feasibility of local entrepreneurs’NTAE development proposals, especially thosethat have the potential for broad-based positiveinput.

n A mechanism should also be developed to tap theexperience of the few successful NTAE entrepre-neurs in a given geographic area, and with theirhelp determine how to accelerate the rate of agri-business development in that area.

n When an NTAE development project is matureenough for management to understand whichsubsectors have the most potential to support theirobjectives, they should have the flexibility to tar-get some of their resources on these sectors.

n Before providing support to an NTAE association,donors must determine how much export experi-ence association members have, their export op-portunities and potential, the status of the export-related enabling environment, the extent to whichassociation organizers and leadership understandmembers’ priority needs and have viable programsto serve these needs, and the quality of associationmanagement.

n Developing local counterparts and the effectivetransfer of project/activity know-how from for-eign advisors to locals is essential for sustainability,and must be a key component of all projects.

n Assessing the basis for successful NTAE devel-opment efforts in similar countries, especiallycompetitors, should be one of the first steps inany NTAE development program design pro-

cess. Ongoing M&E of these countries’ com-parative NTAE development strategies, structures,and progress would also be beneficial.

n Donor-supported projects can and should sup-port the development of pragmatic NTAE devel-opment entities (e.g., associations, cooperatives,networks, financial institutions) but if the benefi-ciaries of these entities are not themselves wellestablished and viable they will not support theentity after donor assistance ends. A key criterionfor any institutionalized approach to enterprisedevelopment is that the institution, whether anassociation, a cooperative, a network, an ASC, ora financial entity, has a clear and believable planto attain financial sustainability and independence,after three to five years of support from the donorcommunity.

NTAE training, donor-supported or otherwise, thatis followed by supplying trainees with the key inputsneeded to apply the training (e.g., planting materials)will be much appreciated by the beneficiaries.

6.2.2 Indigenous SME Development

While Tanzania is desperately poor and the govern-ment is in disarray, liberalization and restructuringhave advanced to the point where the climate for pri-vate sector development is reasonably positive. Theinternational donor community, led by the British(ODA/CDC), the World Bank, USAID, and severalothers, has been able to persuade the GOT to permit abroad array of initiatives to stimulate private sectorand Indigenous SME development. Quasi-governmentagencies, including TDFL have joined in. Of greatrelevance to the Innovative Approaches activity is theestablishment of the Tanzanian Venture Capital Fund(TVCF), in which TDFL, CDC, and other EU donorsinvested, and its management company (EIM), whichis 40 percent owned by CDC.

The previous Nyrere regime in Tanzania was pa-ternalistic and socialist, and it was in power for sucha long time that most citizens are not sure what ismeant by a “market economy.” There is, however, alarge and flourishing informal economy composedpredominantly of Indigenous SMEs. While it is hardto accurately judge its size, it is quite significant. It is

52

run on a cash basis and pays no license fees or taxes,as most activity takes place “on the street.” A majoreconomic development challenge for Tanzania is toharness this legally invisible Indigenous SME entre-preneurial energy without stifling it.

A major constraint to private sector agribusinessdevelopment is the inadequate internal infrastructure.There is no national power or telecommunication gridand the roads, even between the major populationareas, are few and are not in good shape. The fewtrading centers outside Dar es Salaam interact andtrade more with neighboring countries than withintheir own country.

USAID’s carefully structured projects are note-worthy because they leverage available funds to reacha larger SME entrepreneur population than most simi-lar projects elsewhere. This leverage is accomplishedby training business advisors and consultants to assistentrepreneurs engaged in start-ups, diversifications,and expansions. When working with the USAID-sup-ported Business Center, a consultant’s fee is soon tiedto his client’s ability to secure commercial fundingfrom a new bank, First Adili, using a new loan fund(RMPS) provided by USAID. However, much moreeffort is needed to bridge the gap between SME entre-preneurs and the resources needed for enterprise for-mation and sustainability.

Even with the relative isolation of the interiorfrom the urban areas, some regional economic devel-opment is proceeding. Other sections of this reportcover NTAE and related developments in the Arusha/Moshi area. Additionally, CDC is establishing a re-gional development project in Mwanza in the LakeVictoria area, providing equity and investment appli-cation/business plan development assistance.

Despite the constraints of poverty, lack of infra-structure, absence of communications and electricity,and lack of understanding of all but the simplest busi-ness principles, prospects for the formation and sup-port of Tanzanian Indigenous SMEs is favorable.

High Perceived Impact

Lack of experience on the part of entrepreneursand managers and a lack of management training is a

major constraints in the early stages of private sectordevelopment, especially for SMEs. These constraintsare more severe than technical skill shortages. Verylimited equity availability is also viewed by donorsand SME entrepreneurs as a major constraint to SMEdevelopment. Inadequate infrastructure (especiallypower, telephones, and roads), high duties on imports,lack of access to finance (especially to pay for neededimports), poor local business services and input sup-plies (especially packaging), and competition fromimports that often pay no duty are also important toSME development constraints. (StanChart/TechnoServe/LAKE/ Sluis)

Micros, SMEs, and even local government entitiesfind it difficult to pay for anywhere near the full costof business advisory services, especially those wherethe provider is not able to leverage expensive staff.(TechnoServe)

If SME entrepreneurs must work with several dif-ferent institutions to source business support needs,(e.g., financing, technical assistance and managerialadvise) the burden on them is much greater, paperworkis much more complicated, and problems are associ-ated with coordinating the assistance much more likely.(1st Adili)

Medium Perceived Impact

New SME development entities (e.g., associations,cooperatives, corporations) that are established to capi-talize on opportunities or resolve problems caused bythe reduced role of parastatals must remain flexible instructure until the best form of organization, based onlocal laws and participants preferences, can be deter-mined. (TechnoServe)

A prevailing low level of education makes busi-ness management training much more challenging. (BG)

When the dominance of the parastatals in businessis diminished, new SME opportunities should emerge.(SAT)

Lower Perceived Impact

Microenterprises have a special need for ongoingassistance to properly manage the many aspects oftheir businesses. (ATI)

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Micro enterprise development projects can movetoward self-sustainability. T-PRESS should be closelymonitored to determine which parts of its sales orga-nization are becoming self-sustaining and which partscontinue to require subsidization. (ATI)

Implications

Because lack of business management skills is usuallyone of the greatest constraints to SMEs in underdevel-oped private sectors, and local consultants in theseenvironments are unaccustomed to providing prag-matic business services a donor can effectively lever-age its resources in these circumstances by focusing ondeveloping local business consulting capacity.

There is a strong role for USAID to sponsor anactivity to help develop and package proposals andbusiness plans for entrepreneurs seeking financing.This could be accomplished via training support andmentoring for the local entities interested in providingthis service; possibly modeled after USAID-supportedtraining provided to AfDB’s new private sector devel-opment unit officers. A partially integrated approachto SME development is donor-provided special fundsto (1) help SMEs apply for financing from donor-supported projects and (2) develop local business ser-vices capacity.

Projects that effectively support clients, especiallySMEs, at a reasonable cost may have difficulty “gradu-ating” these clients as their needs for business servicesexpand and change as their businesses grow and facenew challenges. Turning these clients over to qualifiedlocal consultants will enable the project to expand itscoverage and reach. However, the more developed theclient, especially if they are exporting, the more so-phisticated their consulting needs. Therefore, localconsultant training needs to be an ongoing componentof SME development projects.

For donor-supported financial services projectswhere SMEs are to be the beneficiaries, financing willlikely have to be preferential rate money, and fundmanagement costs will likely have to be subsidized,since serious “hands-on” management support of theinvestments both pre- and post-financing will beneeded.

In environments with very few models of suc-cessful private sector enterprises, an SME develop-ment program that links new entrants to the fewsuccessful current participants will increase the rateof SME development by creating more models andmentors. This would include subcontractor and othervery localized SME development activities sponsoredby successful large private sector firms.

Country- and location-specific studies are neededto identify and prioritize SME operating constraints tohigh-opportunity subsectors. Associations, coopera-tives, self-help groups, and local NGOs are often use-ful in resolving specific individual constraints andcommunicating with policymakers to address prob-lems associated with the enabling environment. Tech-nical and managerial assistance must emphasize adapt-ability to changing local and subsector-specificconditions and demand-driven solutions. Programdesign must include periodic assessment of impactand demand to evaluate and improve practices.

In societies emerging from socialism or withvery undeveloped private sectors, training businessreporters may be a good way to increase the generalpopulation’s knowledge and understanding of market-led, private sector-based business.

In underdeveloped private sectors dominated byinformal firms an SME development project may needto seek potential clients by effective networking versuswaiting for them to “walk in.”

Wherever possible a supported SME develop-ment entity’s board and management should be se-lected on the basis of both integrity and successfulbusiness experience.

Lesson Learned

There are severe limitations to entrepreneurs’ abilityto organize, finance, manage, and otherwise convertideas into sustainable enterprises.

There is a major gap between what an entrepre-neur, or his/her consultant-advisor, thinks is a goodidea, and what it takes to convert that idea into acredible, investable business plan and, later, businesssuccess. This lack of knowledge is as severe for

54

operating companies interested in expansion or diver-sification as for start-ups.

For example, TDFL reports that it will havetrouble placing more than US$3–4 million of theUS$15–20 million it has available in 1995 even thoughit organized an internal consulting group to help ap-plicants prepare funding requests. Similarly, TVCFscreened an inordinate number of enquiries (in excessof 1,300) to perform due diligence on 43 proposals,funding some 13, of which 8 or 9 so far appear solid.TVCF still has more than US$4 million in equity itcan invest if viable projects can be identified.

Implications

USAID can easily justify supporting managerial de-velopment training as part of any technical assistanceproject. The major issue is to keep it tightly focused onthe skills needed in the types of enterprises activelybeing considered or under development. Emphasisshould be placed on helping entrepreneurs developviable business plans and apply for financing. Expan-sion of, or subcontracting to, the USAID-funded theBusiness Center is an attractive alternative when thelocus of activities is near Dar es Salaam.

Lesson Learned

Led by foreign donors, there is considerable supportfor private sector start-ups and expansion.

There does not seem to be any opposition by theGoT to private sector entrepreneurship. In terms of theoverall need, current Indigenous SME developmentefforts are small, but should set the pace for thecountry’s rejuvenation for years to come.

Implications

The time may be at hand for USAID to work moreclosely with CDC, other donors, TDFL, and others tocreate development centers that could focus largelyon food and agribusiness in rural areas.

Lesson Learned

The financial resources appear to be available to fundlarger enterprises.

n Two institutions, TDFL and TVCF, should beregarded as harbingers of the future, with TDFL

having excess debt capacity and the ability toinvest some equity in larger enterprises, and TVCFwith the ability to furnish equity.

n Certain institutions (TDFL and TVCF) have fundsfor investment of lending but have trouble findingentities to finance.

n USAID funds made available through First AdiliBank for clients of The Business Center are forsmall scale enterprises with credible business plan.

n World Bank is having trouble finding a vehiclethrough which its $27 million private sector enter-prises fund in Southern Africa can be responsiblyinvested.

Implications

Because both debt and equity are already available formedium and large projects from development-ori-ented institutions, what is now needed is a fullyintegrated development service for SMEs.

The British-sponsored LAKE project, with itssomewhat integrated approach to area development,is a useful model. The LAKE project integrates tech-nical assistance with financial packaging assistanceand provides equity for investment and operatingcapital. In addition it supports the development of thebusiness services needed by new enterprises in areassuch as accounting, management consulting, andlaw.

Lesson Learned

The Government of Tanzania will play only a minorrole in near-term private sector development.

Other than resources supplied by donors throughgovernment agencies, most Tanzanian governmententities are too caught up in their own problems to paymuch attention to events outside their immediate pur-view. The entry of private firms into the traditionalagribusiness sector as well as into the burgeoningNTAE subsector is so new that government policiesand departments are, to a great extent, not involved.

Implications

Surprisingly, for a country that was ruled until veryrecently by a paternalistic socialist regime, there is

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not likely to be any significant barrier to securingfinancial support for well thought out proposals,either for institutionalized development (e.g., FADCs)or for private sector individual Indigenous SME for-mation. As far as GoT approvals are concerned,donors can run interference for their programs withGoT, clearing any formal GoT requirements. Other-wise, establishing projects such as FADCs appears tobe limited only by the ability of proposers to set forthcredible plans.

It is very important that USAID simplify its pro-cedures so that it can take advantage of the currentlack of government barriers to development of theprivate sector enterprises. The rather succinct presen-tation prepared by CDC for its Lake Zone project is agood example of a project where USAID might be ableto play a valuable supporting role.

Lesson Learned

An institutional base for countrywide Indigenous SMEdevelopment is lacking.

At present there is no institutional or governmentbase in Tanzania on which to build a countrywideIndigenous SME or agribusiness development system.What would it take to coalesce the various parties andinterests to facilitate a broad base of support for Indig-enous SME development and sustenance? Such a sup-port base or network would help Indigenous SMEsgrow to the point where they are perceived as “invest-able” or creditworthy by banks, investors, and TVCFand TDFL. A priority for such a countrywide networkshould be Indigenous SMEs or ASCs primarily con-cerned with food and agribusiness.

Implications

The donor community, including the World Bank,prefers to work on a project-by-project basis. Adonor intent on its purpose moves ahead, and ifothers are interested, there are almost no official orformal barriers to joining the initiator; although todate, only a few EU donors appear to be workingtogether. Formation of TVCF and TDFL is an ex-ample. The British (CDC/ODA) took the lead (USAIDfurnished technical assistance to TVCF) and startedboth. Other EU donors joined later. The new LAKE

project is still entirely British but other donors may beadded to provide other services as it develops.

The isolation of Tanzania’s major cities and townsfrom each other suggests that, in the near term, itwould be difficult to establish countrywide networksof related programs. The most practical current ap-proach to Indigenous SME facilitation involves dis-crete projects with sharply focused objectives and clearagendas.

Lesson Learned

The banking sector is not involved in intermediate- tolong-term lending to Indigenous SMEs.

As noted elsewhere, foreign banks (e.g., StandardChartered) that have been licensed to resume opera-tions in Tanzania are largely handling trade credit fortheir international clients. The former British banks,taken over by the GoT some time ago, are technicallyinsolvent and are trying to stay afloat by generatinghonest business. Employees of the banks, sensingimpending downsizing and layoffs, take as much outof the bank as they can. The alleged widespread high-level corruption in the banks makes it difficult to pre-vent such “leakage.”

Implications

The packaging of debt and equity is essential for thegrowth of private sector enterprises. Collateral re-quirements have to be realistically defined, recogniz-ing that very few start-ups in Tanzania or elsewhere inthe region will have much net worth. Pooling of creditat the local level and the packaging of both debt andequity funding must be developed in the context of abusiness plan with well-supported cash flow projec-tions. Starting a small company with 100 percent debtcreates too great a burden for the company to survive.This is particularly true in the food and agribusinessfield where prices can fluctuate widely based on sup-ply and demand, and in a country like Tanzania witha very high (+/- 40 percent) interest rate on debt.

Until the banking system is improved, donors, ifserious about economic restructuring, must replicateUSAID’s provision of loan funds to new banks. Itshould be mentioned that First Adili Bank is a newbank, not a survivor of the former regime, and it

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appears appropriately organized to function in Tanza-nia as the country is today and as it is expected to bein the future when transition to a market economy ismore complete.

Lesson Learned

Selecting viable locations for FADCs or other centersfor Indigenous SME development is challenging, asthe lack of infrastructure makes communication andsupport very difficult.

The ability of a firm to access markets on anaffordable basis must be carefully analyzed. Thereseem to be opportunities for Indigenous SME develop-ment in three (e.g., Dar, Arusha, and Mwanza) ormore regions, but proponents need to be realistic aboutthe great difficulties that any enterprise would encoun-ter in distributing nationally, or in accessing exportmarkets other than through the nearest gateway.

Implications

Further processing of raw agricultural products inthe Dar es Salaam or Arusha areas was suggested byseveral interviewees as a logical starting place for anFADC. There is considerable agricultural productionin these regions and Dar es Salaam represents a gooddomestic market as well as a good export gateway. IfUSAID takes the lead in developing a Dar es SalaamFADC (or appropriate equivalent), it will take a strongmultidonor effort for implementation. In TanzaniaUSAID has moved very cautiously on financial ser-vices. However, USAID can take the lead for a projectrequiring US$4-6 million over a period of four to fiveyears, and is it interested in and willing to do so.

Lesson Learned

To date NGOs have worked mainly with local mi-croenterprises.

In many countries, NGOs are beginning to turn toendeavors that generate employment and income forthe rural population. An increasing percentage ofNGOs are setting a high priority on Indigenous SMEformation as the engine for grassroots economicdevelopment. The management and supporters of themore effective NGOs are quite realistic as to whatthey can accomplish.

Implications

Such NGOs may be in a good position to manageenterprise development centers in rural communities,and supporting them to do this with grants and techni-cal assistance would be relatively straightforward.

USAID should seriously explore, with the help ofits AMIS II Project, the opportunity to use NGOs inSME enterprise development activities, particularly inthe area of food and agribusiness.

The staff and programs of AfriCare, because oftheir ties to SAEDF, should be reviewed with somecare. References furnished for innovative activity field-work by SAEDF board member Rev. Leon Sullivan,who is closely associated with AfriCare, and his staffturned out to be solid potential collaborators.

Lesson Learned

The Government of Tanzania will eventually resolveits problems and be supportive of private sector devel-opment.

Currently, the GoT is involved very little, if at all,in private sector development. The Ministry of Agri-culture and other ministries can be expected to orga-nize a new thrust after the next round of rationalizationand budget cuts. The amount of effort that will befocused on private sector or Indigenous SME develop-ment is hard to predict.

Implications

This may be a period when donors smooth the wayfor Indigenous SMEs by interacting with the GoT athigher levels to obtain necessary licenses, clearances,and so on. Nevertheless, it is important to remember,that for the past thirty years, few Tanzanians coulddescribe what is meant by the “private sector” or a“market economy.” Sooner or later the GoT mustestablish rational policies toward the private sector,particularly if ventures that export, import neededgoods, or employ large numbers of Tanzanians are tosurvive and prosper.

Indigenous SME Development Constraints

1. Holdover attitudes and practices from past re-gimes.

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The “big brother” or “the government will takecare of you” effect of the long Nyrere regime is stillomnipresent. Politicians do not understand the conse-quences of the laws they pass and civil servants do notknow how to implement regulations and rules for amarket economy rather than for a command-and-con-trol collective system. As a result, the informal economyis the only outlet for most entrepreneurial energy be-cause it operates independent of government oversightor tax collections. Similarly, most private sector devel-opment is taking place away from GoT control andoversight. There are a great number of cumbersomeholdover rules and policies relating to business activ-ity as well as new rules passed by the current legisla-ture, many of which conflict with each other. Fortu-nately, the donor community has been able to “runinterference” to secure needed government permits,licenses, and so on. The private sector can thus moveforward subject to other, nongovernmental, limitations.

2. Missing and/or undeveloped supporting servicesfor development of Indigenous SMEs or FADCsare listed below.

a. Technical Support and Extension. The busi-ness services available to private entrepre-neurs in Tanzania are still quite limited. Tech-nical know-how tends to reside in private firmsor in NGOs with a technology transfer bent(e.g., World Vision). The universities, as else-where in the region, are under great stress andoffer little to support developing enterprises.Hopefully, the recent infusion of foreign capi-tal will bring along companion technology.As for extension, it is reported that personnelin the Extension Service, as well as in the restof the Ministry of Agriculture, are still de-moralized; but it is predicted that they willregroup in the near future and begin to havesome impact on the production side in a yearor two.

b. Management Services. USAID and otherdonors have taken steps to meet the verylarge need in Tanzania for enterprise devel-opment assistance. As outlined in the projectprofile on The Business Center (TBC), in thethirteen months since start-up, TBC has be-

gun to concentrate on training business con-sultants and relating their training to theirwork with their clients. In fact, they havegone so far as to tie consultant compensationto client performance, starting with theclient’s ability to secure a loan from FirstAdili Bank. The idea of leveraging trainingresources by focusing on consultants hasalso been adopted by the British in theirLAKE project. With these two exceptions,the rest of the population of would-be Indig-enous SME entrepreneurs has little exposureto the basics of planning, organizing, financ-ing, or operating an investable business. Thislack of knowledge of how business works ina market economy will hinder economic de-velopment in Tanzania for a long time, espe-cially when the dysfunctional style of theuniversities is taken into account.

c . Financial Services. Other than the entitiescovered in the project profiles, the commer-cial banks that were taken over by the govern-ment are all technically bankrupt. They aretrying to eliminate the large number of casesof fraud that occur as employees, facing un-employment from badly needed downsizing,try to convert bank funds into personal nesteggs.

d. Marketing and Information Services. Ex-cept for World Bank attempts to track exportsand imports, the recent growth of NTAEs isneither measured nor understood by the GoT.There are some expensive consultant servicesand TBC provides marketing and manage-ment training and advice to their consultantand client enterprises. Most NTAE informa-tion and intelligence resides in the foreigncompanies now operating in the country.

6.2.3 Association Development

Association Development in Tanzania is much lessmature than in Zimbabwe, but more mature than inMozambique. As was the case in Mozambique, anyform of cooperation is viewed with skepticism be-cause of the former governments’ influence and

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control over cooperatives. Association Developmentin Tanzania has good potential as a means to groupsmall, largely informal enterprises together so thatthey can achieve economies of scale in sourcing theservices they need for their business and in helpingthe government develop a viable enabling environ-ment in which association members can operate.Because agribusiness association development was aminor focus of the Innovative Approaches activity inSouthern Africa and researchers were able to identifyonly two relevant associations, the following sectionis quite brief.

It is very difficult for SME exporters to gatherthe technical and market information needed for suc-cessful development of NTAEs. Grouping themselvesinto associations makes this much easier. (TANEXA)

Members of producer-based NTAE associationstend to want to focus on production rather than onprocessing or marketing. Integrated producer, packer,exporter associations seem to be a viable way to over-come this tendency. (TANEXA)

NTAE association group lending schemes in Tan-zania will not require large amounts of capital becausemembers’ export volume is usually quite modest. Propercash management techniques will help reduce the totalamount of working capital required. (TANEXA)

Past problems with government-controlled coop-eratives makes organizing producer-based associationsquite difficult due to potential members’ distrust ofgroup-based endeavors. (Sluis)

6.2.4 Financial Services Development

The embryonic state of Tanzania’s financial sectorwas discussed in section 6.2.1 in the context of finan-cial services available to SMEs. The situation forother agribusinesses is much the same; private com-mercial banks are primarily interested in trade creditfor their international (and occasionally short-termdebt) clients and the best parastatals, as well asdeposit taking. The state-owned banks have seriousoperation, internal control, and bad debt problems.Loans to agriculture/agribusiness firms are perceivedas high risk and involving long-term paybacks. Bothperceptions are understandable in Tanzania’s under-developed legal and business environment and in

circumstances of high inflation. However, it is en-couraging to find that donors have developed viableinstitutions to help the private sector overcome thefinancial sector’s difficulties. TDFL, TVCF, and theemerging RMPS and LAKE projects have great po-tential to supply financing to medium and largeagribusinesses (in the cases of TDFL and TVCF) andto provide models for SME financing (in the cases ofRMPS and LAKE). It is important to note, however,that both of the existing entities have more funds thaninvestable projects and have felt the need to couplemanagerial assistance with their financial services.Neither of the new projects will offer a fully inte-grated approach (i.e., debt and equity financing plustechnical and managerial services) to SME develop-ment. However, both RMPS and LAKE will be moreintegrated than other donor-supported private sectordevelopment projects discovered in SSA.

High Perceived Impact

Lack of entrepreneur experience and equity orcollateral, inadequate bookkeeping practices, and thelack of know-how to develop satisfactory financingproposals and the associated business plans are majorconstraints to financing SME ventures. (TDFL)

Difficulty identifying investable projects, not thelack of finance, is the major constraint to donor-sup-ported financial services projects focused on SMEdevelopment. The lack of debt financing and entrepre-neur equity are both important constraints to the suc-cess of venture capital projects.

Important factors that limit a venture capitalfund’s ability to invest its available resources includeentrepreneurs’ lack of familiarity and comfort withthe concept, inadequate recordkeeping practices, theunavailability of exit mechanisms, and restrictions thefund may have on client size, business sector, orowner nationality. (TVCF)

Financial development projects that require a lowdebt-to-equity ratio will find that there are few invest-able projects available in private sectors that are in theearly stages of development. Convertible debt andincome notes, along with loan officers who have agood understanding of the applicant’s business, willhelp reduce this constraint. (TVCF)

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Financial services organizations working withlarger borrowers (e.g., APDF) can afford to do morecomplete feasibility studies, have less difficulty sourc-ing funds, and incur lower transaction costs as a per-centage of financing value. (LAKE/APDF/BG)

Development finance institutions often find itnecessary to establish their own internal consultinggroup to help potential clients apply for financing andto monitor businesses after financing. (TDFL)

SME managers often assume that loans, espe-cially when donors or the government are involved, donot need to be repaid. (1st Adili)

Medium Perceived Impact

SMEs are not accustomed to the type ofrecordkeeping required to provide the informationneeded by the financial institutions from which theyseek financing. (1st Adili)

European donors seem to be able to jointly fundsuccessful financial services development projects,possibly because they have similar screening require-ments. (TDFL)

Donor-supported development finance institutionscan become fully localized given enough time andeffective training and mentoring. (TDFL)

Financial services are not available for projects inthe $50,000 to $250,000 range. (TechnoServe)

Valuation of rural-based assets is a problem, es-pecially when land tenure is insecure and infrastruc-ture is poor. (1st Adili)

Achieving a sufficiently broad geographic reachto identify numerous qualified borrowers is difficult incountries with a poor infrastructure. (1st Adili)

Lower Perceived Impact

When donors supply the private sector with work-ing capital, care must be taken to ensure that largeamounts of it are not used to finance imports insteadof providing support for domestic and export basedindustries. (CTI)

Implications

For optimal effectiveness and efficiency as well asfor making the most rapid progress, existing, well-

managed entities (when available) with a good trackrecord should be used for new private sector devel-opment programs. New venture capital projects shouldinvestigate the experience of other USAID venturecapital projects, especially in SSA, before finalizing adesign.

The effectiveness of donor activities can be en-hanced if donor-supported debt providers (e.g., TDFL)cooperate with donor-supported equity providers (e.g.,TVCF), and where available donor-supported TAprojects (e.g., TBC), with similar objectives.

Financial services project or entity managementteams need to be involved with either a large singlefund/institution or several funds/institutions to spreadthe high cost of their services and keep the cost frombeing a burden on any one project. Given the cost ofhigh-quality fund managers, a regional fund (debt andequity) would enable better leveraging of manage-ment.

High-quality management and support from adonor(s) who has experience with business develop-ment and finance in developing countries can signifi-cantly enhance the chances for success of a venturecapital project.

Because the returns on investments in agribusi-ness ventures are likely to require a longer time thanreturns for most other businesses, a separate agribusi-ness fund may be required.

Donors who provide financial services must becareful that the requirements placed on borrowers arehighly relevant for the circumstances in that countryand do not put an excessive burden on borrowers(e.g., complex environmental impact assessmentsshould not be a high priority).

6.2.5 Monitoring and Evaluation

As in Zimbabwe and Mozambique, USAID placesmuch more emphasis on formal M&E systems thando other donors. That portion of their support that isfor improving Tanzania’s balance of payments iscoordinated with other donors and the World Bankand uses progress on conditions precedent as animpact measurement. For their projects and project-related activities it is quite unusual to use macroeco-

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nomic measurements to assess the impact. There aretwo primary reasons for this: (1) other donors tendto disburse their assistance through local governmententities whose performance they cannot control, and(2) their activities are most often broken down intoindividual targeted projects or activities that have theirown set of objectives. Progress on these objectives isusually assessed on at least an annual basis, but notnecessarily using extensive quantitative measurements.Considerations such as the satisfaction level of thebeneficiaries and government entities involved seemto play an important role.

High Perceived Impact

Project M&E must be basic and simple. It mustestablish the starting point/baseline and producemonthly accounts of progress versus budget for as-sisted clients. Collecting information on social ben-efits and secondary impacts is usually not cost effec-tive, but some balance between quantitative andqualitative information can be achieved. (TechnoServe)

M&E for the private sector, including agribusi-ness development projects, must be focused on com-mercial measurements, for both the development entityand its clients. (APDF)

M&E for TA and business consultancy develop-ment projects includes such parameters as the numberof managers trained, number of consultants trainedand certified, the extent to which training and consult-ing fees cover actual costs, the success of clients’businesses or associations, increase or decrease in thenumber of client employees, and the amount of fi-nancing sourced for clients. (TBC)

M&E for donor-supported venture capital fundsshould be based on financial performance of the fundand its investments as well as on the number of newinvestments assessed. Over the long term, the abilityto sell investments at an acceptable price will also beimportant. (TVCF)

Medium Perceived Impact

Monitoring and evaluating, especially monitoringinvestments outside the major metropolitan areas (e.g.,for many agribusinesses), is quite difficult, primarilydue to communications problems. (TVCF)

M&E carried out by the EU donors who supportfinancial services entities appears to be the same aswould be used for any other financial institution (i.e.,return on investment, increase in assets, loan perfor-mance, portfolio balance and risk, nonperforming loans,and balance sheet ratios). (TDFL)

EU donors who support chambers of commercetend to use subjective considerations when assessingtheir impact and effectiveness. Important criteria in-clude the chamber’s influence on the development ofgovernment policies and procedures conducive to pri-vate sector development and the increase in the num-ber of members and the portion who are active. (CTI)

Lower Perceived Impact

M&E for GTZ projects tends to be subjective andinformal since their success is quite dependent on thesupport and cooperation of the government entitiesthrough whom they work. (GTZ)

M&E for T-PRESS will be based on the numberof machines and improved planting seed sold, amountof oil produced by the press owners, the sustainabilityof press micros, and the sales division’s progresstoward sustainability. (T-PRESS)

6.2.6 General Recommendations

The following recommendations are believed to berelevant to the overall Innovative Approaches activityin Tanzania, but do not fit under the above categories.

High Perceived Impact

A formal and ongoing SSA-wide information ex-change should be established on agribusiness devel-opment lessons learned and the implications for USAIDproject/activity design and development. (TBG)

Improvements in government industrial policiesmust be accompanied with significant input from theprivate sector, especially when evolving from aparastatal-based economy. (SIDA)

Africans from other countries may be able tosupplement the supply of local agribusiness managerswhile locals are trained and gain more experience.(StanChart)

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Medium Perceived Impact

Donors need to make very sure that managersthey assign to projects have pragmatic ideas anddirect experience in the disciplines in which they willbe working. (TechnoServe)

Multidonor funding may enable more appropriatestaffing levels for complex and multi-service projects,which otherwise would have to become more highlyfocused and limited in scope. When donor funds arereduced, programs are forced to prioritize and focustheir efforts on fewer areas. (BG/GTZ)

Official policy and enabling environment enhance-ments are often not fully implemented. (1st Adili)

To minimize the passage of conflicting rules andregulations, policy enhancement projects may be neededto help the various government ministries coordinatethe development of policies that affect private sectorbusiness. Significant involvement of the private sectorin policy development will help minimize these incon-sistencies. (CTI)

Investors in privatization projects should be cau-tious about the durability and enforceability of theagreements associated with these acquisitions. Theinvolvement of an investor’s home base government ora major multinational donor such as IFC may helppreserve such agreements. (StanChart)

Low morale/motivation and second jobs can besignificant constraints to the success of donor projectsthat use local government counterparts, especiallywhere government wages are inadequate. PVOs/NGOsmay be a viable alternative when government entitiesare lacking in counterpart funds and government em-ployees are poorly motivated. (GTZ)

Lower Perceived Impact

Improper and/or inadequate equipment mainte-nance (especially for donor-supplied used equipment)often results in very high operating and rehabilitationcosts for parastatal and private sector agribusinesscompanies. (LAKE)

Specific to Tanzania

There appears to be a significant opportunity tocoordinate and integrate several different existing

donor-supported SME development activities: spe-cifically TDFL (debt), TVCF (equity), and The Busi-ness Center (TA and managerial assistance). StanChartmay be willing to provide a working capital line ofcredit to clients of all three of the above entities.(TVCF)

The success of ProTrade, HSF, and KFW meritsfurther evaluation. (GTZ)

There are opportunities in Tanzanian agribusinessfor good, experienced managers who have capital.(Sluis)

Input supply problems and the unpredictability ofweather are two of the major constraints to outputpredictability and therefore successful agribusinessventures in the Arusha/Moshi area. (Sluis)

If the GoT is sincerely interested in the success ofTISCO, TISCO could represent a good partner for adonor-supported project to supply expertise forprivatization efforts. (TISCO)

6.2.7 Key Issues Deserving Further Study

The following issues are sufficiently important toagribusiness development in Tanzania that an effortshould be made to try to resolve them.

High Perceived Impact

What is the best way to determine the viability ofand to develop agribusiness and especially NTAEprojects in the Arusha/Moshi area that have the poten-tial for a broad-based, positive impact? (Sluis/SunFlag/NEVEPA)

What is the best way to assess the success, futureprospects, and specific agreements of outgrowerschemes in the Arusha/Moshi area? (NEVEPA)

Can Mwanza organizations that provide businessservices be developed quickly enough to support SMEsin which LAZER will invest? How will the TA andmanagerial assistance be provided to entrepreneursinterested in businesses (e.g., NTAE, where there isa very minimal knowledge base in Mwanza)? CouldTBC-certified consultants experienced in NTAE be“shared” with LAKE? (LAKE)

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Medium Perceived Impact

When local business skills are very limited andproject funding does not enable adequate staffing,how can indirect (consultant) or direct managementskills be developed on a timeframe consistent withneed? Is assisting existing training institutions, suchas universities, to develop effective business manage-ment training programs a viable approach? (TBC)

Apparently an underlying assumption of the LAKEproject is that LAZER equity, and the preparationwork necessary to qualify for LAZER support, willhelp entrepreneurs establish the collateral base andcredibility needed to apply for debt from commercialsources. Is this a valid assumption? Did ODA considerasking TDFL to join them in the LAKE project so theirfavorable rate debt could be combined with LAZERequity? (LAKE)

Lower Perceived Impact

How can immigration departments be best con-vinced that expatriate advisors generate much morelocal capacity and employment than they replace?(SAT)

Tanzanian companies must deposit with the lend-ing bank 100 percent of the value of any foreignexchange they need in shillings, plus pay interest onthe foreign currency they borrow, until it is repaid.This is a major constraint to exports that require im-ported inputs. How will LAKE or other donor projectshelp overcome this serious constraint? (LAKE)

6.3 USAID TANZANIAAGRIBUSINESS DEVELOPMENTRECOMMENDATIONS

Based on the very brief (one week in country) workof the AMIS II team in Tanzania, the following isoffered as very preliminary input to Mission agribusi-ness development program enhancement.

It is impressive, and very fortunate given thevery poor state of the banking system and level ofprivate sector development in Tanzania, that the rangeof services needed for agribusiness development has

been made available by donors. The Business Center(sponsored by USAID) offers managerial and sometechnical assistance, TDFL (EU donors) offers rea-sonable rate debt, and TVCF (EU donor capital +USAID operating funds) offers equity. The servicesof the TVCF and TDFL, however, are focused pri-marily on medium and large firms. USAID’s newRMPS project will provide participatory forms offinancing to SMEs. The new LAKE (CDC-spon-sored) project in Mwanza will offer equity to SMEsand will attempt to upgrade local consulting capacity.

None of these projects offer the full range ofbusiness services that a developing SME needs, norare the services effectively integrated so that a clientcan do one-stop-shopping. It is also very difficult forservices to be provided in such a way that the great-est need gets the most attention (i.e., constraints tothe firm’s success addressed on a priority-for-that-firm basis). Also, none of these services is focusedon agribusiness, even though agriculture represents amajor portion of Tanzania’s GDP and employmentand there appears to be considerable potential forexpanding agribusiness, including the export of agri-cultural products.

Also, there is a serious need to develop the busi-ness management and marketing capabilities of busi-ness services providers, especially consultants, andentrepreneurs and managers.

USAID Tanzania is developing innovativeIndigneous SME development programs and there is aneed and opportunity to develop others, especiallyrelated to NTAE development. It is not clear, however,that the lessons learned elsewhere by USAID andother donors, and the implications to optimizing USAIDTanzania-related programs, are being utilized.

Therefore, the following suggestions are offered:

1. Investigate the feasibility of developing and imple-menting a coordinating mechanism that will en-able entrepreneurs to access the resources ofexisting business development services in a one-stop-shop manner. An alternative would be touse one of the existing entities as the basis of aone-stop-shop, which draws upon other existingprojects when possible, but offers the missing

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services itself, or identifies other outside sources,if the other project is not willing to cooperate.For example, The Business Center would itselfoffer technical and managerial consulting assis-tance to Indigneous SME agribusiness clients, orwould refer clients to certified outside consult-ants for such assistance. If the client needs andcan support debt, the client would be able to useeither TDFL or RMPS (depending on the client’ssize), but the funds would be disbursed throughand controlled by The Business Center. If theclient needs equity, they would be able to useeither TVCF equity or RMPS equity instruments,again dispersed through and controlled by TheBusiness Center. The credit/investment risk wouldstay with the source of the funding and a com-bined review board would determine a single setof support/financing policies and review andapprove support/financing applications as a com-mittee. Special emphasis would be placed onpost-financing assistance and managerial devel-opment.

Once a model has been developed for a Food andAgribusiness Development Center, the concept canbe applied to other high-potential geographic ar-eas such as Arusha/Moshi and Mwanza. A newentity/FADC, supported by the abovementionedprojects, is the best approach, and could bedeveloped in an area (e.g., Arusha/Moshi) thathas considerable potential for broad-based devel-opment of NTAEs. Also, the LAKE project inMwanza needs better access to fully functional

business services as well as to debt to comple-ment the CDC-supplied equity, especially for agri-business-related projects.

2. Because of the major need to upgrade agribusi-ness (and other) management skills, a program ofmentoring successful business managers with fledg-ling entrepreneurs should be investigated. It isrecognized that there will be difficulty attemptingto link indigenous entrepreneurs with non-indig-enous managers (who represent a large portion ofthe successful manager pool). However, the needand potential benefits justify investigating thepossibilities. A close assessment of the successfulK-MAP program in neighboring Kenya would bevery useful in this regard.

3. Once a set of agribusiness development objectiveshas been established, it would be very useful toassess donor-supported programs with similar ob-jectives elsewhere in the world, but especially inSSA, and extract from these programs the lessonslearned and implications for optimizing the designand implementation of similar projects in Tanza-nia. The Innovative Approaches activity, whichthis report is part of, focused on agribusiness de-velopment programs in Kenya, Uganda, Ghana,Mali, Senegal, Mozambique, and Zimbabwe, andhas completed secondary research on FADCs inthe development world and LAC agribusinessdevelopment projects. The AMIS II team wouldbe pleased to work with USAID Tanzania on thistype of assessment.

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Appendix ADetailed Profiles - Zimbabwe

This appendix includes the basic findings on agricul-tural and agribusiness-related donor-supported projectsin Zimbabwe. The assessments of the projects, asso-ciations/unions, and other organizations that followinclude summarized Objectives, Discussion, and Im-pact sections, and the Conclusions reached from thatcase study.

A-1 FINDINGS ON SUPPORTEDPROJECTS

A-1.1 Agricultural and Rural DevelopmentAuthority (ARDA) (formerly AgriculturalDevelopment Authority [ADA])

Sponsor: Zimbabwe government, plus EU for somespecific projects

Project Value: N/A

Start Date: 1982 for EU funding approval; did notreceive funds until 1985; implementation began 1987/88

Completion Date: Ongoing

Principal Objectives:

Association Development: No direct interest ex-cept as supports other objectives.

Financial Services: Coordinates with AgriculturalFinance Corporation (AFC) for client funding.

SME Development: Establish indigenous subsis-tence and cash farmers on resettlement and govern-ment-acquired land. Provide infrastructure, especiallyirrigation, for commercial farming projects. Enhanceindigenous commercial farming.

Discussion: ARDA is a parastatal, part of which(commercial farming) is going to be privatized, al-though the rural development components will con-tinue to be state-owned. ARDA manages large-scaleirrigation and commercial agricultural production

projects, most of which are related to state-acquiredfarms. When a large piece of commercial land be-comes available, the government buys the land andARDA assesses its agricultural potential. The land isthen put into either a subsistence or commercial devel-opment track. ARDA-organized resettlement/subsis-tence schemes average 2–5 hectares per farm andtotal 3.5 million hectares.

A new plan is to develop farms (average 20–50hectares) for expert farmers who will focus on cashcrops such as cotton and tobacco. The beneficiarieswill lease the land for five years (to preserve theircapital) and will have an option to buy the land afterthe five years. They will use equipment from the pre-viously state-owned farms and will be able to buyinputs via AFC-administered loans. Price Waterhouseis developing models for crops, rotations, and financ-ing requirements.

Findings from ARDA projects include the fol-lowing:

1. Associations can be effective in organizing smallproducers and helping them provide basic servicesfor themselves. For example, the MashonalandEast project (EU funding for transport equipment[see section 4.2.5]) includes five associations with16,000 members. This project included a focus ontomato production and marketing, mostly for thedomestic market. ARDA field teams organize thetransport equipment and local associations do thegrading. Financing for development costs is basedon a grant for year one, 50 percent grant/50 per-cent loan for year two, and commercial rate fi-nancing for year three and beyond.

2. Some ARDA projects are investigating flower(protean) and strawberry production. ZimTrade isused for export market information.

3. In 1991, Hortico, a local exporter of fresh veg-etables and fruit, worked with farmers in theMutoko communal area in association with ARDA.

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Trials on sweet corn worked fairly well, as Horticosupplied all the inputs as well as extension ser-vices. However, the company found that it had torestrict purchases to less perishable products dueto the lack of infrastructure, specifically cold storesand transport. ARDA acted as middleman forexporter purchases from farmers grown on a 9-hectare area. FAO was also involved.

4. The Heinz joint venture buys pea beans from anARDA estate, where about 1,000 small farmersgrow beans under dry land agriculture conditions.

5. The Katiyo Tea Estate, located in the Honde Val-ley, is under the control of ARDA. Tea is the mainproduct but coffee and bananas are grown also.Just under half the tea (about 700 ha) is grown bythe estate; the balance (about 800 ha) is producedby some 400 smallholders (who have 1–4 hectaresof tea each) who have been resettled on part of theestate. Green leaf is purchased from thesmallholders by ARDA and then processed in theestate factory prior to sale. This project waslaunched with loans to farmers to help them pur-chase the tea bushes and maintain them until theycame into production. This is an example of howoutgrower schemes can function in Zimbabwe.

The estate is well operated. Responsibility formarketing, which management views as their majorchallenge, was recently taken over by the estate fromthe ARDA head office in Harare. Good progress seemsto have been made in this area as the estate is nowadding value to its tea by producing tea bags instead ofsimply exporting bulk tea for further processing over-seas. Good markets for this product have been devel-oped in Sweden and Germany under the estate’s ownbrand name.

In the area around the estate there are a large num-ber of independent smallholders producing basic food-stuffs. Much of this land is probably suitable for tea andthe incomes of these farmers could be increased if theybecame outgrowers to the estate. However, for this tohappen several constraints would have to be overcome:(a) potential outgrowers would have to be convincedthat tea is a viable crop; (b) they would require credit topurchase the tea bushes and tend them until they came

into production, because they would not be able to startrepaying the loans until they gan to sell green leaf to thefactory; (c) while tea is a traditional crop in the area,some farmers will probably need technical assistanceand training; the estate already assists its existingoutgrowers in this way so it may be able to expand thisservice to include new outgrowershe development ofnew outgrowers, the estate’s processing capacity wouldhave to be increased and the existing factory expanded,which would require a considerable capital input (i.e.,external funding).

Impact: The Mashonaland and tea projects seemto be successful, but how sustainable ARDA’s com-mercial farming business will be after privatizationremains to be seen. The Mutoko project with Horticohas yet to produce and market large volumes of horti-culture produce.

Conclusions: Well-managed parastatal develop-ment entities can effectively meet social objectives.

The input/output or cost-effectiveness of ARDAprojects is difficult to assess.

Separating ARDA’s developmental activities fromits commercial activities will make it easier to monitorand evaluate their respective performance, and donorswill be better able to work with the development en-tity.

Local producer associations can be effective inZimbabwe, as exemplified by Mashonaland East.

Where infrastructure is inadequate, less perish-able products must be produced.

Responsibility for marketing should be with anentity closely associated with production, (e.g., the teaestate) rather than with ARDA.

A-1.2 CARE

Sponsor: Private

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives: Use rural community em-powerment as a means of replacing many governmentservices.

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Association Development: Community-owned and-managed water distribution entities.

Financial Services: Some interest in group lend-ing to support other activities.

SME Development: Primary interests are in estab-lishing water supply (for use in irrigated vegetable pro-duction) entities based on dam rehabilitation (desilting).Also interested in increasing the amount of credit avail-able to the informal sector via group lending.

Discussion: Much of CARE’s focus is on com-munal lands that at one time were supplied water bythe government, but the water system was not properlymaintained. Nearly 60 of these projects are being as-sisted by CARE, rehabilitating dams and establishinga community-based water distribution company to sellthe water. Part of the proceeds are used for dam main-tenance. ATI foot pumps (see section 4.2.10) couldalso be used to supply water to family vegetable gar-dens, which would help alleviate food availability prob-lems. The key is for the community to accept respon-sibility for the dams and water system, rather than torely on the government.

Currently only about 1 percent of agricultural creditgoes to the informal sector, and most communal-basedenterprises operate in the informal sector. CARE isdeveloping group lending programs that will offer creditat a small discount to commercial rates.

Due to the lack of local market outlets for produc-tion and stores to purchase supplies, local villagers areforced to do their trading in regional markets. Thismeans extra time and expense to the villagers and theloss of the trading margin to the village. CARE islooking at opportunities to establish local trading poststhat would help balance supply and demand, offersmall amounts of credit, and function as stimulators ofchange. Specifically, the trading post operator wouldspecify the inputs (seeds, fertilizer, crop protectionchemicals) that should be used by producers for him togive the producer the best price and total purchasevalue for his output. CARE would help the tradingpost operators establish their businesses, offer smallamounts of credit to clients for inputs purchase, andprovide market information that would enable fairpricing and help producers find the best market.

CARE believes that (1) maize yields could besignificantly improved by the technology transfer thatwould take place between a village-level trader, whoprovides inputs and buys the output, and the producers;(2) agricultural yields can be improved significantlyby (a) planting early and doing proper weeding, (b)proper use of fertilizer and pesticides, and (c) use ofbetter crop varieties; the best varietals are those thathave high drought tolerance and good upside poten-tial if the weather is “normal,” this will likely mean amix of seeds with high and low drought tolerance; (3)Agritex (the agricultural extension service) is facingsevere budget problems and is getting behind on theirtechnical knowledge; (4) GoZ decentralization activi-ties have improved the appropriateness of local activi-ties and projects, but have significantly slowed theapproval process. Who can approve projects and thebasis for their approval are not well understood byCARE or local residents.

Impact: Significant progress has been made onthe dam desilting/water distribution projects.

Conclusions: Privately funded PVOs can be veryeffective and innovative if they are well managed.CARE’s “village trader” project is very innovative,has considerable potential, and should be monitoredby USAID.

A-1.3 Danish International DevelopmentAgency (DANIDA)

Sponsor: Danish government

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives: Primarily interested inhorticultural production technology transfer.

NTAE Development: Only as related to production.

Discussion: The Danish Government Institute ofSeed Pathology for Developing Countries trains peoplein seed pathology, presenting both practical and for-mal courses, which can lead to a Ph.D. in Denmark.

DANIDA is constructing the National Quaran-tine station in the Mazoe area, now almost complete.It also supports irrigation schemes with produce pack-

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ing sheds, irrigation infrastructure, and horticultureseeds. An example is the irrigation scheme known asNyandoro in the Chihota District of MashonalandEast Province.

Impact: While considerable horticulture produc-tion technology transfer has taken place, the returns onthis investment have been constrained by a lack ofparallel financial, managerial, and marketing assis-tance.

Conclusions: Further assessment is needed. Thelack of financing and marketing assistance restrictsoverall project success.

A-1.4 German Technical Assistance (GTZ)

Sponsor: German Government

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives:

Association Development: Develop self-help pro-duction groups.

SME Development: Minimal.

Discussion: Assistance is provided by GTZ jointlywith ARDA’s Coordinated Agricultural Rural Devel-opment (CARD) Project in Masvingo Province. Theobjective of this program is to establish economicallyviable production systems based on self-help efforts inthe communal areas of three districts of MasvingoProvince — Gutu, Zaka, and Bikita. Long-term andshort-term experts are engaged to introduce improvedcrop cultivation practices. CARD and GTZ are in-volved in the production of foundation and certifiedseed, plant protection, postharvest handling, and stor-age technology. GTZ and CARD have developed awell-respected monitoring and evaluation system, whichis really a logical framework used to follow the busi-ness plans developed by participating farmers. Otheractivities include introduction of improved livestockmanagement, water supply and sanitation, and landuse planning.

The Fuva project is supported by ARDA and GTZand promotes horticulture production in the Fuva com-

munal area of Zaka with water from the Siya Dam.Four areas take water from a canal running from northto south and distribute it through a system of second-ary canals. Each area has from 15 to 20 householdsorganized into informal groups. Vegetables are grownmainly in the dry season (June–December) when otherareas cannot produce them, while the rest of the yearthe main crops are maize, rape (local term for a green,leafy vegetable), groundnuts, cabbage, and tomatoes.An Agritex extension worker is assigned to the projectfull time. GTZ’s role in the project was to finance theconstruction of canals and to provide credit for pur-chase of inputs; GTZ is not involved in marketing.

ARDA’s Integrated Rural Development ProgramCoordinator reports that farmers have difficulty mar-keting their surplus production and have asked theagency for help. However, ARDA has no marketingspecialists on their staff. The groups need technicalassistance in postharvest handling and marketing, fi-nancial support for purchase of transport and coldstorage, and access to market information.

Impact: CARD has had modest success; Fuvaproject horticultural sales have been suboptimal.

Conclusions: Integrated assistance is needed forthe Fuva project. The GTZ/CARD M&E system needsfurther review for adaptable ideas.

A-1.5 Mashonaland East and ManicalandProjects

Sponsor: European Union (EU)

Project Value: Mashonaland: Grant - ECU 625,000(US$500,000); Loan - ECU 2,275,000 (US$1.8 mil-lion); Manicaland: N/A

Start Date: Mashonaland: October 1986;Manicaland: N/A

Completion Date: Mashonaland: 1997;Manicaland: N/A

Principal Objectives: In Mashonaland, primaryobjectives are to encourage farmers to increase thequality and quantity of their horticultural productsoutput by (a) providing a small extension service, (b)training Agritex staff, (c) providing seedlings of im-proved varieties of mangoes, and (d) helping farmers

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convert to the improved (less fibrous) mango variet-ies. Marketing objectives are to help smallholders selltheir produce at higher prices and reduce their mar-keting costs by (a) providing three trucks to transportproduce to the major urban market and (b) establish-ing an assembly market with grading machinery withinthe region. Institutional development efforts are toestablish self-sustaining organizations to carry on theactivities after EU support ends.

The objectives in Manicaland are similar to thosein Mashonaland but focus on a different geographicarea and on fruits and nuts rather than on vegetablesand fruits.

Association Development: Develop independent,self-financing and self-managing associations that willtake over all ongoing project activities.

Financial Services: Some for rural producers.

NTAE Development: Some interest in mango ex-ports.

SME Development: Develop sustainable producetransport and assembly market firms.

Discussion: The European Union operates twohorticulture/NTAE projects, both managed by ARDA:the Mashonaland East Fruit and Vegetable Project(Mash East Project) and the Manicaland Fruit and NutProject. The Mash East project is in its second phaseand will end by 1997. It is hoped that the project willthen be self-sustaining. Technical backup has beenprovided in the form of assistance in horticulture,marketing, finance, and institutional development forrural farmers. The project also assists with transportby providing trucks for moving produce from ruralfarmers to markets in urban centers, vehicles for staffand motorcycles for extension workers, and work-shops for vehicle maintenance.

For the Manicaland Fruit and Nut Project, locatedin the Honde and in the Rusitu Valleys, the EU pro-vided assistance similar to that for the Mash Eastproject: transport, assembly halls, and offices. Thisproject, however, was terminated in its first phasebecause of staffing problems before the completion offacilities construction.

During Mash East project planning, several areas

of communal farms were identified as having poten-tial for horticulture; they were within a reasonabledistance of Harare, had access to irrigation from shal-low wells, and were located in areas of fertile soils.Farmers in the area had not been involved in horticul-ture because they lacked the practical skills needed,had no knowledge about marketing horticulture prod-ucts, and had no transport available to move crops tomarkets.

The EU designed a project to overcome theseconstraints and get local farmers into production andmarketing of high-value horticultural crops. Featuresof the project included the following. (1) Several hor-ticultural producers associations (HPAs) were orga-nized to represent farmers in the area. These associa-tions were then used to promote the project anddevelop the marketing skills of members, (2) A fleetof trucks was donated, with the understanding thatthe project would be responsible for maintenance andoperating costs; farmers were charged for each cratecarried on the trucks, which covers vehicle operatingcosts and contributes to overall project costs, (3)extension services were initially provided to farmersuntil Agritex extension agents could be trained totake over these functions, (4) collection centers (simplesheds) were built in each village where farmers leavetheir produce while awaiting collection by projecttrucks; (5) Two assembly markets (substantial build-ings with cold storage) were built, Produce is truckedto these assembly points from the collection centers,then transported on larger trucks to the Harare mar-ket, (6) Training activities included leadership andfinancial training for elected officers of the HPAs,and practical training (e.g., crop spraying) for farmerssuch as crop spraying, (7) Inputs, mainly fertilizer,were supplied to farmers on a cash sale basis, thoughthe cost savings from bulk buying were passed on tobuyers.

In the second phase of the project, grading andpacking facilities were added to the assembly marketsand salesmen were employed by the project to sellproduce on behalf of the farmers in the Harare Farm-ers’ Market.

Impact: The Mash East project is considered asuccess. Problems encountered include lower than

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expected prices for graded produce (no premium pricefor quality) and lack of loyalty by some farmers, whoprefer to sell their own goods rather than rely on theproject salesmen. An interesting spin-off of the projectis that Selby Enterprises, a leading vegetable exporter,has contracted with the HPA to deliver fresh veg-etables to its packhouse for export, using the projectcold store as a collection point. Future plans include aloan guarantee scheme for group borrowing from AFCto enable purchase of better irrigation equipment, asun-dried fruit and vegetable production and salesscheme, propagation of fruit trees for distribution tofarmers, and development of an HPA-owned vegetablepacking and export scheme.

Two HPAs were established. They are farmermanaged and have elected management committeesand a larger assembly of producer representatives. TheHPAs have taken over much of the day-to-day man-agement, and finance much of their own operatingcosts and considerable investments out of the revenuederived from the trucks, which were paid for by theproject.

Farmer production and income have risen by atleast 30 percent from vegetables and at least 10percent from fruits. Farmers are using a much widerrange of inputs. Total vegetable production increased30 percent.

The shift of emphasis from production to mar-keting had a very positive affect on project results.

The Internal Rate of Return (IRR) for the projectis estimated to be 14.5 percent.

The transition to fully independent and self-fi-nancing HPAs has yet to take place. The main barriersto this are lack of self-supporting accounting systems(accounting costs) and the inability to finance mainte-nance and replacement costs.

Conclusions: To minimize administration costs,HPAs may need to act as principals rather than asagents, as is the current practice. This may be ofparticular interest to members as well.

Effective staffing is absolutely essential to aproject’s success.

Leadership and financial training are important

for association management.

Membership loyalty is a requirement for associa-tion sustainability.

Not all buyers are willing to pay a premium forbetter quality produce.

Well-organized and well-managed multilayer as-sociations can improve project leveraging.

All aspects of a project’s and the beneficiaries’success (production, organization, management, mar-keting, finance, etc.) must be properly served for opti-mal results.

Some form of product consolidation is necessaryfor the financial success of marketing projects involv-ing small-scale producers.

A-1.6 World Bank Programs (WB)

Sponsor: The World Bank

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives:

Association Development: Minimal.

Financial Services: Through commercial banks.

NTAE Development: Support for HorticultureResearch Station administered field trials in commu-nal areas.

SME Development: Offers export credits throughlocal banks.

Discussion: Existing World Bank projects in ag-riculture include the Agriculture Credit and ExportPromotion Project (ACEPP), which provides a line ofcredit for lending through the AFC, and support to theMarondera Horticultural Research Station (HRS) bysupplying a long-term technical expert, short-termcourses for research staff, horticultural field trials, andconstruction of a postharvest laboratory. Also in-cluded is a grant element for training visits by scien-tists and researchers from South Africa and else-where, study visits abroad, and participation atconferences and at short courses for the staff of theHorticulture Research Center (HRC).

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The World Bank has recently approved the use ofgrant funds for field trials/demonstration plots forNTAEs such as fruits, vegetables, and spices in com-munal areas. The World Bank is encouraging the HRSto link such trials to private outgrower schemes, and ona limited basis is making available consultants to ad-vise private firms in the design and administration ofoutgrower schemes.

It is also plans to send a consultant team to workwith local consultants to develop a long-term horticul-ture research and training strategy and to assess thelikely costs and benefits of a horticultural market intel-ligence service. One possibility that will be investi-gated is the creation of a Horticulture developmentTrust, with some combination of private and publicmanagement and finance, which would fund some ofthese activities. The trust would draw on successfulexperience in Zimbabwe with the Tobacco Develop-ment Trust, in which cooperation between commercialfarmers, communal farmers, and the government hasbeen nurtured.

General observations by World Bank manage-ment include the following:

n Rainfed agriculture fails every three to four years.There are many apparent opportunities to improve/conserve water use beyond those necessitated bythe current drought. Irrigation systems on commu-nal land are much less developed than on commer-cial farms. Soil quality maintenance is also animportant issue.

n Undercapitalization is the major constraint to mostIndigneous SMEs.

n Most agricultural labor is supplied by women.

Zimbabwe’s black population distribution is 3million urban, 3 million living on commercial farms,and 6 million living on communal farms. The 3 millionliving on commercial farms represent a significantsource of labor and political support for the com-mercial farmer.

Most World Bank support for the private sectoris channeled through the commercial banks, whichhave experienced poor repayment on agricultural loans.

Although, the majority of the 3,000–4,000 large

commercial farmers are white, those that are blackrepresent an excellent source of linkages with smallercommercial farmers and communal farmers.

The World Bank is establishing an EnterpriseDevelopment Fund that will focus on SMEs and ex-ports. It will include equity and credit and will beadministered through commercial banks.

Impact: Details on the impact of World Bankprograms were not available. There have been repay-ment problems with loans to production agriculture.

Conclusions: NTAE outgrower schemes havepotential in Zimbabwe, but the optimal arrangementshave yet to be identified.

The Tobacco Development Trust is a good modelfor achieving cooperation between commercial farm-ers, communal farmers, and the government.

Group lending can help overcome communal landownership–based collateral problems.

There are opportunities to improve water manage-ment beyond those associated with the current drought.

Undercapitalization is the major constraint to mostIndigneous SMEs.

The World Bank’s Enterprise Development Fundshould be monitored for successful approaches to SMEexport financing and to determine if a finance-onlyproject can succeed.

A-1.7 Zimbabwe Enterprise Development Project(ZED)

Sponsor: USAID

Project Value: N/A

Start Date: N/A

Completion Date: N/A

Principal Objectives:

Association Development: One of the main projectcomponents

Financial Services: Provides grants and loans toIndigneous SMEs.

NTAE Development: NTAE firms could be ben-eficiaries

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SME Development: Target clients for guaranteedloans.

Discussion: ZED has three main components:employee ownership, business/trade association sup-port, and access to capital. Program grants under ZEDsupport various NTAE activities. Loans availablethrough Barclay’s Bank are guaranteed by the ZEDproject and could be used by NTAE packers to buyequipment. ZED loan guarantees can facilitate theestablishment of small service enterprises linked to theNTAE industry.

Impact: Time did not allow direct assessment.

Conclusions: This project needs further assess-ment to determine impact and lessons learned forUSAID.

A-1.8 Zimbabwe Manpower Development IIProject (ZIMMAN) (implemented by theAcademy for Educational Development[AED])

Sponsor: USAID

Project Value: N/A

Start Date: N/A

Completion Date: N/A

Principal Objectives: Enhance the business man-agement skills of Zimbabwean entrepreneurs.

Association Development: No direct interest ex-cept as supports other objectives. Some work in asso-ciation management training.

Financial Services: No direct interest except asrelated to management training.

NTAE Development: No particular focus on agri-culture, agribusiness, or exports. Develop neededmanagement skills of NTAE entrepreneurs.

SME Development: Develop and enhance the skillsof indigenous, private sector SME entrepreneurs andmanagers.

Discussion: Training in business planning andmanagement is a precondition for the emergence ofnew NTAE enterprises, especially for the small indig-enous-owned NTAE companies now appearing. Many

of these businesses have been started without suffi-cient owner training in marketing and business man-agement, and may fail unless they are assisted.

ZIMMAN’s focus is on established IndigneousSMEs (i.e., entities with five or more employees).

Management conducted a detailed potential client“needs” survey early in the project to identify thehighest yield training opportunities. This was used asthe basis for designing training programs.

Findings to date from this project, include:

n In very general terms, the most important con-straints, according to Indigneous SMEs, are “solv-ing current problems,” “producing profitably,” and“managing all of the loose ends.”

n Most entrepreneurs have a good understanding ofproduction but do not understand managementbasics. No particular component of managementis weakest; they all need significant upgrading.

n AED’s production module is basic production man-agement; the relevant association provides spe-cialized training in production technology for theircommodity. The Tobacco Institute’s training pro-gram is a good model for technical training. How-ever, the more subsector-specific the basic pro-duction management training can be, the better itwill be accepted by participants.

n Cost control is a major issue for Indigneous SMEentrepreneurs; they are quite weak at producing ata competitive cost. Marketing costs are less of anissue.

n Indigneous SME entrepreneurs have minimal as-sets/collateral.

n Republic of South Africa (RSA) associations aregood models for association development in Zim-babwe. They assess a levy on companies for eachemployee, using the proceeds to fund trainingprograms.

n There are several associations available to helpdevelop and support their members, but the orga-nizational and management skills of their man-agement needs. The American Society of Asso-ciation Executives will do some of this training.

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n Indigneous SME businesses are often owned bysomeone other than the on-site manager. For ex-ample, a farmer may forward integrate with hisoutput or a bottle shop owner may use some of hisearnings to diversify. It is not unusual for reason-ably successful entrepreneurs to have several small,unrelated undercapitalized businesses. However,these businesses “top out” relatively quickly dueto a lack of management skills on the part of theowner and his managers, a lack of owner interestin reinvestment, or the bother to the owner of moreor larger businesses. The lack of management skillsis a large part of the reason for the difficultiesassociated with controlling and/or expanding sev-eral different businesses.

Impact: ZIMMAN’s impact appears very posi-tive at this time, but the real benefits of managementtraining may not be realized for some time.

Conclusions: The most important constraints toIndigneous SME success in Zimbabwe are the lack ofaccess to capital and the lack of managerial skillsnecessary to manage a business (or several small busi-nesses) in a way that enables repayment of loans.

As the state-controlled marketing boards declinein importance and their functions are taken over by theprivate sector, major amounts of training are requiredto enable reasonably well-qualified new managers tofunction effectively and efficiently. Prequalificationsfor potential management trainees is important to op-timize the return on scarce resources.

A focus on training to help entrepreneurs developbusiness plans for financial institutions is not veryuseful due to the limited availability and the high costof financing. Training to develop business plans fortheir own use (i.e., as a basis for managing theirbusiness) is high-yield training.

There seems to be excessive emphasis placed onthe export market when the domestic market isunderserved and less difficult to supply.

A-1.9 Zimbabwe Export Promotion Program(ZimTrade)

Sponsor: European Union (EU)

Project Value: $1.9 million/year, with ECU 10 mil-

lion ($8 million) from EU.

Start Date: Mid-1993

Completion Date: Mid-1998

Principal Objectives: Stimulate Zimbabwe exports.

NTAE Development: While not focused on NTAE,will assist qualified NTAE exporters; and has a spe-cial unit for horticulture and floriculture products.

SME Development: Only as related to exportdevelopment.

Discussion: ZimTrade is devoted to the promo-tion of all types of exports from Zimbabwe. In the areaof NTAEs it provides service in such areas as (a)exhibiting Zimbabwean goods at major internationaltrade fairs, (b) arranging inward and outward trademissions, (c) preparing generic promotional material,(d) public relations aimed at, for example, the interna-tional trade press, (e) providing introductions to Zim-babwean exporters for overseas importers, and (f)providing information about overseas markets, forexample, regular newsletters are produced for flowergrowers about trends in EU markets.

ZimTrade works mainly at the “trade” level intarget foreign markets; it does not have enough fundsto undertake promotions at the consumer level. In ad-dition to European and other distant markets, ZimTradeis very active in Southern Africa regional markets.

ZimTrade by design is 50 percent funded by a 0.1percent assessment on all imports and exports and 50percent from the Zimbabwe government. However, thegovernment has contributed less than 5 percent of thefunding, but holds four of the nine seats on the boardof directors.

The project has seven full-time expatriate consult-ants (six for the first four years and one for the last year)and three short-term consultants (for a total of ten man-years). Total staff is 50, with 17 professionals.

ZimTrade’s Trade Information Center has exten-sive and multiple sources of international trade infor-mation and conducts market surveys for perceivedhigh-potential export markets. It will be a Trade Pointon the Internet and traders will be able to do on-linetrading from ZimTrade’s offices or from their own.

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ZimTrade selects clients solely on the basis oftheir potential to develop significant exports.

ZimTrade a special unit to develop SME exports.Potential beneficiaries are screened, selected, and ap-praised to determine their opportunities and constraints.They are then helped to assess their best opportunitiesand taken to regional trade fairs. Technical and gen-eral managerial assistance is provided with the objec-tive of maximizing exports, not firm success or profits.This program accepts about fifteen new clients peryear. ZimTrade shares costs with the client but doesnot provide financing. This lack of financing is often asignificant constraint to the clients’ ability to exportand to their ultimate success.

Impact: The World Bank and other donors viewZimTrade as a good model for export promotion andfor developing the potential of the Zimbabwe privatesector, which is strong. Since only 13 percent of com-merce is government owned, government entities shouldnot be an important obstruction.

Conclusions: A small surcharge on imports andexports is a good way to fund an export developmententity, especially because government funding is unre-liable.

A large up-front investment and significant on-going operating costs are needed for a broad-basedexport promotion and information service.

Project quantitative success will be enhanced if itfocuses on commercial considerations.

SME export support requires considerable andongoing “hands-on” assistance.

A-1.10 Zimbabwe Oilseed Processing Project(ZOPP)

Sponsor: USAID (managed by Appropriate Technol-ogy

Project Value: $200,000/year International [ATI])

Start Date: 1989

Completion Date: Ongoing

Principal Objectives: Rural community development.

Financial Services: Some financial assistance tooil press purchasers supplied by CIDA.

SME Development: Help establish small veg-etable oil businesses based on ATI manual press.Make better use of locally available oilseeds, reducethe cost of food grade vegetable oil, and increase theincome of press owners.

Discussion: ZOPP established six manufactur-ers of presses in Zimbabwe: four are still in business,two sell through ZOPP and two sell directly to endusers.

ZOPP sells presses (mostly for sunflower seeds)to individuals and to groups of five to six persons.Seventy-five percent of the purchasers intend to estab-lish a commercial business and 25 percent will use thepress for their own use plus some commercial sales.About 30 percent of those who purchase a press are notable to sustain a viable business, but they may con-tinue to use the press for their own needs and sellvegetable oil from time to time.

ZOPP has sold 700 units since its inception and180 units have been sold directly by the manufactur-ers. Cash purchases account for 60–65 percent of sales.For purchasers who do not have sufficient cash, theCanadian International Development Agency (CIDA)offers a revolving fund that requires a 30 percentdeposit, then offers a three-month grace period, threemonths at a low/subsidized interest rate, and then 30percent (local commercial rate) interest. This programhas suffered a 40 percent bad debt rate.

One unit operating at capacity can produce 3,900liters of vegetable oil and 10,500 kilograms of presscake per year. This should generate $6–11 per day inpotential sales or $1,000–$3,300 per year in grossincome. A machine costs between $200 and $250depending on capacity.

ZOPP recently started distributing sunflower seedsfor planting, but it does not assist clients to sell theiroutput. They have established four producers of hybridseed, but there has been difficulty controlling whichhybrids produce which planting seed. ZOPP is inter-ested in investigating the potential of growing andproducing vegetable oil from sesame, jatropha, rapeseed, and soy.

Recently ATI has become interested in a foot-powered pump that can draw from as deep as 6

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meters and would be used for horticultural cropirrigation. The buyer of the pump would establish awater supply business. The basics of this programwould be very similar to that of the manual press.

Impact: Minimal information on the beneficiaryimpact was available. Stimulating the sale of pressesworth $198,000 in the first four years of operation(which had a project cost of $800,000) does not appearto be a good return on investment unless the addi-tional revenue generated by the presses is substantialand a base has been established for considerablefuture growth. The 880 presses sold to date, ifoperated at full capacity, would generate less than$1.9 million in sales for an $800,000 donor invest-ment plus $198,000 in processor investment, or a 2:1sales-to-investment ratio.

Conclusions: The sustainability and secondarybenefits of ZOPP need to be assessed.

A-2 FINDINGS ON ASSOCIATIONSAND UNIONS

Following are the basic findings on agricultural andagribusiness-related associations and farmers unionsin Zimbabwe.

A-2.1 Commercial Farmers Union (CFU)

Sponsor: Self-financed

Project Value: N/A

Start Date: NA

Completion Date: Ongoing

Principal Objectives: Serve the short- and long-term needs of commercial farmers.

Association Development: Minimal, except them-selves and their subassociations.

Financial Services: Minimal.

NTAE Development: Significant interest of mem-bers. Supports the Horticultural Promotion Council.

SME Development: Minimal.

Discussion: Basic CFU objectives include re-ducing unemployment (a major issue) by stimulating

economic growth, adding value in Zimbabwe, helpingless fortunate farmers gain from members’ success,and stimulating a future market (i.e., increaseZimbabwe’s buying power).

The CFU has a Farm Development Trust thatdevelops model farms in cooperation with the TobaccoAssociation. It also supports a training institute forcotton. Coffee growers have their own SME develop-ment program.

Improved water management is an important op-portunity. The key is determining how to best applyexisting technology.

Impact: CFU is a major political, social, andeconomic factor in Zimbabwe’s agriculture and agri-business.

Conclusions: CFU seems to have a genuine, long-term self-interest in helping indigenous farmers andagribusinesses.

Issue: HPC has ZFU membership, but it is inac-tive. Why is this so?

Removing HPC from under the CFU and makingit self-sustaining may be a lengthy and difficult pro-cess, but steps are currently being taken to do so.

A-2.2 Horticultural Promotion Council (HPC)

Sponsor: Funded by a levy on member exports

Project Value: N/A

Start Date: 1986

Completion Date: Ongoing

Principal Objectives: Stimulate exports of Zimba-bwe horticultural products.

Association Development: Develop itself into abroad-based, viable, and sustainable association.

Financial Services: Minimal. Some credit mobi-lization for smaller members.

NTAE Development: Major focus of associationefforts.

SME Development: Recent interest. Reorganiz-ing to increase emphasis on this area.

Discussion: The HPC serves and promotes the

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export market–focused interests of all segments ofthe flower, fruit, and vegetable exporting industry ofZimbabwe. Its membership (predominantly white)includes producer associations of deciduous fruitgrowers, tree nut producers, potato growers, exportflower growers, and citrus and subtropical fruit grow-ers. Although it is “producer driven,” exporters, freightforwarders, airlines, and supplier enterprises con-nected with horticulture are represented on the ex-ecutive committee.

Since its founding in 1986, the HPC has beenregarded as a part of the CFU, which funds its opera-tion through collection of a 0.5 percent levy on mem-bers’ exports. While it has provided some services tosmall growers, such as training for flower growers andhelping to mobilize credit, it is not generally regardedby small-scale commercial farmers and communal farm-ers as serving their interests.

The main issues the HPC focuses on are related toenabling environment enhancement, policy improve-ment, logistics upgrading (especially transport), prod-uct consolidation to improve the utilization of chillingand other fixed assets of members, and negotiation ofbetter air freight rates.

Association members, the larger of which havetheir own staffs, include the powerful CommercialFarmers Union, the Horticulture Producers Associa-tions (which are members of the Zimbabwe FarmersUnion), and specialized commodity associations.

In 1994 members shipped 7,000 metric tons offlowers, of which 63 percent went on scheduled cargoflights and 17 percent on charters, and 5,000 metrictons of vegetables, with the majority being shippedon passenger aircraft (due to the higher airline in-come per pallet/cube) and less than 5 percent byscheduled cargo airplanes.

Other findings included the following:

The major barrier to entry into the horticulturebusiness is the low availability and the high cost offinancing, especially for floriculture. Local financingis at 30 percent+ interest, while offshore financing(which can be used for up to 70 percent of workingcapital requirements) is at 10–12 percent. However,

the latter is much more difficult to obtain for aproducer who is not well established.

n Large commercial farmers have used cash gen-erated from other crops (e.g., maize and wheat)to finance their entry into horticulture. They areinterested because horticultural products yield amuch higher value per hectare. Producers thenorganized themselves into companies (there arethree large ones) to jointly manage packing andexport.

n The average flower farm is 2–3 hectares, citrusfarms average 16–24 hectares, and vegetable farmsare much larger.

n There are about 30 flower growers and 1,000vegetable growers widely dispersed around Zim-babwe, but all are near a reliable water supply.

Currently, and partly in response to requests fromthe Ministry of Agriculture, HPC is undergoing a re-structuring that will make it more independent of theCFU and ostensibly better able to serve smaller farm-ers. It expects to be given broad-based levying author-ity by government legislation and would then becomeself-supporting. Membership in the council will beopen to individuals and associations that pay the re-quired levies. The HPC secretariat, under the leader-ship of Stanley Heri, hopes to set up special subcom-mittees for education, training, and air freightcoordination as part of the restructuring process.

While it is too early to say what the effect of therestructuring will be, it is likely that the interests oflarge-scale commercial farmers and exporters willcontinue to be the primary focus. Officials of the HPCbelieve that the best way to help the small-scale farm-ers is to “piggy-back” them on the large-scale com-mercial sector through outgrower schemes.

Management of the HPC is interested in receiv-ing external (donor) funding to assist in carrying outactivities such as training and information dissemina-tion for the benefit of all members. It remains to beseen to what extent the HPC will be willing to use itsresources to support activities that strengthen small,black-owned NTAE entities who wish to break awayfrom outgrower schemes and go it alone.

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Impact: HPC’s impact on Zimbabwe horticul-ture has been substantial, but many of the benefitshave been enjoyed by the larger commercial farmers.

Conclusions: HPC’s export market focus maymake its services of less value to smaller producersand processors.

The reorganized HPC will need to include financialassistance, direct or indirect, in its range of services.

The Development of specific small-to-largefarmer linkage programs needs to be a high priority ofthe restructured HPC.

The new HPC should be a good intermediary fordonor-supported training and/or financial assistanceactivities.

A-2.3 Indigenous Commercial Farmers Union(ICFU)

Sponsor: Members

Project Value: N/A

Start Date: 1995

Completion Date: Ongoing

Principal Objectives: Serve the needs of its indig-enous, commercial farmer members.

Association Development: As related to itself.

Financial Services: An area of member interest,especially as related to horticulture.

NTAE Development: Likely key area of interest.

SME Development: Some interest, but the asso-ciation is producer driven.

Discussion: The ICFU is a new organization,which expects to complete registration formalities in1995. As of October 1995 there were about 700 mem-bers, primarily indigenous black farmers, includingboth owner-occupiers and tenants. Many membershave small farms near the main urban centers. Al-though these members farm small areas of land,many have developed substantial businesses by con-centrating on intensive enterprises such as horticul-ture, pigs, and poultry.

The ICFU plans to have local branches in themain farming areas, which will be coordinated by a

national executive committee. Finance will be pro-vided by a levy on members’ sales. They also hopeto obtain assistance from international donors to helpthem get started. Once the union is established, theyplan to provide the following major services to mem-bers: (a) lobbying government on matters of interestto members, (b) providing technical extension ser-vice, which they feel is needed because Agritex con-centrates on smaller farmers, (c) assisting with bud-gets and loan applications, (d) comprehensive training,and (e) assisting with the Agricultural GraduatesAssociation. (The ICFU has close links to the Univer-sity of Zimbabwe and has organized a scheme to findvacation employment for agricultural students onmembers’ farms.)

Union officers believe that NTAEs will be a keyarea of interest to their members. In particular, theyhope to be involved in the development of outgrowerschemes and the provision of special credit facilitiesfor horticulture.

Impact: Yet to be established.

Conclusions: The ICFU is being formed becausethe CFU has not adequately served the interests andneeds of the indigenous commercial farmers. This situ-ation will make donor work with the CFU politicallydifficult.

Issue: How would the ICFU “fit” into the re-structured HPC?

A-2.4 Zimbabwe Farmers Union (ZFU)

Sponsor: Members

Project Value: N/A

Start Date: NA

Completion Date: Ongoing

Principal Objectives: Serve the needs of small, indig-enous farmers.

Association Development: Itself and members ofits Horticulture Producers Associations.

Financial Services: Tries to help members obtaincredit through AFC.

NTAE Development: Have worked with Selby,Favco, and Hortico on linkage/outgrower programs.

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SME Development: As related to producer for-ward integration.

Discussion: The ZFU represents primarily thesmall indigenous farmers of Zimbabwe, although anyfarmer may join. The ZFU is organizing farmer groupsfor marketing and obtaining inputs.

ZFU started working with 30 farmers organizedinto four HPAs in the Shamva area three or four yearsago to promote a vegetable outgrower scheme withSelby Enterprises. According to ZFU, this scheme wasa modest success, as the growers were able to marketsome product through Selby, although the amountswere very small (about 120 kg per week of baby cornand 25 kg per week of mange tout peas). The arrange-ment included extension services and inputs suppliedby Selby. Producers had to agree to deliver at least 80percent of their production to Selby’s packhouse. Simi-lar schemes have been promoted more recently byZFU with Hortico (green beans, mange tout peas) andFAVCO (mostly fruit).

ZFU monitors these programs and has concludedthat producers are “being skinned” by exporters. Theyclaim that large-scale commercial farmers routinelyreceive higher prices than small farmers for produce ofthe same quality.

ZFU sees its role as that of an intermediary be-tween farmer groups and exporters to protect farmersfrom being taken advantage of. Another function is tolook for markets for products already being produced,such as deciduous fruit. ZFU also helps farmer groupsobtain credit through AFC, though the lack of title toland has proved to be an obstacle.

There are ongoing problems with ZFU’s mem-bership in the HPC. Since HPC regards ZFU as pri-marily a political organization. Communications havenot been good between the two organizations. It islikely that some of the problems could be overcomeif individual HPAs organized by ZFU were to be-come members of HPC rather than ZFU itself.

A key issue raised by HPC management is thepayment of levies by small farmers. HPC’s position isthat small farmers can avail themselves of HPC ser-vices if they pay the same levies as do large farmermembers. This should not be a problem for ZFU

members because its HPAs are already paying dues toZFU and these could be increased to meet the require-ments of HPC.

Impact: Needs further assessment, especially asrelated to NTAEs.

Conclusions: ZFU works with subassociations(HPAs) to make their operations more effective andefficient.

Achieving significant tonnage sales via linkages/outgrower schemes, without donor assistance, is chal-lenging.

There is considerable misunderstanding and dis-trust on the part of producers concerning packers orexporters paying for produce, especially as related toproduct grade-out, and the appropriate price for variousterms of sale (e.g., FOB factory versus field pick-up,COD versus consignment, and TA provided versus noTA).

The lack of clear title to land necessitates grouplending schemes, possibly via associations such as theHPAs.

While the ZFU is willing to work with the CFU,it wants to retain its own identity. The logic of produc-ers paying dues to their HPA, the ZFU, and the HPCmay be difficult for some members to understand, andthe responsibilities and services of the various orga-nizations would have to be carefully coordinated toavoid duplication.

A-3 FINDINGS ON DEVELOPMENTFINANCE ORGANIZATIONS

Zimbabwe has a broad range of financial institutionsthat serve the NTAE and SME subsectors, includingfive commercial banks, an agricultural credit bank(Agricultural Finance Corporation), a Developmentbank (Zimbabwe Development Bank), a venture capi-tal fund (Venture Capital Company of Zimbabwe),and a Small Enterprise Development Corporation(SEDCO). Financing is not a constraint to large firmsengaged in exports, because they have access to off-shore debt, which has a much lower interest rate thanthe current 30–35 percent domestic bank rate. For

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others, the lack of available financing and high inter-est rates can be a deterrent; for small-scale commer-cial farmers without clear title to land it is a particu-larly serious constraint.

Following are profiles of the most significant andrelevant finance institutions in Zimbabwe.

A-3.1 Agricultural Finance Corporation (AFC)

Sponsor: Capitalized mainly by funds from the GoZ,but has received substantial donor funding from theWorld Bank, IFAD, Kreditanstalt. ZFU works withsubassociations and the Kuwait Fund.

Start Date: 1923 as the Agricultural Land Bank;1971 as the Agricultural Assistance Board

Principal Objectives:

Association Development: No special focus, butuses group lending to control transaction costs andimprove the repayment ratio of small loans.

Financial Services: “To provide the agriculturalsector with a diversified package of financial services.”

NTAE Development: No special focus, but fi-nances commercial farmers’ NTAE businesses.

SME Development: Has a special division fo-cused on smallholder development, but is limited toproducers.

Discussion: AFC is a parastatal lending institu-tion that grew out of a pre-independence agriculturalbank geared to serve the large-scale commercial farm-ing sector. Since independence it has been a majorsource of credit to small-scale commercial farmers,communal farms, and resettlement farmers. It providesshort-term loans for crop and livestock production,purchase of inputs, and transport, marketing, and la-bor costs. Loans for these purposes totaled about$400 million in 1994. Interest rates are 22 percent forthe small-scale sector, compared with 31–32 percentfor the large-scale commercial farms sector.

In the past, average loan size was small (only$102 in 1990) and was tied to a recommended packageof inputs. Some observers have estimated that thetypical loan was only enough to finance the cost ofhalf the farmer’s needed inputs. Lending of this typewas closely linked with maize marketing, which was

controlled by the government, and procedures werevery cumbersome. Since 1990, AFC has made anumber of changes in its lending practices, so datafrom previous years may no longer be relevant.

Medium-term loans are granted for irrigation projectsand for purchase of machinery and equipment, whilelong-term loans are available for investment in land,establishment of tree crops, dam construction, and otherinfrastructure. The value of these two types of loansgranted by AFC has varied from $800,000 to $12 mil-lion annually, considerably less than for short-term loans.

AFC’s policy is to lend to the maximum extentpossible to new indigenous farmers with collateraldeficits (23 percent of current portfolio), but it hasexperienced collection problems with these develop-mental loans. By 1990 arrears in loans to smallholdersranged from 68 to 80 percent depending on the ofrecipients. These loans have not produced the desiredresults, partly because of drought conditions, and be-cause many borrowers are unlikely to be able to ser-vice these loans in the near future they are not eligibleto borrow again. The costs of administering small-holder lending has proved to be extremely high.

After experiencing these very high default rates onloans to individual small farmers, AFC started grouplending programs in 1989 (partially supported by IFAD),often administered by NGOs. This activity led to anincrease in group loans from 100 in 1989 to about16,000 in 1994. Some loans were made directly toproducers recommended by NGOs and some were madeto NGOs for on-lending. Very few of these loans werefor agribusinesses; nearly all were for production agri-culture. Loans are monitored by branch offices in everyprovince and almost every district of the country. Groupsinitially averaged about 50 members, but after an evalu-ation of AFC group lending programs, the groups havebeen reduced to between 10 and 25 members.

Despite these changes, direct lending by AFC togroups proved to be too expensive. Current policy isto wholesale loans to farmer groups through interme-diaries, such as NGOs.11 AFC encourages NGOs tolink loans to savings schemes. AFC loans are guaran-teed by the government, but every effort is made tomonitor loans and minimize the number of defaults.

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AFC is trying to function and operate like anormal bank including raising money in the local andoffshore money market. This will involve separatingcommercial lending operations from development ac-tivities. Commercial lending will be privatized, anddevelopment operations will then be better able tocooperate with donors. This reorganization is neces-sary because the GoZ’s resources are inadequate tocontinue subsidizing the bank.

AFC recognizes it must become more responsiveto clients’ needs, and is evaluating ways to decentral-ize loan operations and speed up loan processing.Employees also need training in rural banking, includ-ing assessing the viability of agricultural loans, and insavings mobilization.

AFC has access to offshore capital at 10–12 per-cent interest rate, and mixes this with local borrowingat 30–35 percent, so they lend at a minimum of 22.5percent, allowing for a spread of between 7 and 7½percent, which includes a 6 percent administrativemargin and a 1½ percent mortgage cover.

Other AFC findings include the following:

n Small farmers’ major problem is lack of suffi-cient water. Communal financing of a water sup-ply network is a big opportunity, but debt servic-ing and system management are big problems.Producers can rarely afford to pay for the cost ofwater from the new system when capital costamortization is included, and they have little or noexperience in water system management.

n AFC sees the need for rural input supply andoutput marketing stores, but has witnessed verylittle interest in this area by borrowers.

n Entrepreneurs lack the technical skills to movefrom subsistence to commercial-scale enterprises.Service companies are needed to help this tran-sition take place, especially for inputs supply.

n The domestic market is underserved, but as themarket matures the lack of cost competitivenesson the part of many local enterprises will chal-lenge their success.

n AFC supplies most of the funding for ARDA. Therestructuring of AFC and ARDA will allow both

firms to increase their focus on commercial de-velopment, where there are several good oppor-tunities.

n Transport availability and an inadequate road sys-tem are major constraints to agribusiness market-ing activities.

n Except for the large producers there is a consider-able gap between the producer and the market(i.e., most smaller enterprises do not understandhow marketing impacts what they need to growand package or process).

n AFC officials are very interested in working withUSAID projects for the benefit of small farmersand agribusinesses. Loan applications by groupswho have received assistance from USAID activi-ties would receive favorable treatment.

n AFC management believes their commercial ac-tivities are more constrained by the lack of viableprojects than by a shortage of funds.

n The GoZ/Ministry of Agriculture, to whom AFCreports, do not fully comprehend the need for AFC’sfinancial restructuring nor the magnitude of op-portunities and strategic options that AFC has.The Ministry of Agriculture focuses primarily onproduction and the GoZ has very limited resourcesfor investment in AFC.

n Due to the drought and the high cost of money,AFC approved 15 percent fewer loans in 1994than in 1993. Decontrol of agricultural producemarketing created price uncertainty and the droughtreduced output and raised unit costs. This causedcash flow and debt repayment problems for pro-ducers.

Impact: Nearly $24 million in loans were madein 1994, of which just over 24 percent were made tothe “development sector.”

AFC generates an operating surplus, but some ofthis may be a function of its access to low-cost/subsidized funds.

Conclusions: Producers respond positively toconstructive new financial concepts.

Even a parastatal can work effectively with do-

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nors and become involved in innovative and morerisky lending. But it is difficult for a parastatal to viewagriculture on a broader-than-production basis.

When the commercial and developmental partsof AFC are separated, the development portion willrepresent a good intermediary for joint donor supportof indigenous enterprise development. AFC has expe-rience in a range of financial support mechanisms andis experienced working with donors. However, itsagribusiness experience is limited.

Keeping smallholder transaction costs low and re-payment ratios high is difficult even for well-managedinstitutions. Group lending via intermediaries (such asNGOs) appears to be one way to control these costs.

For group lending the optimal size is 10–25 mem-bers.

Financing (initial and ongoing) and managing com-munal irrigation networks are significant challenges.

A special activity/project/fund is needed to con-vert the debt of viable agribusiness SMEs to equity sothat they can establish themselves; especially duringdifficult economic times, such as that caused by thecurrent drought.

There is a significant need for enhancing Indig-enous SME cost competitiveness, possibly via train-ing or mentoring by successful entrepreneurs.

Issues: What is the most effective way to reorga-nize and finance AFC’s two major areas of interest?How can AFC play a more important role in agribusi-ness development and agribusiness commercial lend-ing?

A-3.2 Africa Project Development Facility(APDF)

Sponsor: IFC/World Bank; some USAID support

Principal Objectives: Perform feasibility studies onand source financing for larger commercial projects.

Financial Services: Sources financing, some-times via IFC.

SME Development: Minimum size project is$250,000 in new financing.

Discussion: APDF will now assist projects witha total new investment of as low as $250,000, andwill negotiate the cost of the feasibility study fee.

Money is available in Zimbabwe, but lenderswant collateral, and this is difficult for smaller entre-preneurs.

APDF has successfully worked with the VentureCapital Company of Zimbabwe (VCCZ), where APDFdoes the feasibility study and identifies sources of debtfinancing and VCCZ supplies part of the equity.

FMO (Dutch) provides some assistance for poststart-up business implementation, but has minimal in-terest in SMEs.

Impact: Positive; but mostly for larger nonagri-business firms.

Conclusions: If NTAE associations become largeenough and well-organized enough to develop theirown packing/processing facilities and act as a princi-pal for members’ inputs and outputs, APDF could helpassess the feasibility of the operation, develop a busi-ness plan, and source both equity and debt financing.

A-3.3 Barclay’s Bank Small Business Center(BSBC)

Sponsor: ODA (UK), SIDA/FMO, NGOs, and GoZ.Donors furnish 75 percent of funds at subsidizedrates; the remainder are from Barclay’s Bank.

Project Value: $3.7 million

Start Date: 1993

Principal Objectives:

Financial Services: Finance the start-up and ex-pansion of SMEs with fewer than 20 employees andnet assets of less than $6,200. No equity provided.

SME Development: See above.

Discussion: Client interest rate is 1 percent aboveBSBC’s (subsidized) cost. BSBC will waive the usualcollateral requirements if the applicant’s track recordand recommendations are good enough.

Offers only limited assistance on loan applica-tions and business plans but does refer potential clientsto sources of assistance.

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Uses a network of neighborhood contacts toassess borrowers instead of the more traditional profit-and -loss balance sheet/collateral approach.

Impact: Default rate has ranged from 10–15percent since inception.

More than half of BSBC’s clients do well enoughto qualify for further lending or graduate to becomeregular clients.

Opened a second center in Harare and is interestedin work in more rural areas.

Conclusions: SME entrepreneurs who are willingto submit to detailed bank scrutiny and who havestrong recommendations are usually good risks, evenwith minimal collateral.

Loan officer knowledge of the geographic area,the references of the borrower, and the business beingfinanced are essential if financing is to be provided onbases other than collateral secured. This neighbor-hood networking approach to lending works, andshould be even more effective in rural areas, whereeverybody knows everybody. However, lending ofthis type requires specially trained loan officers, whohave in-depth knowledge of the market and commu-nity they are serving.

A-3.4 Economic Development for Equatorial andSouthern Africa (EDESA)

Sponsor: 26 “Global 500” Public and Private Corpo-rations from the United States, Europe, South Africa,and Japan

Project Value: Paid up capital = $25.4 million; in-vestments = $19.3 million; loans = $9.7 million

Start Date: 1973

Completion Date: Ongoing

Principal Objectives:

Financial Services: Foster the economic devel-opment of the target countries by stimulating privateenterprise through the provision of finance and know-how.

NTAE Development: Nothing specific, but manyof EDESA’s investments are in export floriculture.

Discussion: EDESA has offices in Zurich, Harare,Nairobi, Johannesburg, and Monrovia. Its 30 equityinvestments are primarily in Southern Africa and sev-eral are in high-value agriculture, agricultural inputssupply, and food processing.

Hire purchase and leasing of capital equipment isan important business of EDESA, which has $133million in assets, 42 percent of which is in agribusi-ness/agriculture.

EDESA’s largest current business segment is theProjects Division, which focuses on SMEs needingless than $1 million in total financing (either debt orequity). The pure lending segment of the business,which was based on government syndications of loans,suffered from serious defaults and is now very small.The New Services Division focuses on (1) strategicinvestments (e.g., EU-based importers for Africanproduced products or international companies withespecially good potential in Africa) and (2)consultancy to the World Bank, IBRD, and SouthernAfrican governments.

EDESA-owned UDC in Harare has a Dutch-backed preferential rate facility for SME hire pur-chase or leasing, but there is very little demand be-cause SME entrepreneurs are not familiar oraccustomed to this financing mechanism.

The company owns more than 18 hectares of shaderose production in four Southern Africa countries, andproduced more than 60 million stems in 1994. It be-lieves that rose production in Holland will decrease dueto high costs and environmental degradation. Africa hasa normal land use cost advantage over other sources.

EDESA has three projects in Zimbabwe, includ-ing a specialty foods processor that successfully usesoutgrowers.

Other EDESA findings:

n Financing is available, but the cost of financingis a constraint.

n Big producers tend to get “fat and sloppy”; thus,SMEs can effectively compete with them if theycan get the needed training and financing at areasonable cost.

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n The cost of doing the front-end work for and moni-toring of smaller investments is a big problem.

n Basic professional management skills are not avail-able in Southern Africa, although technical skillsare.

n Hawk Investments (owned by Anglo-Americanfrom the RSA) reportedly has an interesting ap-proach for combining TA with financing.

Impact: EDESA has been very successful fromthe point of view of asset growth and return on invest-ment. It has stimulated the development of many newbusinesses in Southern Africa and significantly in-creased trade between Southern Africa and the EU.

Conclusions: Professional management and a veryclear focus on asset growth and return on investment(without subsidization or nonrecoverable assistance) canhave a very positive impact on economic development.

EDESA would be interested in an ASC/FADC/Incubator activity that would prepare SMEs for in-volvement, with EDESA.

A-3.5 Venture Capital Company of Zimbabwe(VCCZ)

Sponsor: Major Zimbabwe banks and insurance com-panies.

Project Value: $13.3 million

Start Date: July 1991

Completion Date: Ongoing

Principal Objectives:

Financial Services: Use a mixture of equity anddebt to finance new or expanding manufacturing busi-nesses. Achieve a 20 percent real return on investment.

NTAE Development: No special focus, but wouldbe glad to finance agribusinesses.

SME Development: Official minimum size in-vestment is $333,333 and ranges up to $2.7 million.

Discussion: Financing is 57 percent equity (av-erage share is 49 percent and limit is 49 percent- forany significant length of time) and 43 percent debt.VCCZ blends some government “soft” debt with in-ternal sources. VCCZ financing cannot exceed 75

percent of total financing. Average investment iscurrently $320,000 (despite the $333,000 officialminimum). VCCZ has invested in 33 companies,several of which are in agribusiness; only one hasfailed, but six others are marginal.

VCCZ has invested $5.3 million of $13.3 millionin funds. The major constraint is investable ideas.Entrepreneurs often want to enter well-served marketsand lack management experience and marketing andfinancial expertise. This means VCCZ must perform amajor competitive assessment of the market a potentialclient is going to serve and how they will be able toprotect it once it is captured.

VCCZ is Considering establishing a consultancydivision to help clients after they receive financing.They now ask clients to use qualified consultants tohelp develop business plans and effectively imple-ment them. All clients must use an approved account-ing firm and submit weekly sales, orders, and inven-tory reports, which are closely monitored.

VCCZ wants to reduce the typical debt-to-equityratio of a client from 2:1 to closer to 1:1, especiallyconsidering the high cost of debt.

VCCZ would like to see clients focus on high-opportunity subsectors, but identifying them is diffi-cult for both VCCZ and their clients.

It is difficult to get entrepreneurs to cooperate andpool their resources because each wants to “do their ownthing.”

Exposure to RSA industry would be a significantproblem if the border were to become more open sinceRSA firms have greater scale economies and more ex-perience and would therefore be very strong competi-tion.

VCCZ’s board and financiers are conservative andare most interested in short-term returns. They need tobetter determine how to assess long-term investments.

Impact: Twenty-six companies are doing well and810 new jobs have been created by VCCZ investments.

Conclusions: Checking the veracity of projectproposals (especially as related to market share as-sumptions and the marketing plan) and hands-on

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mentoring and oversight management after financingare critical to the success of an investment, particu-larly in rural areas and agribusiness.

A lack of investable ideas is a greater constraintthan lack of available financing.

An institution that helps entrepreneurs prepare afinancing proposal and then operate their businesses ina manner that ensures financing repayment/increasingshare values will help stimulate more new SMEs andthe growth of existing enterprises.

Training programs are needed to help entrepre-neurs develop their management and financial skillsbeyond the limited scope of their former positions.

Financial services by themselves will not stimu-late economic development as much as integratedfinancial, managerial, and technical assistance.

A high debt-to-equity ratio puts interest cost andROI pressures on new/rapidly expanding businesses,especially in high interest rate environments.

VCCZ is interested in an ASC as a means todevelop companies it could invest in when they be-come large enough.

A-3.6 Zimbabwe Development Bank (ZDB)

Sponsor: GoZ (51 percent), several internationaldevelopment banks (49 percent)

Principal Objectives:

Financial Services: Typical development bankwith some interest in agriculture and agribusiness.

Discussion: ZDB covers all sectors of theeconomy, but began financing agriculture only aboutfive years ago. It operates much like the InternationalFinance Corporation in that it makes medium- andlong-term loans following normal commercial banklending principles, and also takes equity positions inenterprises. The minimum size loan is $13,000, thoughthe average size loan is closer to $67,000. Most loansto NTAE-related borrowers are related to water sup-ply, such as small dams, boreholes, and water pipe-lines, pumps, and drip irrigation systems; but green-houses are also financed. Equipment financed by theseloans is procured locally in Zimbabwe dollars, but

items such as electric motors, sprinklers, and flowerplanting materials are typically imported.

ZDB has access to lines of credit abroad atinterest rates between 9 percent and 12 percent,which enables it to offer loans to qualified localborrowers at around 22 percent when foreign-sourcedequipment is involved.

Collateral requirements are such that the bankdoes not finance communal farmers or small-scalecommercial farmers who do not have title to land. Inaddition, farmer groups that are not registered as com-panies are not eligible.

Unfavorable government land ownership poli-cies are a major constraint to agricultural lending,particularly its “pre-emptive right” to take land, andthe use of short-term tenant leases as opposed tooutright purchase or the granting of 99-year leases.

Impact: ZDB has helped large firms but has hadlittle impact on communal activities or agribusinessIndigenous SMEs.

Conclusions: The commercial portion of AFCwill likely be in a better position than ZDB to supportagribusiness.

A-3.7 Zimbabwe Banking Corporation Limited(ZimBank)

Sponsor: Commercial bank

Principal Objectives:

Financial Services: Commercial bank with anextensive agricultural and agribusiness portfolio, aSmall Business Services Division, and a merchantbanking division (Continental Investment Company).

NTAE Development: None, though some of theenterprises financed are in export horticulture.

SME Development: The Small Business ServicesDivision focuses on SME clients.

Discussion: Most ZimBank clients are large com-mercial farmers, whose debt-to-equity ratios are highand getting higher. This is due to the drought, the costof capital, and inflation. ZimBank offers offshore fi-nancing at 10–11 percent for clients with a hard cur-rency income stream. Most producers’ interest in

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forward integration is based on their need to capturea larger portion of consumer prices and the desire fora better financial return per hectare.

Most flower producers self-finance their fixedasset investment and borrow offshore for workingcapital; export vegetable producers do the same.Local produce sellers cannot access offshore financeand are subject to substantial local market price fluc-tuations.

Impact: This successful local bank with a largeagriculture/agribusiness portfolio has helped financemany Zimbabwean agribusinesses.

Conclusions: Due to high interest costs, it willbe difficult to use debt to finance new NTAE busi-nesses that are not fully integrated; that is, that cancapture most of the margins available between theproducer and the consumer.

Margin and financing pressure on large farmersmay make them hesitant to provide significant sup-port to Indigenous SME development unless there isa short-term benefit to them for doing so.

A-4 FINDINGS ON PRIVATEAGRIBUSINESS FIRMS

Following are the basic findings on agricultural andagribusiness-related private firms in Zimbabwe.

A-4.1 A&S Business Development andPromotion Consultants (A&S)

Agribusiness management consultants with back-grounds in ARDA and University of Zimbabwe.

Principal Objectives: Provide business servicesto public and private sector clients.

Discussion: Commercial farmers own between50 and 10,000 hectares each, while communal farm-ers average less than 2 hectares. Seventy to eightypercent of the population lives in communal areas,which have a division of authority between localchiefs and Zimbabwe government representatives.There are 10–12 chiefs each in Zimbabwe, each re-sponsible for 5–10 villages of about 1,000 people

each. Most communal areas are located in districts 3,4, and 5.

Agritex is perceived as a strong organization;although Agritex agents do not have training in NTAEproduction and have minimal understanding of mar-keting. There is considerable local support, especiallyat the communal level, for HPC to have its own exten-sion service, supported by a levy on exports, and pos-sibly on domestic sales.

Total communal production of horticultural prod-ucts is probably as large as commercial production,but it is sold primarily to the local market.

There is a strong belief that local demand forhorticultural products is not being met, but assess-ment of local buying power is quite difficult. Much ofthis unmet demand is in the off-season.

The perceptions gained from talking directly tobeneficiaries, can be quite different from the percep-tions gained from talking to those who are supposedto be helping them.

Impact: Not relevant.

Conclusions: The merits and feasibility of anHPC-supported extension service (possibly via an al-liance with Agritex) should be investigated.

Communal work must involve local chiefs andrelevant GoZ officials.

Opportunities to balance domestic supply and de-mand should be thoroughly investigated, especiallyregarding the role of Indigenous SMEs therein.

A-4.2 Favco Limited

Principal Objectives: Achieve an acceptableprofit/return on investment to shareholders. Increasethe size and geographic scope for producer/owners’markets.

Discussion: Favco is associated with Topfruit (adeciduous fruit producers cooperative) and functionsas a horticultural products import/export company. Itis also related to FarmaFresh, which manages 27large, leased retail produce sections in supermarkets,18 of which are in Harare. Favco buys from Topfruitand directly from farmers.

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Export produce is purchased directly from largegrowers and usually via middlemen from small pro-ducers. Export product is sourced from large produc-ers because they have the skills to produce the special-ized fruits and to meet customer specifications.However, for stone fruit, 4 hectares is the largest plotthat can be properly managed. Irradiation of stonefruits to extend shelf life may have good potential,especially for mangoes.

Favco does not use production contracts, but doeshave “gentleman’s agreements” for marketing the out-put of selected producers (most often Topfruit mem-bers).

Twenty to forty percent of Favco’s vegetable ex-ports come from small producers. The major limita-tions on using more smallholder production is thesmallholders’ lack of on-farm or near-farm cold stor-age and high residual pesticide levels.

Nearly 50 percent of Favco’s exports are to neigh-boring African countries, much of the rest is to Europe.They also sell snow peas to Singapore and Australia andfruit to the Middle East. Saphir is their importer inEurope, especially to the United Kingdom.

The EU is the dominant export market for Zim-babwe horticultural products. RSA is more of a com-petitor than a customer because RSA has significanttariff barriers, export incentives for its domestic pro-ducers, and the same climate as Zimbabwe.

The most important constraints to increasingZimbabwe’s NTAEs (especially fruits and vegetables)are high air freight costs (one can truck to Johannesburgand get better rates), high ocean freight costs for re-frigerated containers, and the high cost of financingwhen offshore financing is not available.

The most significant opportunities for Zimbabwe’sNTAEs are in the Far East and Middle East markets, andinclude specialty fruits and vegetables.

Impact: Favco has had a significant positiveimpact on Topfruit members’ export sales and onZimbabwe’s regional exports.

Conclusions: There is a viable regional NTAEmarket, and there are available non-African marketsother than the EU.

A-4.3 Flair Flowers

Principal Objectives: Diversify the markets andcustomers served by the company. Achieve an ac-ceptable price for owners’ flower output.

Discussion: The company is owned by 10 of the30 large flower producers in Zimbabwe. It will sellaround $9 million in roses in the 1995 season.

Flair’s major customers are Albert Hein in Hol-land and Cassino (formerly Todex) in Germany, butFlair sells excess production worldwide.

The dominant flower sold is roses with a focuson mid-length stem and mid-price range varieties formaximum volume. They are looking for new marketsand for specialty products for specific markets (forsome price protection). Management tries to establisha fixed price for the season (9 months), so it will beunder the market at the beginning and end, but slightlyabove the market in the middle of the season (wheremost of the volume is). The Dutch auction is usedonly for excess production.

One objective is to force the Dutch out of early-and end-of-season production by using labor-inten-sive varieties and packaging.

The primary limit on Flair’s expansion is high airfreight costs. Affretair (a parastatal slated forprivatization), which has monopoly control of the airfreight licenses needed for each shipment, will notissue a license unless their planes are full. They alsoset the rates, which others must follow if they wantto be issued licenses. Air France is trying to bring therates down, but Affretair is resisting, probably be-cause they are flying old equipment (at a higher cost)and want to be profitable for privatization.

Flair most often uses passenger air freight becauseit is more reliable (especially to the United Kingdom)and between vegetable producers often take up all of theavailable cargo space because the yield to the carrier isbetter on vegetables. Roses cube out on a pallet, butvegetables go over the base weight and are thereforeassessed a surcharge, generating more revenue per pal-let for the carrier. A pallet costs $5,040 for the first 2,100kg to ship to Europe plus 75 percent of the per kg rateover 2,100 kilograms. A passenger aircraft holds 13pallets and a cargo plane 30.

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SME participation in flowers is limited because aminimum of 2 hectares of shade is needed for econo-mies of scale and the minimum cost per hectare todevelop 2 hectares is $334,000. Summer flowers arenot as capital or technology intensive, but prices areheavily dependent on Israeli output.

The best expansion opportunities include:

n New (for Zimbabwe) varieties, but need to avoidniche (small) markets

n Better quality production and quality control tothe end consumer

n Enhanced application of known management andtechnical advances

n Further reductions in marketing channel layers(i.e., Flair selling directly to large retailers inconsumer packs)

n HPC doing a better job of lowering freight rates

Impact: Flair has been very successful at helpinggrower-owners market their output at a good “netback.”

Conclusions: Shade roses can be financially re-warding but require a large capital investment, rela-tively high technology, and very professional interna-tional marketing management.

Producer-owned marketing entities can be verysuccessful international marketing organizations. Thekey to success is the professionalism and quality ofmanagement and the competitiveness of its members.

A-4.4 Gev’s Flowers

Principal Objectives: Develop a sustainable ex-port flower business.

Discussion: Gev’s Flowers, in its third season ofoperations, is one of the more successful black-ownedhorticultural exporters and a member of the FlowerGrowers Association. The main product is asters grownin plastic greenhouses covering 2½ hectares, and theyare experimenting with new colors of asters and con-sidering growing roses. Gev’s Flowers exports to theDutch auctions through local Dutch agents (Produco)and receives technical assistance from Holland, whichis very expensive, about US$160 per half day.

Major constraints to further development (espe-cially for Indigenous SMEs) are:

n Finance: Bankers are not sensitive to Gev’s needs,interest rates paid to the ZDB are high (22 per-cent), and there are too many intermediaries.

n Information: “The big guys keep all the informa-tion to themselves.” However, ZimTrade has beenhelpful, and recently sponsored a study tour toEurope for Gev’s management.

n Market diversification: Would like to sell directlyin Germany as a way to diversify and earn higherreturns. However, the risks (payment, price, etc.)of direct selling are greater, while auctions offerthe advantage of assured weekly payments.

n Training: Would like to see in-service trainingavailable for greenhouse employees, possiblymodeled after the courses offered by the TobaccoInstitute.

n Land and water availability: Believes more blackswould participate in flower production and ex-porting if land were available for them to buy orlease on a long-term basis.

Impact: Gev’s financial success needs furtherreview but appears satisfactory.

Conclusions: Indigenous SMEs can be successfulin the NTAE business but owners/management needsupport to develop marketing and management skillsas well as to tap into all available sources of assis-tance and commercial relationships.

A-4.5 Hortico

Principal Objectives: Sell the horticultural outputof its large commercial farmer owners at an acceptableprice. Develop other export business that is supportiveof and not in conflict with the primary objective.

Discussion: Works with a U.K. importer, Saphir,on an exclusive basis, supplying mainly tray-packedmange tout peas, baby corn, and green beans.

Director/owners do most of the new crop develop-ment work, so Hortico “protects” them on thesecrops for a period of time.

If producers follow Hortico’s instructions as to

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crop selection, timing, and hectareage, the companywill market all of their output.

The company has begun an outreach to smallfarmers, some at great distance, to increase the sup-ply of specialized crops that require considerableindividual attention, which is difficult to get fromlarge farmers. Hortico has committed some man-power to this, but believes that with additional funds(or ASC/ADC/incubator facilitation) they could de-velop a very effective marketing channel for rural,communal production, processing, and transport.However, smallholder production represents a smallpercentage of their total sales.

For large producers, sales are on consignmentand based on grade-out and the actual EU marketprice received, less a Hortico commission. Small pro-ducers are usually paid a “spot” price based on grade-out and anticipated market prices. Therefore, largeproducers take the market risk and Hortico takes it forsmall producers. Large producers (commercial farm-ers) also supply their own transport to the packinghouse and Hortico picks up product from smaller(communal) producers.

Hortico is now subsidizing small producers be-cause it may be able to develop a scheme to use smallsuppliers less expensively. Furthermore, some cropslend themselves to the “tender loving care” thatsmallholders can provide, and some crops will growbetter in areas other than where the commercialfarms are located, such as in the hotter areas wherethe communal farms tend to be located.

Four field men work with Hortico’s small grow-ers on mange tout and baby corn, telling them howmany hectares of each crop to plant each week basedon anticipated European market conditions. Inputs,including seed, fertilizer, and pesticides, are suppliedon credit and deducted from sales proceeds. Cropsare picked up by Hortico trucks from assembly pointsin growing areas. As is the case with its large produc-ers, Hortico agrees to take all the farmers’ output ifthey follow instructions on planted area and plantingdates.

The major constraint to working with smallholdersis the lack of infrastructure in the growing areas,

such as cold stores, transport equipment, and ac-commodations for Hortico field men. Small produc-ers also sell in small quantities, resulting in hightransaction costs. Thus, an enhanced infrastructureis needed for Hortico’s to accumulate a sufficientvolume of crops to reduce transaction costs and havea market impact.

Indigenous SME grower scheme results are de-scribed below:

n In 1991, Hortico worked with farmers in theMutoko communal area in association with ARDA.Trials on sweet corn worked fairly well, withHortico supplying all the inputs as well as exten-sion services. However, purchases had to berestricted to less perishable products due to thelack of infrastructure, specifically cold storesand transport. ARDA acted as a middleman forpurchases from farmers who grow crops in anarea which totals 9-hectare area. FAO was alsoinvolved. There is apparently a trade-off betweenworking with small farmers through an interme-diary, which is simpler to administer and lesscostly, and dealing directly with growers, whichensures that quality and delivery dates are met.

n In 1993, Hortico worked with farmers on theMudotwe irrigation scheme in Mashonaland Cen-tral, where infrastructure was better. Mange toutpeas were produced successfully in 1994. In1995, Hortico was asked to work with farmerson the Chimanda irrigation scheme, also inMashonaland Central, but about 250 kilometers,from the packhouse. The first trials on greenbeans, mange tout peas, and baby corn weresuccessful and the outlook is good for this group,though the distance may prove to be a constraint.

Hortico’s strong preference is to work with smallfarmer association representatives, who set policieson how the association deals with Hortico, but haveno direct involvement with production. Hortico poolsthe production of small producers. Deliveries aregraded on arrival into three grades: #1, “other,” and“waste.” Producers are paid on the basis of grade-outfor the pooled shipment.

A frequent complaint of the farmers is that theydo not understand the price Hortico pays them for

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their production given different values for differentgrades. Hortico is willing to try to create a new andmore transparent price determination system, includ-ing putting a representative of the farmer associationsin the packhouse, but doubts that it will work becausethe system is difficult to understand. Another possi-bility is to bring in a consultant to help develop aworkable system (e.g., pay individual farmers basedon quality), but this would require a complicatedbookkeeping system.

In Zimbabwe, technology transfer can occurfrom large-scale to small-scale producers. Thus, itshould be easy to accomplish, because the difficultieshave been worked out on the large farms.

Hortico is willing to help establish and managesmallholder producer associations if the conditionsfor successful Indigenous SME export vegetable de-velopment outlined below in the conclusions sectioncan be met, or come close to being met.

Impact: While the total annual volume of Hortico’sSME exports is relatively small, they have perseveredin their attempts to find a feasible way to sourceproducts from smaller producers.

Conclusions: For successful Indigenous SMEexport vegetable development the following are needed:

n A large number of well-organized (i.e., a clearunderstanding of growing, support, and market-ing responsibilities) producers in a reasonablyconfined geographic area with access to irriga-tion

n A cold storage unit at collection points to removefield heat and store the produce

n Availability of credit to facilitate a producer-owned transport/collection system

n Readily available qualified TA, primarily as re-lated to quality control

n Access to a good communications system

n A focus on higher value products

n Shared production-related equipment such assprayers

n Access to the local fresh or processed market foroff-grade product and overproduction

A Horticultural Development Center could befunded to offer the services necessary for IndigenousSME success in export horticulture, especially withsupport from a firm such as Hortico.

Possible USAID interventions include assistingfarmers to buy spraying equipment and investing incold stores and an office at the assembly point for thegrowers’ representative (to keep track of shipments).Farmers also need help acquiring irrigation equipmentsuch as pumps, which would have to be gasolinepowered in areas where there is no electricity.

The “service company” concept that was success-ful in Mashonaland East should be tried elsewhere. Thisis a joint packer/small farmer owned center that isresponsible for land preparation, spraying, TA, consoli-dating, cold storage, transport, and so on.

A-4.6 Hortpack

Principal Objectives: Develop a viable, indig-enous-owned, horticultural products packing com-pany that sells on both the export and domesticmarkets.

Discussion: In the area around the mining town ofShamva in Mashonaland Central Province, a Mrs.Mavudzi has generated much interest about horticulturalcrop production for export among small farmers on anearby irrigation scheme. Mrs. Mavudzi is a medium-scale black farmer who, along with three other blackfarmers, leases land on a government-owned commer-cial farm. She has acquired considerable experiencegrowing vegetables for export since beginning in 1992.

This is an interesting example of a linkage betweenrural small-scale farmers and emerging medium-scaleblack farmers. Mrs. Mavudzi and the irrigation schemefarmers had earlier formed linkages with some whitecommercial exporters, but these broke down due to thelack of transparency in the way the exporters arrived ata price to the grower. Because of what she considered“cheating” on the part of the exporter, plus paymentsthat were delayed up to 60 days, she decided to go italone. Some baby corn and mange tout pea shipmentshave been made to Holland, the United Kingdom, andSwitzerland, using a packhouse at “Hopedale Farm” toprepare the shipments.

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Mrs. Mavudzi is forming an exporting companycalled Hortpack, which is in the process of beingformalized by the Registrar of Companies. She andthe other four farmers leasing land, plus 25 commu-nal farmers, would be the shareholders. The com-pany intends to lease a packhouse in Shamva, and tosell in Harare as well as to export.

Impact: To be determined, but should be closelymonitored.

Conclusions: Medium-scale indigenous produc-ers are interested in and willing to investigate forwardintegration activities, but will likely require consider-able assistance.

A-4.7 Selby Enterprises

Principal Objectives: Achieve an acceptable re-turn on investment for shareholders and earn a rea-sonable livelihood for owners.

Discussion: Selby Enterprises was started in1989 and is owned by the two Selby brothers and oneof their wives. It initially marketed passion fruit andnow sells 14–15 different crops (including chilies,beans, gooseberries, sweet peas, sweet corn) to theRSA (three trucks per week) and other export mar-kets. Most sales are fresh but some fruit pulp isprocessed, mostly from reject fruit.

Selby has taken advantage of its urban locationand proximity to agencies such as ARDA to supportits concentration on market value and quality. As aresult Selby’s one of the larger vegetable packers andexporters in Zimbabwe, and one of the first to de-velop an outgrower scheme with smaller/communal(100 percent black), farmers to supplement suppliesfrom the commercial farmers (75 percent white/25percent black) who meet most of their requirements.It works with 150 producers within a 150-kilometerradius of Harare, and focuses on the export marketbut sells second-grade product on the domestic mar-ket to help producers maximize their yield per hect-are.

About 50 percent of Selby’s purchases are onconsignment; the other 50 percent are “spot” pur-chases.

They are working with ARDA to develop mangetout production systems for communal farmers. This

product is now being sold on the domestic market,but they are working toward export sales.

Selby is quite flexible in its small producer pro-curement arrangements. When dealing with commu-nal farmers and other small producers, they prefer todeal through intermediaries such as ARDA, an HPA,or other formal group if one exists in the area. Thisreduces administrative costs, as compared with thecosts of dealing with individual small farmers, and theintermediaries’ terms and conditions, due to the aver-age size of their transactions, can be very similar tothose of regular customers. Work with small produc-ers is useful for developing new crops, because largeproducers do not like to work with small plots. How-ever, too much involvement with small producersincreases Selby’s cost of operations and reduces theirsupply reliability, the latter being essential for EUmarket success.

Features of typical Selby arrangements with smallfarmers include the following:

Selby’s establishes a production program for eachgrower, which includes planting dates, varieties, andso forth.

Farmers are usually supplied with seed, the cost ofwhich is deducted from sales proceeds; other inputs,such as agrochemicals and fertilizers, are not sup-plied and the financing of these can be a problem forsome small farmers.

During the growing season, Selby field men (theyhave two) visit each farmer at least every ten days tocheck the crop and to advise on any work that needs tobe done.

When the crop is ready to harvest, field men keepin close touch with growers to maintain high stan-dards of quality control at the field level and toarrange delivery dates.

Farmers are responsible for picking the crop andtaking it to located in a petrol station. The capital costof building these cold stores is a major constraint onthe development of outgrower schemes serving Selby.Some small farmers lack suitable field crates to delivertheir goods to the collection points, which can also bea problem.

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In some cases, Selby will pay growers a fixed pricefor produce delivered to the assembly (collection) point,but most business is done on a consignment basis. Selbyis prepared to offer a minimum guaranteed price in somesituations, and to take responsibility for the risks in-volved in shipping overseas. Selby uses a standard“Terms and Conditions” agreement, which governs mostaspects of their business relationship with suppliers,including chemical usage, record keeping, and so on.These agreements and the related records are availableto Selby customers.

The accounting system used by Selby allowsthem to track each grower’s goods through the mar-keting chain and, therefore, growers are, paid on thebasis of the price their goods bring in the market, lessexpenses and commissions, rather than on the basisof a “pool price,” which is used by some exporters.The account of sale sent to growers does not providemuch information on how Selby arrived at the returnto growers, but Selby will explain the system if askedto do so.

The most significant constraints to communalproducers are their lack of working capital and poorinfrastructure in the communal areas (e.g., irrigation,roads, cold stores, etc.).

Selby believes sweet corn, and especially babycorn, have very good production potential in Zimba-bwe and market potential in Europe.

Import entry duties are the major barrier to theRSA market.

Harvest labor is short-term and intensive andthere is ample labor available in the communal areas;this should be an advantage for communal produc-tion. However, there have been problems with farm-ers not paying for labor (and water) when it is used.

The interest in communal farmer development inZimbabwe goes beyond commercial considerations andincludes vested self interest (e.g., parameter securityand political stability) on the part of commercial farm-ers.

HPC gets a 0.5 percent levy on all Selby exportsand should be more aggressive in lobbying for betterfreight rates and less Affretair control over air freight.Since HPC is under CFU and CFU is producer con-trolled, it is difficult for exporters, especially ones likeSelby that do not have grower-owners, to have anyinfluence.

Zimbabwe government inspection of produceprior to export is erratic and not sufficiently based onmarket requirements.

Some commercial growers do try to export di-rectly, but most come back to Selby due to the com-plications and difficulties of international marketingof a highly perishable product.

Impact: Selby’s small producer programs ap-pear to be the most successful in Zimbabwe.

Conclusions: Selby seems to have establishedthe basics of a good outgrower scheme, which couldbe further developed with the help of more capitalinvestment and greater price transparency.

The RSA market seems to have some potential, andSelby’s basis for success should therefore be investi-gated.

The Affretair/airfreight cost issue needs immediateinvestigation, as it is a significant problem for all airexporters.

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Appendix BDetailed Profiles - Mozambique

The assessments that follow include summarizedObjectives, Discussion, and Impact sections, and theConclusions reached from that case study.

B-1 FINDINGS ON SUPPORTEDPROJECTS

Following are the basic findings on agricultural andagribusiness-related donor-supported projects inMozambique.

B-1.1 Care International em Mocambique(CARE)

Sponsor: Private and donors

Project Value: N/A

Start Date: Nampula Oilseed Extraction, 1994; Otherprograms, various

Completion Date: Ongoing

Principal Objectives: The principal objective inNampula province is to get reasonably priced veg-etable oil and some cash into the villages and helpdevelop village-level markets. Group lending is in-tended to help develop/expand SMEs.

Association Development: Mostly informal, dueto the lack of a legal structure.

Financial Services: Develop group lending forfishing, trading, and solidarity groups.

SME Development: Develop vegetable oil pro-cessing, fishing, and trading SMEs.

Discussion: The basics of the CARE oilseed de-velopment program in Nampula include:

CARE started distributing higher quality sunflowerseed, sourced from Zambia and imported throughSAMOK (parastatal seed company), for planting inJanuary 1995. CARE is now doing their own seedmultiplication in two of the four districts covered by

the project via contracts with local farmers, andexpect 8 metric tons of planting seed from theseduplication plots in 1995. These farmers also doexperimental work on varietals.

The project employs four extension agents, onein each district, each of which has four communities(each community is about 50 sq. km. each). The agentshelp farmers grow the seed (both for multiplicationand crushing) and help press owners determine if theyshould buy seed or toll presses, and if they buy seedwhere and how to sell the oil and press cake.

In 1995 2,000 kg sunflower seed and 1,800 kg ofsesame were distributed free of charge. Around 2,000farmers have planted 0.2–0.3 ha. of oilseed each. Theareas where the seed was distributed are traditionalsunflower seed growing areas, but the collapse ofAgrico (a parastatal crushing company) meant therewas no market for sunflower seeds. Due to extensiveintercropping, yield is in the area of 300 kg/ha.

In 1996 CARE will sell the planting seed. Thereare more than 1,500 farmers in the four districts thatwant to multiply seed. CARE plans to compensatefarmers for seed duplication by farmers returning toCARE two times the amount of seed given to them byCARE and keeping the remainder.

Sixteen ATI presses (BP 30 model) have beensold at $120 each, 10 to farmers and 6 to nonfarmerthas financed 9 of the presses. The oil yield should bearound 20–25 liters of oil/100 kg sunflower seed;sesame yield will be higher. CARE supplies plasticcontainers to crushers for collecting the oil.

CARE is now implementing a marketing programfor the oil. The producer may sell to a trader, (i.e.,someone with retail-size bottles, a retail store, or ac-cess to transport to a market) or may sell in the village.Oil is not usually available in the village and usersmust travel 50–60 km to a market, where it sells for 3times the guideline retail price (10,000–12,000Metakesh) established by the project. Oil and press

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cake price’s are difficult to predict, so CARE or APIpress owners’ contracting for production would bedifficult.

Lessons Learned (as related to CARE oilseedsproject management)

n Perform do a thorough assessment of the agri-cultural and other considerations related to thegeographic area selected for project work

n Staff the most senior positions first, rather thanusing the bottom-up approach that CARE used;get senior managers and field men involved inlocal staff and other decision making.

M&E considerations for the oilseed projects include:

n the extent to which community level (versus re-gional level) vegetable oil processing and tradingenterprises develop,

n the extent to which enterprises evolve from puretrading and toll processing to principal (posses-sion taking) processing and adding value.

The basics of the CARE group lending programsin Nampula province include:

Small Enterprise Activity Development (SEAD)involves solidarity (informal group) lending where agroup puts up the necessary security, is mutually re-sponsible for repayment, and determines who gets theloan proceeds. The objective is a self-sustaining credit(savings and loans) institution. The groups are infor-mal because there is no relevant legal structure avail-able. CARE’s credit program for the fishing and trad-ing sector, also located in Nampula province, uses themutual guarantee of existing community institutions.

The biggest challenge to both of the SEAD andfishing and trading group credit programs is the lim-ited understanding of credit by both institutions andindividuals. How to establish a credit unit and how tomanage it are quite unknown at the community level.

Group lending lessons learned by CARE:

n Be sensitive to political realities, especially theinterests of political power brokers

n All credit projects should include a savings com-ponent.

n Asian (Indian) traders are in a major expansionmode now, they advance goods to farmers at thecommunity level in exchange for their crops atharvest.

n CARE’s group lending projects are an alternativeto the Asian traders’ modus operandi and encour-age development of community-level institutionsand help them protect their own interests.

n The Indian traders are in a major expansion modegiven the total lack of infrastructure and ordinarycommercial presence in the rural areas. The trad-ers advance goods to farmers at the communitylevel in exchange for their crops (largely cashew)at harvest. CARE’s approach to group lendingwould be an alternative to the Indian trader’smodus operandi. It would encourage developmentof community level institutions and help them pro-tect their own interests. It would also begin todevelop local political sub-structures and providea more general way to develop savings as well ascredit structures.

M&E considerations for group lending projectsinclude: unit transaction costs, the repayment rate, thesustainability of the credit entity, the capital base ofentities, and the savings rate of their members/clients.

Other CARE Findings

The (usual procedure for developing a new CAREimplemented project is for the local CARE unit willdevelop a proposal for a project, its feasibility will beassessed by country-level management, and if feasibleit will be passed on to CARE’s Atlanta headquartersfor approval. If it is approved, donor support will besolicited.

CARE management observes that while there is avery minimal legal framework in Mozambique, thereis also very little government resistance to most PVOprograms since they have very high credibility with thegovernment, due to their very significant efforts toprovide food and housing to the rural population dur-ing the recent times of crisis even during the war.

Impact: While these programs are quite new,they appear to be off to a solid start. The number ofbeneficiaries is increasing rapidly and CARE’s repu-

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tation is quite good with both beneficiaries and con-tributors.

Conclusions: CARE’s very professional man-agement and strong interest in localization of person-nel for most operating positions has enabled theirprojects to get off to a solid start.

Education and training on the principles and prac-tices of group lending will be required if group lendingprojects in societies evolving from collective socialiststructures are to be successful.

There is a unique opportunity to help establishcommunity-level SMEs shortly after the change fromsocialism and parastatal-managed marketing to a pri-vate enterprise–based economy.

It is necessary to conduct a careful and multidi-mensional viability analysis before choosing the geo-graphic area for a project or activity.

Staffing senior-level local positions first will fa-cilitate more local input into project design refine-ments and lower level staff selection.

All credit projects should involve a savings com-ponent which will provide the source of future loanfunds.

Community-based group lending programs maybe an alternative to local traders’ control of ruralcommerce, cash flow, informal lending, and access tokey crops such as cashews.

B-1.2 Food and Agriculture Organization/Ministry of Agriculture (FAO/AgMin)

Sponsor: United Nations/GoM

Project Value: N/A

Start Date: N/A

Completion Date: N/A

Principal Objectives: Primary interests are to pro-vide extension services to support the production ofsubsistence crops and the management of state farms.

NTAE Development: Redevelop the cashew andcoconut industries.

SME Development: Some, but not formalized.

Discussion: FAO supports the Ministry of Agri-culture with expatriate advisors, whose observationsinclude the following:

The Ministry of Agriculture has minimal interestin the private sector; most of its focus is on the statefarms. There is minimal focus on the peasants, but thisis changing. AgMin is currently reassessing its priori-ties, but has a very small core of competent people.

AgMin is not obstructionist and does not have a“heavy hand” when it comes to donor programs inagriculture, if the projects strategy and objectives areperceived to be reasonable.

Government provided institutional support is mini-mal. The National Agricultural Research Center wasblown up during the civil war. Nampula has a goodresearch center for cotton, maize, and beans. The ag-ricultural college at the university is acceptable buthas a very high dropout rate, resulting in a smallprofessional resource base and weak institutional ca-pacity. There are about 700 extension workers in thecountry, 500 of them paid by donors.

Cashews and coconut development are of specialinterest to the Ministry of Agriculture. Cashew pro-duction (really gathering) is so casual that it would bedifficult to organize a producers association unlessprices were higher. There is a Cashew Secretariatunder AgMin. Changing the mindset of cashew pro-cessors is one of the major challenges. To revitalizingthe industry because the processors are primarily in-terested in large-scale, capital-intensive processing andin minimizing producer prices. Maybe a fee based ontonnage purchased by the processor is the best waygenerate development funds. Mozambique should beable to produce 80–90,000 metric tons of shelled nutsfor the 450,000 metric tons world market. This wouldgenerate a lot of badly needed foreign exchange andhelp a broad base of the population if prices wereimproved. Indian traders use their village-level storesto control much of the production and then export it toIndia where it is hand-shelled for a high whole/half nutyield.

Coconut was almost exclusively a plantation cropand is now going toward outgrowers. The coconutproducts market is difficult to profile, but it is a less

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complex industry than cashews since there are onlythree significant participants, one of which is aparastatal (currently scheduled for privatization.

Shrimp aquaculture and adding value to sea catchboth represent good apparent opportunities, and CDCis doing some work here. The Ministries of Agricul-ture and Fisheries were combined recently so shrimpproduction and processing may get additional empha-sis.

Since AgMin objectives and strategies are in theprocess of being developed, FAO’s M&E approach isinformal and primarily involves FAO managementdiscussions with senior AgMin officials as to howsatisfied they are with the FAO advisors.

Impact: FAO’s support to the AgMin should helpit establish a new strategy and priorities. Now is animportant time for the ministry to develop focusedprograms, help the largest portion of the population(farmers), and stimulate Mozambique’s largest poten-tial source of badly needed foreign exchange, agricul-tural exports.

Conclusions: Now is a good time for donors todetermine where they have a comparative advantage toassist AgMin in its important work. It seems quiteopen to ideas and will cooperate with any well thoughtout program.

Cashew, coconut, and shrimp processing all seemto represent good agribusiness opportunities and areaswhere donor support would be welcome.

B-1.3 Instituto Nacional de Desenvolvimentode Industria Local (IDIL)

Sponsor: Mozambique Ministry of Commerce, SIDA,the World Bank, the International Labor Organiza-tion (ILO), UNIDO, and the African DevelopmentBank

Project Value: $19.6 million

Start Date: 1988

Completion Date: Ongoing

Principal Objectives: Facilitate the formation anddevelopment of indigenous industrial microenterprisesand SMEs.

Association Development: Minimal.

Financial Services: Supports micros and SMEsby helping them obtain financing.

SME Development: Main interest. Performs fea-sibility studies for, consults with, and identifies fi-nancing sources for micros and SMEs.

Discussion: IDIL facilitates the formation, orga-nization, and financing of industrial (no trading ortransport) microenterprises (up to 10 employees and$50,000 in annual sales) and SMEs (small = up to 50employees and medium = up to 200 employees and $1million in sales). Since its formation in 1988 (withWorld Bank help on the design), IDIL has receivedmore than 600 proposals for assistance, most from theinformal sector. Only 50 proposals were rejected, 550were assessed by IDIL, and 100 were passed on tosupporting donors or commercial banks for loan ap-proval, later using WB-sourced funds. Assistance tomicros and SMEs includes help for a feasibility studyand assistance to source financing. IDIL does not pro-vide any financing itself; this comes from donors orcommercial banks. Some management and technicalassistance is provided post-financing. ILO “ImproveYour Business” programs are used to train SME man-agers. A few of the supported projects are in agribusi-ness. SIDA supported ($40,000) a tomato-processingproject recently, but the entrepreneur lost interest.

In its early years donors had different selectioncriteria/rules and wanted the potential client presentedin the donor’s own unique format. A trust fund withagreed criteria/rules was therefore developed as a meansto reduce this diversity of requirements. The TrustFund (FFPI) was approved by the GoM in 1990, fundedby SIDA at $3 million in 1993, is focused on micros,and offers a $50,000 maximum loan. Nineteen projectshave been funded by FFPI, 60 percent of them in themaize milling business. Three of these projects arecurrently on FFPI’s “watch list” (i.e., are problemloans).

FFPI debt is at commercial rates and usually in-volves 1–3 years grace and a 4–12 year paybackperiod. But if the client pays most of their installmentson time, IDIL/FFPI will forgive the last “few” pay-ments.

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Discontinuity in FFPI, caused by political change,resulted in minimal follow-up on funded projects, butfollowing is beginning to take place. Most microprojects seem to be doing well. There is minimal fol-low-up on SMEs for whom IDIL did feasibility studiesprior to financing, and IDIL would like to be able to domore follow-up work on such projects.

FFPI wants clients to put up at least 10–20 percentof the investment, but most micro entrepreneurs havevery little money and IDIL is trying to get govern-ment guarantees for the 10 percent collateral. Entre-preneurs can use in-kind or “sweat equity” for theircontribution.

The World Bank–sponsored Small and MediumEnterprise Fund program, which is administered throughthe commercial banks, uses IDIL to screen projectsfor SME finance. Some $25 million has been bor-rowed by SMEs using World Bank funding disbursedthrough the commercial banks, the vast majoritythrough the two state-owned commercial banks. Whilesome 40 percent of these loans are still in the graceperiod, only about 10 percent of those that havepayments due are current. There is also a concern onthe part of the World Bank about how the verysubstantial fees ($2–3 million) earned by IDIL on thisbusiness have been used.

IDIL has around 80 employees and an extensiveprovince-based organization. Their objective is to havethree technicians in each province to solicit and screenproposals and to train trainers in basic managementskills development. They currently cooperate withUNIDO to train technicians in Nampulo Province. TheBeria, Nampulo, and Maputo offices can now performfeasibility studies. The Zambezia and Tete provincialoffices are under full development (i.e., staffing andtraining). One of IDIL’s main objectives is to developfully the capacity at the provincial level.

The provincial level does preliminary screeningon a project and it is then passed to headquarters forfinal screening. If they approve, the project goes to theFFPI/SIDA for micro projects or to commercial banksfor SME projects for their review and approval. Projectssupported by the African development Bank can beapproved at the provincial level.

IDIL gets a small amount of funding from thegovernment and charges 3 percent of the financing feeto clients with 1 percent upon sign-up, 1 percent for thefeasibility study, and 1 percent upon receiving thefinancing. For FFPI clients, fees are subtracted fromthe financing. Post-financing support incurs an addi-tional fee.

IDIL is seeking an optimal strategy and modusoperandi for their activities in support of both microsand SMEs. They would then present this to a group ofdonors and ask them to fund no more than two trusts(one for micros and one for SMEs) that have multipledonor support. Each trust would have its own loancriteria and follow-up system.

The M&E used by IDIL includes the number ofproposals screened, number recommended for funding,amount of funding approved, the success of fundedenterprises, and the continued support of donors.

Impact: While very few IDIL and FFPI quantita-tive measurements were available for review, theagency seems to be doing reasonably well as evi-denced by its ability to (a) survive several differentadministrations with very different political philoso-phies and (b) continue to receive donor support. Theamount of loans outstanding has increased about 17percent per year recently. Several thousand entrepre-neurs, including many women, have received businessmanagement training. However, the very low (2 per-cent) on-time payment record of SME loans disbursedthrough the state-owned commercial banks is a causefor concern.

Conclusions: IDIL has survived very difficulttimes in Mozambique and appears to be successfullystimulating micro and SME development. Pragmaticleadership and good donor relations are likely the mostimportant reasons for its survival.

Loans granted through state-owned banks, evenwhen commercially oriented entities perform the fea-sibility studies, are often not repaid due to borrowerand bank management attitudes toward government-related debt, (i.e., that the loan does not need to berepaid). Without proper follow-up and managementSME loans will suffer a low repayment ratio.

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Indigenously managed micro development pro-grams can succeed, even in very difficult environ-ments, if they are properly managed and donor rela-tions are carefully handled.

Funding can stimulate micro and SME formation,but TA and management assistance may be needed forthem to be successful and repay their loans.

Equity/collateral limitations are the major initialconstraint to both micro and SME formation in emerg-ing private sectors. Sweat equity and in-kind contribu-tions can help offset this constraint, but cannot over-come it. Government guarantees for initial entrepreneurequity may be a source of assistance, but this needsto be closely monitored.

IDIL’s provincial network is an excellent modelof how to combine local presence with good analyticalskills and donor relations. Donor help in developingthis provincial network would be a good use of funds.

Due to the specific skills required in agribusinessand the substantial need for agribusiness developmentin Mozambique, establishment of an agribusiness-fo-cused division of IDIL should be investigated.

When the entity that helped do the feasibility studyand business plan is not involved in plan implementa-tion, the plan will become an academic exercise andthe quality and pragmatism of future plans the entitywill do suffers since nothing is learned about the suc-cess of their efforts.

B-1.4 World Bank Projects (WB)

Sponsor: World Bank

Project Value: SME development, $32 million; Ag-ricultural Services, $35 million

Start Date: SME Development, July 1990; Agricul-tural Services, December 1992

Completion Date: SME Development, December1996; Agricultural Services, June 2000

Principal Objectives: Stimulate development via acombination of financing and associated conditionsprecedent.

Association Development: Some, for cashew pro-ducer associations.

Financial Services: Main thrust, via state banks.

NTAE Development: Considerable interest, espe-cially in cashews and coconuts.

SME Development: Considerable interest.

Discussion: Basic findings regarding World Bankactivities include:

n Most of the agribusiness private sector was na-tionalized (often from Portuguese holding compa-nies) during the political turmoil and is now being“privatized,” which means being converted toshareholding companies, with the governmentholding nearly all the shares. Plans are being madeto sell some portion of the shares in the companiesto the private sector. Boral, the largest integratedcoconut company, is now being privatized; Madal,the second largest company, will likely be thebuyer. This would result in one of the largestintegrated coconut companies in the world.

n There are five local banks, three are private, twoof the three are branches of Portuguese banks), theother two are state-owned. The People’s Develop-ment Bank (one of the state banks) was formerlythe Agricultural Bank. Nearly all World Bankmoney for SME development loans is transferredthrough state banks, not the local commercialbanks. The World Bank itself is constrained in itsoperations by having to use primarily state banksto disburse its funds rather than commercial banks.The on-time payment rate of loans using WorldBank sourced funds that are past the grace periodis less than 10 percent.

The two state-owned banks, which have disbursed90 percent of the World Bank’s SME loans, areabout to be privatized. Therefore, this SME devel-opment loan channel will likely no longer be avail-able. However, two new financial institutions, UAL(see EDESA in Tanzania) leasing and Credit Coop,have recently been registered and may be inter-ested in taking over this activity, although only ifthe default rate can be dramatically reduced. Pri-vate commercial banks do not use World Bankmoney for SME lending because (1) the bank musttake the credit risk, (2) the bank prefers to makeloans primarily to firms they know well, (3) they

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are aware of the SME default rate, and (4) theydo not like the high transaction costs associatedwith smaller loans.

n According to the recent World Bank study “Im-pediments to Industrial Recovery,” red tape andlack of trade finance are the two most seriousconstraints to private sector development inMozambique. The World Bank is developing aprogram to address the trade finance constraint.

n The World Bank private enterprise developmentprogram has not been able to disburse some $27million in financing for the private sector due to acombination of difficulties with their intermediar-ies (commercial banks) and limited applicationcompletion/business plan development and man-agement skills in the private sector.

n The World Bank established a priority list forcrop development in Tanzania and supports a va-rietal development program for cashews similar toGTZ’s coconut program. The Bank has a specialinterest in cashew rehabilitation. The 500,000cashew “producers” generate very low revenueper person for the cashews they gather. Cashewprocessors achieve a very low yield due to the ageof their equipment and their inefficient operations.The portion of the export price going to the pro-ducer is nearly 70 percent in Tanzania but onlyaround 20 percent in Mozambique (with 30 per-cent to the wholesaler and 50 percent to the pro-cessor). Some of this difference can be explainedby the fact that cashews have been processed by astate-subsidized parastatal in Tanzania, but thereare probably other reasons as well. The WorldBank is pushing for a government-imposed tax onexports for a cashew industry development fund.

n The World Bank’s Small and Medium EnterpriseFund (SMEF) will be used for cashew (and cot-ton) industry support, including extension services,adaptive research, and support for producer asso-ciations. Credit for inputs and marketing will alsobe included. The sponsors bank has a similar SMEproject in the Côte d’Ivoire; it is not focused onagribusiness/agriculture, but does involve small-to-large business linkages.

n The SMEF design includes “technical assistanceand training, including the establishment and op-eration of an apex management unit at the Bankof Mozambique, upgrading of commercial bankaccounting practices, establishment of a businessadvisory service (at IDIL), an industrial policystudy and training of loan appraisal staff.” Progresson the apex management unit and the businessadvisory service at IDIL seems to be minimal, butthis needs further investigation.

Impact: Assessing the overall impact of WorldBank projects would require a major study. The WorldBank indicates that it faces significant constraints inbanking and private sector capacity, which limit itsability to disburse its funds and thereby stimulate pri-vate sector development.

Conclusions: The World Bank has a serious in-terest in Mozambique and has allocated considerablefunds to projects relevant to private sector, agriculture,and agribusiness development.

However, it is constrained in its ability to disbursethese funds and implement its projects by (a) the lim-ited institutional capacity of the intermediaries it mustwork with and (b) the limited ability of potential ben-eficiaries to apply for financing, develop viable busi-ness plans, and manage SME enterprises.

New financial intermediaries will likely have tobe developed if the World Bank’s SME support pro-gram is to continue.

Lack of trade finance is a very common privatesector development constraint in economies emergingfrom socialist systems.

Why Tanzanian cashew producers receive a muchhigher portion of the export value per kilogram than doproducers in Mozambique needs investigation.

B-1.5 World Vision Mozambique (WVM)

Sponsor: Private and government donors

Project Value: $80 million in total, $30 million inkind; Agricultural Recovery Program (ARP), $15.3million

Start Date: N/A

Completion Date: Ongoing

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Principal Objectives: Stimulate and support the tran-sition from emergency relief to sustainable develop-ment by increasing production, reducing postharvestlosses, and enhancing producer collective marketingand bargaining. Help the 5 million people who haverecently returned to their homelands and the 1 millionwho have yet to be resettled establish themselves.Major focus is on production technology enhancementand transfer.

Association Development: Some, as related togrowers associations for collective marketing and bar-gaining. Particular interest in community development.

Financial Services: Minimal; they are developinga revolving credit fund for SME agribusinesses.

NTAE Development: Some recent interest in co-conut.

SME Development: Some very recent interest.

Discussion: Most of WVM’s programs are fo-cused on Tete, Nampula, Zambezia, Manica, and SofalaProvinces, with some of the ARP activity in CaboDelgado Province. There are 12 expatriates and 85nationals working on the ARP.

Findings from WVM agricultural and agribusi-ness programs (ARP) are:

n The ARP has a small-scale farm family enhance-ment focus and features its own applied researchand extension service and has six different compo-nents.

1) Its resettlement component will distribute some315,000 Ag-Paks of hand tools and grain seedsand 200,000 Veg-Paks of vegetable seeds tosome 315,000 recently resettled farm fami-lies. These Paks will be exchanged for locallyproduced grain to reduce farm families depen-dence on free distribution.

2) The Rehabilitation and Sustainable develop-ment component will, with a high degree offarm family and GoM institution participa-tion, select, improve, multiply, and distributecrop varieties with the potential for raisingyields under low-input systems.

3) The Farm Family First component will uselocal Contract Farmers to informally demon-strate and disseminate sustainable farmingsystems based on modern, effective practicesand improved inputs. It will also use thesecommunity leaders to promote diversificationinto proven cash crops and to increase partici-pation by women and the local community ininvestigation, training, and extension activi-ties.

4) The Animal Restocking component will useProvincial Departments of Agriculture (DPAs)to promote postwar restocking of livestock bydistributing (in exchange for cash or an equiva-lent number of weaned calves) breeding stockfor use in food production and animal trac-tion.

5) Linkages between producers and markets willbe developed by the Agricultural Marketingand Farmer Associations component. Growerassociations will be formed (and differenti-ated from the previous government-controlledcooperatives), training will be provided inagricultural marketing, a revolving credit fundwill be established for SME agribusinesses,information will be disseminated on market-ing opportunities, information will be pro-vided on transport availabilities between pro-ducers and markets, support will be providedto increase the bargaining power of small-scale producers, and improved availability ofbasic inputs at real costs will be promoted.

In the Institutional Support and InfrastructureRehabilitation component, facilities of theDPAs and the National Institute for Agro-nomic Investigation (INSA) Field Station atSussundenga will be rehabilitated and returnedto operation to support applied research andextension in their respective areas.

n WVM would like to turn their established appliedresearch and extension services over to the GoMor the private sector.

n WVM has some interest in coconut development,but most in varietal improvement.

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WVM’s M&E systems are based on a review ofannual accomplishments versus established objec-tives.

Impact: WVM’s ARP efforts appear to be wellintegrated and coordinated, and have made a substan-tial contribution to agricultural development, espe-cially in Tete, Nampula, and Zambezia Provinces.Farmers are using improved varieties and there is adeveloping infrastructure of applied agricultural re-search and extension in place. Hundreds have beentrained and gained experience in applied research andextension techniques and understand that extensioninvolves two-way communication between researchscientists and growers.

Conclusions: WVM’s ARP program has suc-ceeded in stimulating improved production and is be-ginning to develop community-level self-direction.

WVM’s programs in rural SME development,agricultural marketing, and credit are in their earlystages and may need considerable outside assistance toestablish, given WVM’s traditional focus on technicaland production agriculture.

The apparent success of a donor agency focusedon production agriculture does not mean that it will beable to successfully evolve into postharvest develop-ment, especially without considerable outside assis-tance. WVM needs to understand better the demandside of the Mozambican agribusiness economy if it isto develop highly relevant programs in postharvestagriculture.

WVM represents a high-potential partner forUSAID to cooperate with in postharvest development.WVM has a good network in agriculture-based prov-inces, a detailed understanding of production agricul-ture, and credibility beneficiaries and the GoM.USAID has significant experience in agribusinessdevelopment and WVM is interested in moving for-ward in food chain enhancement.

Donor programs based on a well-established ca-pability have good prospects for success. Conversely,new development areas should be approached withconsiderable care, and in cooperation with donorswho have experience and competence in that area.

B-2 FINDINGS ON ASSOCIATION S

There are few agriculture, and no agribusiness, asso-ciations in Mozambique. Recent emergence from so-cialism and a civil war does not lend itself to theformation of associations, especially considering theway cooperatives were manipulated by former govern-ments. Therefore only one association is profiled inthis section.

B-2.1 Associacao dos Produtores Agrarios deMocambique (Agrarius)

Sponsor: Members

Project Value: Unknown

Start Date: 1993

Completion Date: Ongoing

Principal Objectives: Enhance the livelihood of its(producer) members.

Association Development: Further develop andsustain itself as a full service association to its mem-bers.

Financial Services: Very interested, but noneavailable.

NTAE Development: Interested in fruit exports tothe RSA.

SME Development: Interested, but have notthought beyond organizing the association and produc-tion-related issues.

Discussion: Agrarius has 180 farmer membersnationally, 150 located south of Maputo. They producebeans, maize, cotton, vegetables, and fruit (mostlytangerines and oranges). Members farm an average ofaround 20 hectares, but some up to 50 hectares.

Major interests are small farm development, find-ing sources of credit for inputs, and developing addi-tional sources of revenue. One of their major concernsis “assisted credit” at the district level. They needfinancing, but they also need local managerial andtechnical assistance to determine how to most effec-tively use the credit and be able to pay it back.

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They are very interested in an extension serviceand believe there should be at least one agent perdistrict.

Title to land is a major issue/problem as related tosecuring credit and loans. Without a clear title, whichis very difficult to obtain, banks are hesitant to extendany significant amount of credit, or consider evenintermediate-term (more than one year) loans. In treecrop production, this lack of intermediate-term creditis an especially serious problem.

There is a Fruit Producers Association underAgrarius that plans to offer members a training coursein fruit production, a nursery for seedling develop-ment, and credit for inputs. This is supported by thelarger citrus farmers, but currently fruit is in excesssupply and prices are low. Fruit Producers Associationmembers sell fruit on the local market and then to theRSA, but RSA farmers produce the same crops and areprotected. However, the RSA government wants tooffset some of the very large positive balance of pay-ments the RSA has with Mozambique, and thereforeopportunities for fruit sales may develop.

The association would like to develop an outgrowerrelationship with a fruit packer and marketer similar tothe relationship between JFS Cotton Company and itscotton growers. However, there are currently no fruitpackers in this business.

Impact: Agrarius has expended most of its effortto date developing a set of bylaws and a constitution.It is now ready to move ahead, but with just member-ship support, especially given the current state of thefruit business, its progress will be slow. Its impact onmembers to date has likely been minimal because mostof time and money has been focused on getting itselforganized.

Conclusions: Agrarius appears to have formed byitself with little outside support or assistance, a verysignificant accomplishment given the history of coop-eratives. This indicates a strong grassroots-level inter-est in mutual assistance on the part of members.

The south of Mozambique has a serious food defi-cit, and production and marketing enterprises in thisarea need to be encouraged.

Producer associations can develop in difficulteconomic and political environments. However, theirability to provide members with the needed produc-tion, and especially postharvest, services will likely bedependent on outside support.

Access to RSA fruit markets will require somegovernment-to-government involvement, because themotivation for the RSA to import Mozambican fruit isnot a commercial motivation.

Agrarius has apparently not stimulated any nega-tive reaction on the part of the GoM. Given the GoM’smany other problems, significant help for Agrariusfrom the GoM seems unlikely.

Agrarius must achieve a detailed understanding ofmembers’ priority needs and develop highly efficientprograms to serve the highest priority needs. Becauseof its limited resources, it will have to focus on a few,high positive impact member services.

Agrarius represents an excellent opportunity fordonor support. It is grassroots-based, is located in anarea that needs considerable agricultural/agribusinessdevelopment, and needs help to break into the RSAmarket. It also needs considerable support in postharvestareas, especially for fruit, since there is no commercialentity currently available to collect, grade/sort, pack-age, and market their output.

Caution should be exercised as related to the inter-ests of the fruit growers over the interests of othermembers. The fruit growers are larger and have morespecialized interests, so fully integrating them into thelarger association and keeping them there will requirecareful management.

B-3 FINDINGS ON PRIVATEAGRIBUSINESS FIRMS

Following are the findings on agribusiness firms inMozambique.

B-3.1 Companhia da Zambezia (CdZ)

Principal Objectives: Rehabilitate Mozambique’stea and coconut plantations, bring them back into pro-duction, and market the output in value-added forms,

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involving neighboring smallholders to the extent prac-tical.

Discussion: CdZ was founded in 1892 and hasbeen a private company ever since, even during thesocialist period. It owns 77,000 hectare of plantations,mostly in Zambezia Province. The company is 77percent owned by Portuguese shareholders. For thelast 15 years CdZ has been able to access only about6,000–7,000 hectares of its property due to the civilwar and the related loss of infrastructure.

CdZ is the only tea company in Mozambique.Prior to the war it exported more than $30 millionworth of tea from the Gurve area, focusing on premiumquality, not volume. Today the infrastructure in thearea is so poor that exports are impossible. If usableroads were available into/out of the area, CdZ wouldredevelop the tea plantation.

The coconut plantations need major culling andreplanting. Under normal circumstances CdZ wouldcut 850 older and damaged trees per day, but due toyears of neglect, it must cut 1,350 trees per day inorder to bring the plantation up to standard in severalyears. The culled trees can be used to make palletwood and the company has found a machine that willcut the trees into pallet kits for assembly at destination.There is a good market in the RSA for these kits, soCdZ is very interested in developing the business, bothfor a source of exports/revenue and as a means tobegin rehabilitating the coconut plantations.

Coconut-based products CdZ wants to produceinclude:

n Fresh and processed coconut water, milk, andcream for the RSA market

n Virgin coconut oil, which is worth 2–3 times asmuch as normal coconut oil and is very low in freefatty acids; however, the market for this specialtyproduct needs to be investigated

n Activated charcoal made from the shell, whichwould require only modest technology and capital

CdZ management’s objective is to find productsand markets that offer a better return than commoditycopra.

The seasonality of Mozambican production is dif-ferent from that of the Philippines and other Asiansuppliers to the market, and therefore the companybelieves it can effectively compete, especially on freshitems. Also, they are primarily interested in specialty,not commodity, markets and products.

CdZ is seeking financing for the rehabilitationwork that is needed on its tea and coconut plantations.Also, new variety development/adaptation and appli-cation work is needed.

There are numerous opportunities for SME par-ticipation in CdZ’s rehabilitation and ongoing opera-tions: (1) SMEs could be formed to cut and sell culledtrees to the pallet kit making company; (2) smallholdersin areas surrounding CdZ plantations own more treesthan does CdZ; traditionally, smallholder productionper tree and per hectares was greater than on theplantations; CdZ would be glad to buy coconuts fromsmallholders once it is back in operation; (3) if anacceptable plan could be developed, CdZ would bewilling to turn its 77,000 ha. over to smallholders todevelop and put into production; CdZ would supply theinputs and the TA and the smallholders would supplylabor and sell the output to CdZ.

Impact: While CdZ is just preparing to rehabili-tate its tea and coconut plantations, the potential im-pact of its efforts on Mozambican exports and employ-ment would be substantial if they are successful.Earning millions in exports and creating hundreds ofjobs is entirely possible.

Conclusions: CdZ’s potential pallet kit businessappears to be a win-win opportunity. SMEs can beformed to cut and deliver trees/logs to the pallet kitmaking company. The plantation will get rehabili-tated, cash flow will be generated for replanting, andMozambique will have a significant new source offoreign exchange. This project seems to deserve spe-cial analysis by donors to determine how SMEs couldbe formed, financed, and supported to form coconuttree culling businesses. This is both a short-term andlong-term opportunity.

The alternatives for rehabilitating CdZ’s coconutplantations, with significant smallholder participation,should be investigated and if found feasible, fully

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supported. It needs to be determined how smallportions of the plantations would be “turned over” tosmallholders, how the TA necessary for replanting andmanaging new varieties and production methods wouldbe transferred, how CdZ could be financed to providethe smallholders with needed inputs such as seedlings,fertilizer, crop protection chemicals, and so forth.

In situations of emerging democracies and freemarket systems, unique opportunities for cooperationbetween the private sector and donors may emerge,often with considerable mutually beneficial character-istics.

Private agribusinesses can be used to identify high-yield business and geographic opportunities, and canoften be effective partners in developing these oppor-tunities.

B-3.2 Interposto

Principal Objectives: Redevelop its very sub-stantial operations in Mozambique to achieve an ac-ceptable return on shareholders’ investments.

Discussion: Unlike many African countriesMozambique has reasonable quality agricultural landand rainfall is both reliable and adequate in most partsof the country (the south being the exception). Thus,the northern parts of the country can become self-sufficient in food, even if only at the subsistence level.The south receives most of its food as imports fromRSA paid for by remittances from Mozambican mineworkers in the RSA. Given its cashew productionhistory, agricultural capacity, and low labor costs,Interposto believes the cashew business can be re-vived.

At one time Mozambique was one of the world’slargest exporters of cashews, but now exports some180,000 metric tons less than its historical level ofproduction. Returning to something near historicalproduction levels is a major opportunity and challengefor Mozambique, especially because most cashew pro-duction is in the hands of very small producer/gather-ers, and both the trees and the processing machinery isold. To regain its world market (90 percent of whichis the United States) share, Mozambique will likelyhave to move toward larger tended plots (versus thecurrent almost wild production) to improve produc-

tion efficiency. The business is neither capital nortechnology intensive.

Interposto is a large Portuguese-controlled agri-business company, with 17 divisions in Mozambique.Most of the research on Interposto was related to thecashew business. The company processed 210,000metric tons of cashews in 1992 when there was amplesupply available. Now, due to the cyclone, cankerdisease in the trees, and the unavailability of producer/gatherer labor caused by the civil war, production isless than 21,000 metric tons per year.

Interposto currently operates three cashew pro-cessing factories, one previously owned and two re-cently acquired. All cashews are sourced from whole-salers. Interposto has 1,000 hectares of its ownproduction, but it is too young to yield significantquantities. Wholesalers (usually Indians) sell some ofthe product they market to processors, but also exportto India. Because the cashews sent to India are handshelled, they likely constitute the larger sizes. It isbelieved that India subsidizes its cashew industry touse Indian labor and to generate foreign exchangefrom the value-added (shelled and sorted) exports.Indian processors make extensive use of subcontrac-tors (often families with children) and therefore haveminimal overhead and low unit labor costs. Interpostotried manual shelling, but was unsuccessful because(1) Mozambicans apparently do not want to hand-shellcashews and (2) getting the shelled nuts returned is achallenge.

The trader who collects the cashews from gather-ers makes about 30 percent of the margin between theproducer and the processor, and the wholesaler makesnearly 70 percent. Therefore, Interposto believes thereis ample opportunity for its own production, both toeliminate the trader and wholesaler margin and gainaccess to the larger sizes. Breaking into the trader/wholesaler business would be difficult for Interpostobecause the Indian traders supply producer/gathererswith their ongoing family needs in exchange for theirproduction. Thus, gaining access to the supply wouldrequire an extensive network of trading posts/commu-nity stores in the production areas. Indians make up themajority of traders and wholesalers, and already havegood control of the family supplies and village retail

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store business, and excellent sources of financing.Wholesalers use their contacts in India as export cus-tomers for the larger sizes, which bring the best prices.

The average cashew grower produces/gathers about250 kg of cashews per year worth about M50,000/kg(US $6), or M12,500,000/year (US $1,500) in in-come. Growers are widely dispersed geographically,and usually live some 20–25 kilometers from theirtrees, so collection and maintenance is difficult, espe-cially during times of civil unrest/insecurity. The aver-age cashew tree in Mozambique is quite old and thequantity and quality of production is diminishing. Withthe exception of Interposto’s new plant, most cashewprocessing equipment in Mozambique is also old andin disrepair. This means that considerable investmentwill be required to rehabilitate the industry.

Given the above, Interposto is pursuing intensivecontrolled production in a limited geographic area. Toaccomplish this, it has imported large quantities ofseveral varieties of dwarf Brazilian trees, which areanticipated to have twice the yield of local varietiesper hectare (primarily due to higher plantieties alsowill be resistant to the canker disease that is nowaffecting many cashew trees in Mozambique. TheBrazilian varieties also are much less susceptible tocyclone damage due to their smaller/shorter size.

Other observations based on conversations withInterposto include:

n If intensive production using Brazilian dwarf va-rieties succeeds, market prices may eventually bedriven down. However, the cost of the cashew nutrepresents only about 20 percent of Interposto’ssales price.

n For Mozambican marketers to be successful in theinternational market, they must improve their un-derstanding of the market. Current processors havea very commodity-based orientation.

n A producer and processor integrated associationor marketing board, possibly funded by a cess onexports, could help resolve the issue of supplyupgrading and reliability and would be very usefulfor coordinating the industry, performing appliedR&D (e.g., varietal adaptation, selection andmultiplication, and cashew fruit utilization), pro-

viding extension services to producers, develop-ing value-added products, and in general helpingthe industry recover its once major share of theinternational cashew market. Donors could play asignificant role in developing and assisting in theongoing management of this association/market-ing board, including making sure there is a bal-anced relationship between producers and proces-sors.

Interposto is working with USAID to multiply anddistribute the traditional varieties of cashew trees tosmallholders as a means to upgrade the existing stockof trees.

Impact: The impact of Interposto on theMozambican cashew industry has yet to be felt. How-ever, if the Brazilian varieties grow and have goodyields, and if Interposto is successful with its back-ward integration efforts, there will be a significantimpact on Mozambique’s cashew industry and cashewexports.

Conclusions: Interposto represents a potentialcooperator with whom to investigate the formation ofa Cashew Industry development Association or aCashew Marketing Board. However, its commitmentto integrated operations, the diversity of its businesses(17 different divisions), and the extent to which it ispart of the old “colonial school” may limit its interestin this approach.

Rehabilitation of large agriculture based exportindustries will likely be very costly and require jointand well-coordinated efforts by donors, the govern-ment, private sector participants, and producers. Thisrehabilitation also could provide a way, particularly inthe existing post-revolutionary setting where landhold-ing by big companies can be a political problem, tocreate outgrowing and contractual relationships be-tween the large processor and the small growers. Theadvantages of such relationships are that they are po-litically popular, and take the direct funding off of theprocessor, and they secure loyalty of rural populations.

Large agribusiness firms may find it easier toestablish their own production operations when tech-nological advances enable intensive/commercial agri-culture.

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B-3.3 Companhia Agro-Industrial LonrhoMocambique (Lomaco)

Principal Objectives: Develop and grow thebusiness at an acceptable return to shareholders.

Discussion: Lomaco, which began operations inMozambique in 1986, is 50 percent owned by Lonrhoof the United Kingdom and 50 percent owned by anentity of the Ministry of Agriculture. It employs 5,000people full-time and 20,000 part-time. Lomaco’s mainbusinesses are tomato paste, citrus, and cotton.

Its cotton growing and ginning operations are basedon its own intensive production plus that of 25,000outgrowers, and it wants to expand to 45,000–50,000outgrowers in the near future. Lomaco owns three ginswith a combined capacity of 20,000 metric tons peryear, but now gins only 6,000 metric tons per year.The Beira gin was turned over to Interposto, and inexchange Interposto gins Lomaco’s cotton. Lomacomanagement understands how to successfully managesmallholder cotton production arrangements.

They are very interested in oil extraction fromcotton seed, but the recent drought has slowed progresson this project.

The tomato paste plant in Gaza Chinin Ben cannotoperate due to a shortage of water in the LimpopoRiver growing area. The RSA has captured much ofthe water, a Mozambican dam on the Limpopo isseeping badly, and rainfall has been poor. Lomaco isworking on a project to extract water from river sandusing a honeycomb system, but this will cost $1 mil-lion to gather enough water to irrigate 600–650 hect-ares of intensive production (3.5 metric ton/hectares).If smallholders in the area also supplied tomatoesneeded for the paste plant (2,000 metric ton/year of 30brix), some 1,500 hectares of land would be needed,requiring a water supply development fixed cost in-vestment of $1.2 million. Also, the water would haveto be moved farther from the river to supply contractproducers.

Lomaco is interested in organizing some form ofjoint effort with small growers to build the neededirrigation system, so that all the money would nothave to be raised by Lomaco. Further, they arewilling to formalize outgrowing relationships with

some help (e.g., from donors) to facilitate smallholder participation.

When water was available, Lomaco had a rea-sonably reliable supply of tomatoes from local pro-ducers. However, given the poor condition of theinfrastructure in Mozambique, it is difficult forsmallholders production conditions are very unreli-able and there are few alternative markets available togrowers for their crop. The infrastructure inadequa-cies also affects internal operations.

For example, packaging materials (cans, etc.)must be imported and the lead time is very long.When conditions change (e.g., the recent loss ofwater supply), the cans will not be used. Thereforesignificant nonrecoverable costs were incurred. Thesame principle makes it difficult for Lomaco to com-mit to outgrowers to buy all of their production.

For its citrus growing operations, Lomaco mar-kets to the EU through the Citrus Organization ofSouth Africa, which also does their grading, sorting,and packing.

Niasa Province has considerable agricultural poten-tial, especially for potatoes, grapes, and watermelon.

The company multiplies seed for SEMOK and isworking with USAID on the cashew tree multiplica-tion and distribution project.

Lomaco believes the major constraints to agri-business development in Mozambique are (1) the lowlevel of literacy; it is very difficult to find evenmarginally qualified plant workers and most laborerscannot read; (2) poor infrastructure, especially roads;Lomaco must repair and maintain the roads in areaswhere they work; and (3) an extensive bureaucracyto deal with and excessive red tape (even when thecompany is 50 percent government owned).

Impact: Lomaco’s cotton project is doing rea-sonably well and using many outgrowers. Its citrusbusiness has found a way to market through theRSA, but its tomato business is suffering from awater supply problem that can be resolved only withconsiderable capital investment.

However, Lomaco’s impact on agribusiness inMozambique has been and will likely continue to be

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substantial. It has a commitment to the country andhas quality management in place to identify and de-velop agribusiness opportunities.

Conclusions: Because Lomaco has considerableexperience cotton and is willing to work withoutgrowers on tomatoes, it represents a good potentialpartner for donors to finance and develop outgrowerand marketing schemes for tomatoes and possibly evencitrus.

Innovative, large agribusiness companies repre-sent a good way for donors to leverage their agribusi-

ness and infrastructure development efforts in rapidlydeveloping countries, especially when the agribusi-ness firm is ready and willing to cooperate on projectsof mutual benefit and interest.

The long lead time needed to import suppliessignificantly increases the risk for agribusinesses inunderdeveloped countries.

Low literacy significantly increases training costsand makes it much more difficult to operate and main-tain food processing/agribusiness facilities.

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Appendix CDetailed Profiles - Tanzania

The assessments that follow include summarizedObjectives, Discussion, and Impact sections, and theConclusions reached from that case study.

C-1 FINDINGS ON SUPPORTEDPROJECTS

Following are the basic findings on agricultural andagribusiness-related donor-supported projects in Tan-zania.

C-1.1 Appropriate Technology International(ATI)

The old project was called the Village Oil PressProject (VOPP) and the new project Tanzania Projectfor Rural Enterprise Support Services (T-PRESS)

Sponsor: T-PRESS, National Income GenerationProgram (NIGP), and the Tanzania Swiss Trust Fund

Project Value: T-PRESS, NA

Start Date: VOPP, 1990; T-PRESS, 1995

Completion Date: VOPP, 1995; T-PRESS, 2000

Principal Objectives: ATI’s objectives are to de-velop and strengthen the private sector in rural areasby helping small producers capture the value-addedfrom processing oilseeds into cooking oil. VOPP’sobjectives are to establish sustainable oilseed supply,pressing, and retailing businesses in Tanzania basedon small manual presses. T-PRESS’s objectives areto sustain and expand, on a commercial basis, thebusinesses and oilseed-growing established by VOPP.

Financial Services: Minimal.

SME Development: Develop and sustain rural oilpress micro businesses and stimulate the planting ofthe oilseeds needed by the presses.

Discussion: The ATI hand-operated oilseed presswas invented in Arusha in 1985, and was redesigned

in 1991 by CAMARTEC (Center for AgriculturalMechanization and Rural Technologies) so that itcould be operated by women and could press abroader range of oilseeds and nuts. The press sellsfor between $100 and $115.

VOPP focused primarily on supplying extensionagents to assist farmers to produce oilseeds andassist firms to manufacture the presses; staff mem-bers also sold most of the presses. T-PRESS willhave two teams, one for extension and one to sellpresses and improved sunflower planting seed on acommercial basis.

T-PRESS will train more manufacturers to pro-duce the press, train rural artisans in press mainte-nance, identify and train sales and service agents,introduce the presses and oilseed growing to newgeographic areas, create linkages between press manu-facturers and potential press buyers, improve thepress design, and train and consult with other devel-opment agencies to extend use of the oil press to newareas.

It takes about two years in any particular ageographic area for farmers to produce enough im-proved sunflower seeds and for operators to pressenough oil to serve the vegetable oil needs of thepopulation.

VOPP’s success was significantly enhanced byits partnership with two local organizations —CAMARTEC and SIDO (Small Industry developmentOrganization).

Seed processing and oil production rates aregiven above.

The Tanzania project has been extended to otherparts of Africa by the Africa Regional OILS Program.

Other NTAE opportunities that ATI managementbelieves have particularly good potential include:

n Production of bags from sisal grown on planta-

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tions, which were once very prevalent in theArusha area

n Revitalization of the pyrethrum factory in theArusha area, based on flowers produced by localsmallholders (the Ronco project in Uganda couldbe a useful model)

n Essential and specialty oils produced from plantsgrowing in the Arusha/Moshi area

n Papaya production for the processing of papain

M&E for T-PRESS will be based on the numberof machines and improved planting seed sold, theamount of oil produced by the press owners, thesustainability of press micros, and the sales division’sprogress toward sustainability.

Impact: VOPP has successfully stimulated thedevelopment of nearly 1,500 microenterprises. Theprogram is moving toward independent sustainabilitywith T-PRESS.

In 1994 VOPP sold 361 presses (expects to sell400 in 1995), one-quarter of its nine-year total ofnearly 1,500. Around 35 percent of the presses weresold to women, either directly or indirectly throughassociations, women’s groups, or by men buying onwomen’s behalf. In the last quarter of the project, 20percent of sales were made by manufacturers orprivate sales agents, not project staff.

Press owners often use their vegetable oil incometo launch new agribusinesses.

Conclusions: For press buyers to be successfulthey need considerable training and assistance inpress use and maintenance, seed sourcing, oil mar-keting, and other aspects of managing a profitable

operation. Micro enterprises, especially, need ongo-ing assistance to properly manage the many aspectsof their business.

Micro development projects can move towardself-sustainability. T-PRESS should be closely moni-tored to determine which parts of its sales organiza-tion are becoming self-sustaining and which partscontinue to require subsidization.

C-1.2 Africa Project Development Facility(APDF)

Sponsor: IFC

Project Value: NA

Start Date: NA

Completion Date: Ongoing

Principal Objectives: Perform feasibility studies forlarge private sector projects and help them source theneeded financing.

Financial Services: Major area of interest includ-ing both debt and equity. IFC is sometimes a sourcefor both.

NTAE Development: No direct interest, but mayassist NTAE projects.

SME Development: Primary interest is in projectsneeding more than $250,000 in new financing.

Discussion: The main constraint to private sec-tor development is difficulty obtaining financing. It isthe burdensome process that is the problem, moresothan the unavailability of funds. The second mostimportant constraint is the lack of a “big picture”view of the business, especially the market and thecompetition, by the entrepreneur or their strategist.

Product

Sunflower seed

Sesame seed

Groundnuts

Coconut

ProductionRate (kg/hr)

6

4

3

2

Oil Production(liters)

1.5–2.0

1.5–1.8

1.0–1.25

1.3

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The primary focus, and therefore the measure-ment of success, of private sector developmentprojects must be commercial benefits (i.e., profitsand return on investment). A highly commercial en-tity is the only viable source for development finance(e.g., the TVCF). Strong fund managers are neededto make sure the investments perform. Existing, well-managed entities with a good track record should beused for new private sector development programs.A strong fund manager with significant Africa andcommercial agribusiness experience would be re-quired.

There are good business opportunities in Tanza-nia, although developing a new venture is a slowprocess. There is considerable corruption, but com-petition is not as intense as elsewhere.

A regional fund (debt and equity) would enablebetter leveraging of expensive staff.

Privatization projects offer the opportunity toinvest in operations of a reasonable scale. The key tosuccess is the quality of management that exists, canbe developed, or can be recruited.

In Tanzania it is important to be effective and tobe perceived by decision makers as effective. Proofof effectiveness is very important for credibility.

M&E for private sector development projects mustbe predominantly focused on commercial measure-ments, for both the development entity and its clients.

Impact: Time did not allow an analysis of APDF’simpact in Tanzania. However, the management ofAPDF in Tanzania has an excellent reputation.

Conclusions: For optimal effectiveness and ef-ficiency as well as the most rapid progress, existing,well-managed entities with a good track record shouldbe used, when available, for new private sector devel-opment programs.

A separate development fund may be required foragribusinesses as its payback period will likely belonger than for other businesses.

For projects where SMEs are to be the beneficia-ries, financing will likely have to be preferential ratemoney and fund management costs will likely have tobe subsidized, since serious “hands-on” management

support of the investments will be needed.

Given the high cost of high-quality fund manag-ers, a regional fund (debt and equity) would enablebetter leveraging of management.

C-1.3 The Business Center (TBC)

Sponsor: USAID

Project Value: $5 million

Start Date: July 1994

Completion Date: June 1999

Principal Objectives:

Association Development: Some support for as-sociation management development.

Financial Services: None in existing program.Clients will have access to a new $1 million loan fund(RMPS) administered by the First Adili Bank andsourced from the Social Action Trust.

SME Development: Develop the capacity of localconsultants to assist SME entrepreneurs and trainSME managers.

Discussion: The Business Center is one compo-nent of the FED project, which also includes theSocial Action Trust and the Risk Management andProject Sharing (RMPS) Fund. TBC’s main servicesare business management training and local consult-ant development. It offers SMEs services in businessadvice (market research, market access, procure-ment support, venture development, operations sup-port, and investment and export opportunity pro-files); training and organization development (businessmanagement workshops, customized training courses,trainer training, strategic planning for membershiporganizations, and short-term technical support); andan information and publications central reference point(sector reports, business and financial news, andbusiness training materials).

Management skills and business know-how arethe main constraints to SME success in Tanzania;financing is in short supply and expensive, but is notthe main constraint. Most entrepreneurs have a mini-mal understanding of basic business concepts.

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For clients to qualify for direct consulting, theymust have been operating for at least two years andbe registered (formal sector) businesses. Clients arecharged $100/day by TBC for consulting services,but that can be reduced to $50 for smaller companies.TBC currently has more than 50 clients; nearly all areSMEs, not micros. One of the major challenges is“graduating” clients out of the program.

The consulting capacity-building program involvestraining consultants to screen client proposals, helpthem source financing, then provide follow-up assis-tance after the financing is received. Consultants thatcomplete the training and can prove they have theneeded skills will be certified by TBC. Some of thedetails of this program are still being finalized.

Most local consultants (usually trained as ac-countants) know how to prepare a feasibility studyand/or (academic) business plan to help their clientobtain financing, but have little or no experiencemanaging a business. TBC’s consultant training fo-cuses on teaching consultants to gain an understand-ing of the market (i.e., do market research and ana-lyze competition) as well as to improve ongoingoperating efficiency and effectiveness. TBC’s phi-losophy is to have its consultants help their clientsmanage their ongoing businesses and the associatedrisks, and the consultant will benefit from the resultsif their clients are successful. Consultant training willbe the major emphasis of TBC because it enables theproject to leverage its resources effectively. TBC’straining programs are 67 percent self-financed. Theprevailing low level of education in Tanzania is aconstraint to training programs. Association manage-ment training is partially paid for by the participants.TBC helped TANEXA create an Association Develop-ment Plan and helped them conduct strategy develop-ment sessions after formation. TBC would like tosubcontract some of the training work to PVOs/NGOs.

Due to the long-time socialist orientation in Tan-zania. TBC is conducting a radio program that ex-plains what a private business is and the principles ofmanaging a small business. They are also trainingbusiness reporters so that they can identify and writestories for the press that will help increase the

population’s basic understanding of private sectorbusiness. A project like COMET in Zambia, where aprivate company established an SME developmentand training center, would help improve people’sattitude toward the private sector.

The new $1 million SME trust fund, RMPS,organized under the Social Action Trust (SAT), willbe administered by the First Adili Bank (see section6.4.1). It will be based on income notes for which thepayback varies based on the borrowers’ operatingsuccess. TBC will refer clients (either directly orthrough consultants) to 1st Adili for financing andwill help them complete application procedures andfollowup on loan utilization and payback. There isconcern that a spread for both 1st Adili and the SATwill raise the cost of financing to near that of the veryhigh (35–42 percent) commercial rates.

TBC would like to target high-opportunitysubsectors such as high-value horticultural products(especially to Middle East markets), agroprocessing,and the gem and packaging products businesses.Under the current structure, however, it only servesthose who request help. Subsector development workhas been limited to a broadly focused horticulturalseminar, work with TANEXCO, and some follow-upwork with TANEXCO members, and TBC would liketo develop better outside consulting capacity in thehorticultural area. As in other subsectors, the techni-cal issues these businesses face can be resolved if themarketing information and capability is there or canbe developed.

TBC will expand operations by adding more cli-ents and opening a new office in Mwanza, the secondlargest city in Tanzania, located on Lake Victoria.

The Tanzanian trading (retail/wholesale) economyis 80 percent controlled by Asians (Indians), whohave access to capital, supplies, and outlets. Thiscommunity is currently doing very well, especiallybecause formal financial markets are in disarray. TBCconsidered developing a program of mentoring clientSMEs with established businesses, but there wasconcern over Tanzanian entrepreneurs accepting amentoring relationship with Indian companies/man-agers.

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TBC’s effectiveness and efficiency could be en-hanced in the following ways:

n Do not accept micro or start-up clients (there issome concern by TBC management about beingencouraged in this direction by USAID).

n Enable qualified client access to a multidonor-financed and TBC-managed trust for use as debtand/or equity. TBC-trained outside consultantswould help clients apply for and manage the useof the money.

n Add an expatriate consultant to focus on devel-oping local consultants’ skills in ongoing opera-tions and to identify and develop clients in spe-cific high-opportunity subsectors.

n Establish a regional information exchange on busi-ness development ideas, lessons learned, and theimplications for enhancement of existing pro-grams or programs being designed.

n Develop a small-to-large business linkage/sup-port program such as K-MAP in Kenya or COMETin Zambia.

M&E for this type of project includes the numberof managers trained, number of consultants trainedand certified, the extent to which training and con-sulting fees cover actual costs, the success of cli-ents’ businesses or associations, increase in the num-ber of clients’ employees, and the amount of financingsourced for clients.

Impact: Although TBC has been operational foronly about one year, it has trained 40 trainers, 15 ofwhom have been certified, and nearly 500 managers.A very reasonable portion of training costs are beingrecovered. Project management seems to have a goodgrasp of its opportunities and challenges, and is react-ing to them in an effective manner.

Conclusions: Organizations such as APDF,which work with large borrowers, can afford to domore complete feasibility studies, have less difficultysourcing funds, and incur lower transaction costs asa percentage of financing value.

Projects that effectively support clients, espe-cially SMEs, at a reasonable cost may have difficulty

“graduating” these clients, because, as the clients’businesses expand so will their business servicesneeds. Turning these clients over to qualified localconsultants will enable the project to expand its reach.However, the more developed the client, especially ifthey are exporting, the more sophisticated their con-sulting needs. Therefore, local consultant training willlikely need to be an ongoing component of a privatesector development project. Furthermore, expatriateconsultants may be required to meet certain consult-ing needs.

Lack of business management skills is usuallyone of the greatest constraints to economic develop-ment in underdeveloped private sectors, especiallythose emerging from socialism. Local consultants inthese environments are unaccustomed to providingpragmatic business services, especially regardingongoing operations, because few people have privatesector management experience. A donor can effec-tively leverage its resources in these circumstancesby focusing on developing local business consultingcapacity.

In societies emerging from socialism with veryundeveloped private sectors, training business report-ers may be a good way to increase the generalpopulation’s knowledge and understanding of mar-ket-led, private sector–based business.

In environments with few models of successfulprivate sector enterprises, a program that links newentrants to the few successful current participantswill increase the rate of private sector developmentby creating more models and mentors. This wouldinclude subcontractor and other very localized SMEdevelopment activities sponsored by successful largeprivate sector firms.

A prevailing low level of education makes suc-cessful business management training much moredifficult.

When an agribusiness project is mature enoughfor management to understand which subsectors havethe best potential to support their objectives, theyshould have the flexibility to target some of theirresources on those sectors.

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A formal and ongoing SSA-wide information ex-change should be established on private sector and/oragribusiness development lessons learned and theimplications for USAID project and activity designand development.

In underdeveloped private sectors dominated byinformal firms, an agribusiness development projectmay need to seek potential clients by effective net-working versus waiting for them to “walk in.”

Multidonor funding may enable more appropriatestaffing levels for complex and multiservice projects;otherwise, these projects may have to become morehighly focused and limited in scope.

Issues: When local business skills are very lim-ited and project funding does not enable adequatestaffing, how can indirect (consultant) or direct man-agement skills be developed in a timeframe consistentwith need? Is assisting existing training institutions,such as universities, to develop effective businessmanagement training programs a viable approach?

C-1.4 German Technical Assistance (GTZ)

Sponsor: German Ministry for Economic Coopera-tion

Project Value: N/A

Start Date: National Coconut Development Project,1979

Completion Date: Soon for many program compo-nents due to budget cutbacks.

Principal Objectives: Identify, adapt, and stimulatethe production of improved varieties of coconut andother commercial crops. Help reduce crop pest prob-lems.

Financial Services: Some via another Germanagency (KFW).

NTAE Development: Nearly all technical (pro-duction-related) applied research assistance.

Discussion: A reduction in the level of fundingby the German government forced GTZ in Tanzaniato focus its efforts. As a result, GTZ concentrates ontree crops, including coconut varietal developmentand mango variety improvement, and on extension

work. Early work with hybrid coconut varieties wasunsuccessful, so the focus is now on selecting andadapting local varieties. Budget constraints have se-verely limited the amount of extension work.

Another German government agency, KFW, pro-vides financial assistance, usually to state entities, andGTZ is working with KFW to help finance improve-ments in local agricultural R&D capacity.

GTZ’s regional Integrated Pest Management(IPM) program is assisting the plant protection divi-sion of AgMin in red locust eradication and mangopest control projects. IPM is a comparatively newprogram (January 1994) that has some problemssuch as limited availability of counterpart funds andlimited local technical assistance/support. Local train-ing of counterparts is an essential component of theprogram, but low morale and low government workerpay make counterpart training very challenging.

GTZ also has a regional postharvest program thatis focused on technical assistance, primarilypostharvest loss measurement. Later it will investi-gate ways to reduce postharvest losses.

The Hans Siedel Foundation (HSF) is doing somework in SME training.

A Germany-based government organization calledProTrade attempts to identify Tanzanian producersof products that can be imported into Germany (e.g.,organic vegetables) and then help the potential ex-porter develop the business.

Aid programs are difficult to administer whenthey must work through local government counter-parts. The government has very little money, andthus government employees have low morale andtheir pay is so low that they must work other jobs tosurvive, which limits their dedication to their govern-ment jobs. GTZ is therefore looking at PVOs/NGOsas local counterparts.

M&E for GTZ projects tends to be subjectiveand informal, since their success is quite dependenton GoT support and cooperation.

Impact: While the overall impact of GTZ pro-grams is difficult to determine, it is clear that GTZ is

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looking for better ways to implement their variousprojects.

Conclusions: Low morale/motivation and sec-ond jobs are significant constraints to programs thatuse local government counterparts, especially whengovernment wages are inadequate. Thus, govern-ment organizations should not be used in such situ-ations.

PVOs/NGOs may be a viable alternative to localgovernment entities when the government entitieslack counterpart funds and employees are poorlymotivated.

When donor funds are reduced, programs areforced to prioritize and focus their efforts on fewerareas.

The success of ProTrade, HSF, and KFW meritsfurther evaluation.

C-1.5 Network Vegetable Production Africa(NEVEPA)

Sponsor: GTZ

Project Value: Unknown, but quite small

Start Date: Early 1990s

Completion Date: 1996, depending on GTZ funding

Principal Objectives: Develop and support the Tan-zania Vegetable Production Network (TVPN) as aneffective means of exchanging information on theopportunities and benefits of commercial vegetableproduction.

NTAE Development: Exchange information, pri-marily on vegetable production techniques, but alsoon marketing.

Discussion: TVPN’s main deliverable is a news-letter about vegetable production and marketing, butthe project has found it very difficult to get people tocontribute articles. The TVPN secretariat collectsinformation about commercial vegetable productionand makes it available to members at headquarters inArusha or via mail. Network partners are some twentymember institutions, each represented by a liaisonofficer. Member institutions are primarily groups ofvegetable producers, input suppliers, and researchers

as well as extension and training personnel in Tanza-nia; however, those most interested are in the Arusha/Moshi area. Topics of most interest to the networkare the economics of production, inputs availabilityand pricing, and postharvest loss minimization. TVPNheld a Networking Skills Training Workshop in late1994. One of the network’s main challenges is sus-taining itself after the withdrawal of GTZ support.

NEVEPA, along with the Tanganyika FarmersAssociation and the Hans Seidel Foundation, spon-sors small-scale farmer training in horticulture pro-duction at the Horticultural Research and TrainingInstitute (HORTI) in Tengeru. Since 1986 more than1,400 farmers have undergone one- and two-weektraining programs in vegetable and fruit production,utilization, and preservation. Participants are given alocal language reference pamphlet and high-qualityplanting materials upon completion of the course.HORTI Tengeru has more applications for trainingthan they have funds to provide the training.

The Urban Vegetable Promotion Project (housedat HORTI Tengeru) has done studies on urban de-mand for vegetables, on prices, and on market char-acteristics, but it has yet to establish a firm directionor objectives.

The Uzambara Mountains are an area with verygood horticultural production potential. According tostudies, the best products to produce there, are cab-bage, onions, and tomatoes. GTZ sponsored a com-mercial horticultural venture there, which prospereduntil its German advisors left. Unfortunately, theexpatriates did not develop local counterparts and didlittle human resource capacity-building (i.e., they didnot transfer their know-how). The project was turnedover to the Uzambara (Socialist) Cooperative, whicheventually sold most of the assets.

Indigenous varieties of African traditional veg-etables have a short growing season and high produc-tivity, so they can produce a good yield for farmers.They are also resistant to pests and tolerate a widerange of growing conditions. NEVEPA has a specialinterest in increasing the knowledge about and pro-duction of these vegetables.

Moshi has several active green bean exporters

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who can use the airports at Kilimanjaro or Nairobi.Many new horticultural firms are springing up in theArusha/Moshi area, often sponsored by Kenyan orTanzanian politicians.

Based on NEVEPA management’s observations,the major constraints to SME participation in horti-culture are:

n Due to years of socialism and foreign domina-tion, many Tanzanians have little initiative, or atleast are so risk averse that they do not want totry new things.

n The few individuals interested in private enter-prise have generated their money from sourcesother than agriculture.

n Successful SME involvement in horticulture willmost likely be as outgrowers for firms withmoney, initiative, and a knowledge of interna-tional markets.

Outgrower schemes can succeed in Tanzania. InMoshi, SunRipe works with some 2,000 outgrowersand does very little of its own production; in Dar esSalaam, Sima International uses outgrowers for chil-ies, along with a nucleus farm; and Katinda is usingoutgrowers for passion fruit, mostly for the domesticmarket. (See 6.5.1 for a precaution regardingSunRipe).

According to NEVEPA management, TANHOPE,a horticultural association, will not be successful untilits members decide to stop competing with eachother and cooperate for mutual benefit.

Impact: The impact of NEVEPA and TVPN isdifficult to assess; it has yet to establish a firmconstituency, and its sustainability after donor sup-port ends is uncertain. However, the need to supportthe sustainable commercial development of vegetableproduction in the Arusha/Moshi area is clear. It ispossible that the project is too small (understaffed) tohave a significant impact on such a large potentialbusiness.

Conclusions: Donor-supported projects can de-velop and support very logical and beneficial NTAEdevelopment entities (e.g., associations, cooperatives,networks, financial institutions). If the beneficiaries

of these entities are not themselves well establishedand viable, however, they will not support the entityafter donor assistance ends.

Training that is followed by supplying the keyinputs needed to apply the training is much appreci-ated by the intended beneficiaries.

Developing local counterparts and the effectivetransfer of project/activity know-how from the for-eign advisors to locals is essential for sustainability,and must be a key component of all projects.

When locals are risk averse and inexperienced inNTAE production and marketing, the best way forthem to develop is via outgrower or subcontractorrelationships with large, experienced firms.

Issue: How can the success, future prospects,and specific agreements of outgrower schemes in theArusha/Moshi area be further assessed?

C-1.6 The Social Action Trust Fund (SAT)

Sponsor: USAID

Project Value: $30 million

Start Date: 1995

Completion Date: 2000

Principal Objectives: Stimulate private sector devel-opment by providing equity and debt financing atfavorable rates. Use the proceeds from investmentsto provide grants to NGOs who will strengthen pro-grams to assist AIDS orphans to become productivemembers of society.

Financial Services: Main area of focus.

SME Development: Focus of the RMPS portionof the project.

Discussion: The umbrella project for USAIDprivate sector support in Tanzania is the Finance andEnterprise development (FED) Project, a very care-fully worked out financial and management assis-tance program aimed at fostering income growth forthe unemployed and underemployed by stimulatingprivate enterprises. The program supports The Busi-ness Center, a loan fund called RMPS (managed byFirst Adili Bank), and a more complicated SocialAction Trust, which is designed to “(a) invest in the

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Tanzanian private sector, working through existingfinancial institutions and new institutions as theyarise; and (b) use earnings from interest and invest-ments to make grants to non-governmental organiza-tions to strengthen programs to assist AIDS orphansin becoming productive members of society.”

The SAT board had five members, chosen pri-marily for their integrity, but three have resigned dueto lack of interest. More emphasis by those whoselect the Board seems to be needed on business andfinance experience.

The SAT deposited around $20 million in Tanza-nia some time ago, which was converted into localcurrency. Delays in getting SAT operational havelikely resulted in considerable depreciation in the valueof the funds.

General observations of SAT management in-clude the following: Donor funds funneled throughthe Ministry of Finance and the commercial bankshave become nonperforming loans. All commercialbanks, except those that are foreign-owned, are tech-nically bankrupt. The general perception is that if thegovernment or a donor supports a project, it is a give-away, not a commercial undertaking. Therefore, anyinvolvement by a donor must be disguised.

The general constraints to SME Developmentare:

n Minimal legal framework. It is very difficult toenforce a loan or any other agreement in court.This results in the need for “hands-on” relation-ships with beneficiaries post-financing to helpensure loan repayment.

n Minimal financial infrastructure (checks couldnot be written until very recently). Many peopleare exiting from the banking system, due tooverstaffing, and are opening their own busi-nesses, although they have little or no real busi-ness experience.

n Most entrepreneurs have little or no capital orcollateral as a result of the previous dominance ofthe state in commerce and as a result of landtenure problems, which are caused partially bypoliticians giving land to people and then taking it

away again.

The lack of financing is a major constraint toSMEs. Therefore, the RMPS project, using SATfunds, was designed to make financing available toSMEs of registered entrepreneurs (see section 6.4.1).

The general opportunities for SME Developmentare:

n Many entrepreneurs have good ideas and a fewhave a little capital.

n Many opportunities are created by the state get-ting out of some businesses.

n Chamber of Commerce members are mostly fromSMEs and they want to get private businessgoing.

n Post-financing assistance should be a big help tobusinesses and enable them to succeed, pay backtheir loans, and increase the value of their shares.

The Confederation of Tanzania Industries is in-active and is perceived as politically influenced.

The Tanzania Immigration Department is againstusing expatriate advisors, so donor projects that re-quire a large number of foreign advisors will not beapproved.

Impact: Too early to determine; just gettingstarted.

Conclusions: New venture capital projects shouldinvestigate the experience of other USAID venturecapital projects, especially in SSA, before finalizing adesign.

Wherever possible the board and management ofa supported SME development entity should be se-lected on the basis of both integrity and successfulbusiness experience.

When the dominance of the parastatals in busi-ness is diminished, new SME opportunities shouldemerge.

Issue: What is the best way to persuade immi-gration department personnel that expatriate advisorsgenerate much more local capacity and employmentthan they replace?

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C-1.7 Swedish International DevelopmentAuthority (SIDA)

Sponsor: Swedish Government

Project Value: For Swede Corp. only, $2 million/year

Start Date: N/A

Completion Date: Ongoing

Principal Objectives: Broad-based development

Association Development: Through Swede Corp.

Financial Services: Supports TVCF throughSwede Corp.

SME Development: Supports Small Scale Indus-tries Association.

Discussion: SIDA’s major support goes to envi-ronmentally friendly forestry development. Market-oriented projects in the past were not successfulbecause they were implemented through parastatals,resulting in numerous project management and en-abling environment problems. The difficulties beingexperienced by parastatals and SIDA’s policy ofworking through government entities has made itdifficult for SIDA to develop and implement market-oriented/private sector development projects.

SIDA supports the Structural Adjustment Pro-gram, which is coordinated by the World Bank, toimprove Tanzania’s balance of payments. It partici-pated in a study by the Industrial Promotion Council(IPC) that suggested a focus on the facilitation andpromotion of export industries and a significant re-duction in the regulation, control, and monitoring ofexports by the government.

BITS, which is sponsored by SIDA, offers 20–30 technical courses per year, some of which arerelated to agriculture. BITS pays the course fees andparticipants pay the expenses.

Swede Corp., which has been operating in Tan-zania for about six years, supports private sectordevelopment. It has invested in the Tanzania VentureCapital Fund, and supports the Confederation ofTanzania Industries (CTI) and the Tanzania Chamberof Commerce and Agriculture (TCC&A). Support to

the TCC&A is focused on linking it to other Tanza-nian Chambers of Commerce. Swede Corp. supportsother association development activities including theSmall Scale Industries Association.

General observations of SIDA management in-clude the following: Tanzania needs to improve itsindustrial policies and should do so in cooperationwith private industry, since most government offi-cials have no knowledge about or understanding ofthe private sector.

The functioning of the customs service is inad-equate and needs considerable improvement. Taxcollection (customs, sales, excise taxes on imports [aparticularly serious problem] and exports, and taxeson corporate and personal income) is nearly alwaysnegotiated and not related to the official schedules.High customs duties, even when negotiated, inhibitthe development of the transport sector and privatesector business, since both imports and exports arerestricted.

What is important in Tanzania at the current timeis not technical know-how, but “know who” (whoyou know)!

Impact: SIDA’s programs cover a broad rangeof projects, and assessing their impact would requirea much larger undertaking than is possible for thisactivity.

Conclusions: After a socialist government leavespower, the new government must try to quicklydetermine how to best promote export-oriented in-dustries and dramatically reduce the regulation, con-trol, and monitoring of most exports.

Improvements in government industrial policiesmust be accompanied with significant input from theprivate sector, especially when evolving from aparastatal-based economy.

Current major constraints to private sector devel-opment in general, and to exports specifically, arepoor performance of the customs service, inadequateenforcement of tax laws, and excessive customsduties on inputs that are to be re-exported.

C-1.8 TechnoServe

Sponsor: Several, including DANIDA and FMO

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(Dutch)

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives: Currently, to continue the de-velopment of a milk production and distribution co-operative.

Association Development: Started with an asso-ciation but shifted to a cooperative.

SME Development: Main thrust.

Discussion: The early activities of TechnoServein Tanzania involved developing input sources forproducers, but that need has diminished recently.They also had a management advisory group formicros, SMEs, SHGs, NGOs, PVOs, and other enti-ties, but clients, especially the micros and SMEs,were very poor at paying, supporting donors werenot comfortable with no fixed assets/tangibles, andeffectiveness evaluation was difficult. Most ofTechnoServe’s staff are locals trained as accoun-tants.

TechnoServe is developing and commercializinga milk producers cooperative near Arusha. It beganas an association but could not act as a commercialentity (i.e., conduct transactions as an association),so it changed to a cooperative. Also, cooperative lawsare more developed and conducive to a commercialbusiness, cooperatives tend not to be taxed, and thegovernment cooperative bureaucracy is passive. Co-operative management style is the main challenge.The main functions of the cooperative are milk col-lection and raw milk sales, although there is someprocessing into cultured milk. The only processingplant in the area, a parastatal, is not operating, sothere are few buyers for raw milk.

On other projects, TechnoServe develops, pack-ages, provides TA, and presents the projects to do-nors such as DANIDA and FMO for funding. This isoften accomplished through the National IncomeGenerating Project (NIGP) in Dar es Salaam, backedby UNIDO, which acts as a broker between donorsand projects and can help manage projects. Its inter-

ests are very broad, and not limited to agriculture oragribusiness.

Technical skills are available in Tanzania, butmanagement skills are missing. Capital costs are nota major constraint, even for microenterprise (<$20,000in investment) or SME ($20,000–$50,000) projects.Entities like APDF can help source financing for$250,000+ projects. The problem is in the $50,000–$250,000 range, which represents a significant in-vestment, but is not enough to interest major inves-tors/financiers in carrying out the necessary feasibilitywork.

The most difficult donors for TechnoServe towork with are those that put their own personnel,who have less than pragmatic (often unworkable)ideas on how the project should be implemented, ona project.

M&E must be kept basic and simple, such asproducing monthly accounts of progress that arecompared to budgets for assisted clients, and estab-lishing the starting point/baseline. Collection of socialbenefits and secondary information is usually notcost effective, but some balance between quantitativeand qualitative information can be achieved.

Impact: TechnoServe has a good reputation inthe Arusha/Moshi area, but the impact and scope ofits programs seems minimal when one considers howlong it has been working in the area.

Conclusions: New entities (e.g., associations,cooperatives, corporations) that are developed to capi-talize on opportunities or resolve problems caused bythe reduced role of parastatals must remain flexible instructure until the best form of organization, based onlocal laws and participants’ preferences, can be de-termined.

Micros, SMEs, and even local government enti-ties find it difficult to pay for anywhere near the fullcost of business advisory services, especially thoseentities that are not able to leverage expensive staff.

The shortage of management skills is usually agreater constraint to SME development than technicalskill shortages in the early stages of private sectordevelopment.

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The “missing middle” of financial services avail-ability is projects in the $50,000 to $250,000 range.

Donors need to ensure that the managers theyassign to projects have practical ideas and directexperience in the disciplines in which they will beworking.

C-1.9 The World Bank (World Bank)

Sponsor: Multinational

Project Value: N/A

Start Date: N/A

Completion Date: Ongoing

Principal Objectives: Finance a range of develop-ment projects and use the SAP conditions precedentto stimulate movement toward a market-led economyand sound macroeconomic policies.

Discussion: In 1990, NTAE exports from Tan-zania were officially just under $42 million. This isvery low considering the number of companies in-volved, so considerable under reporting is likely.However, there was a dramatic increase in officialNTAE exports between 1985 and 1990.

Transport, which often accounts for 30–40 per-cent of the landed price, is a major determinant ofNTAE success. Tanzania’s refrigerated sea freightfacilities need to be improved. Air freight rates fromboth Dar es Salaam and Kilimanjaro are competitivewith those of neighboring countries, but continuedreasonable rates are dependent on increased volumesof tourist traffic, especially for Kilimanjaro. Outlookfor this is positive due to the crime and insecurity ofNairobi, Kenya.

The Arusha area is well suited to flower produc-tion and is within easy reach of Kilimanjaro airport.The key to success for Tanzanian flower growerswill be a combination of high quality, high yields andcontinued availability of space on passenger flights(less costly than cargo) to Europe. The EU flowermarket will continue to be well supplied and onlythose competitors with the above characteristics willbe able to compete.

Most current vegetables are produced by smallfarmers and are sold on the domestic market. In-

creased production is constrained by a shortage ofhigh-quality planting materials, input supply inad-equacies, and a small domestic market. The Arusha/Moshi area has growing conditions very similar to, ifnot better than, those in Kenya, and can producesimilar products such as French green beans, chilies,avocados, mangoes, and okra. The export market forthese and other specialty crops is good if Tanzanianexporters can maintain a high quality and a consistentsupply. It is also important for Tanzanian exporters toestablish close links with importers in the EU that aresupplying the major supermarkets, which purchasemore than 50 percent of imported vegetables. To sellto these importers on a consistent basis, Tanzanianexporters must meet the following criteria:

n Quality as related to size, shape, appearance, andmaturity specifications

n Uniformity of size and quality in each carton andfor each shipment

n Cold chain availability and control to enable andensure quality and uniformity

n Export volumes sufficient to meet the needs ofthe large EU importers and their customers.

n Continuity of supply, delivered on precise timeschedules

n Packaging, often tray packing, ready for retailsale under very strict health and safety require-ments

n Production controls, so that certification can begiven of chemical residues and verification ofchemical spraying programs

These requirements make it difficult for the smallproducer and exporter to supply large EU importers,but it can be done, especially if some type of well-managed consolidation of smaller exports into fewerexporting entities takes place.

While private sector NTAE development is basedon private initiative and investment, there are con-straints to NTAEs from Tanzania that the govern-ment can help alleviate. The improvements neededinclude:

n An enhanced banking system that makes work-

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ing capital available to exporters and efficiently,effectively, and quickly implements imported in-put procurement and foreign exchange transac-tions

n Improved foreign exchange valuation (at the mar-ket rate) and allowing exporters to retain theirexport earnings to acquire future imported inputs

n Stimulating air freight capacity by promoting tour-ism and making sure fueling and airport chargesare highly competitive

n Improved cold storage and weighing facilities atthe airports

n Support for the development of viable exporters’associations, (e.g., TANHOPE), which can workwith the government to address these constraints

Kenya’s success developing NTAEs should pro-vide useful lessons for Tanzania, which include:

n Export horticulture has a high risk and the failurerate of new entrants is high, the products arehighly perishable, customer specifications arerigid, and competition is tough. Successful com-petitors had prior experience in horticultural pro-duction and marketing and diversified acrossbuyers, products, and suppliers. Governmentinfant industry support and strong links to im-porters were critical to value-added success.

n The NTAE business developed with very littlehelp from government research and extensionfacilities. Private R&D significantly lengthenedmarket entry timing.

n Foreign investors with access to internationalexpertise were able to shorten lead times to suc-cessful start-up.

n Experiments with a wide range of arrangementsbetween farmers and producers enabled an ef-fective and flexible response to changing cus-tomer and competitive conditions. Many of thelarge Kenyan exporters have recently begun theirown production, moving away from outgrowerssupplies, due to the increasingly rigorous speci-fications and timing requirements of their retailready buyers.

n Kenya has good support services and infrastruc-ture, including reasonable roads and airport fa-cilities, a functional financial system, and a wealthof private managerial and technical expertise.Tanzania may find it difficult to replicate thesepreconditions for NTAE success.

While oilseeds are normally not considered anNTAE, they offer significant potential for Tanzania.While nearly 50 percent of Tanzania’s vegetable oilrequirement is supplied by imports, specialty oilseedexports, including sesame, sunflower, and ground-nut, appear promising.

The private sector, likely in association withforeign firms, must take the lead in developing NTAEsfrom Tanzania. Improvements in input availability,transport (especially air), and finance are needed butmust be accomplished within an open, competitiveenvironment. Measures needed to improve the chancesfor success of NTAE ventures, which the privatesector can help stimulate, include the following:

n Organize, likely into integrated producer/exporterassociations, so that overhead costs for coldstorage facilities, packing plants, and the like canbe shared. Coordinate the use of scarce resourcessuch as cargo space, and provide services suchas applied research, extension, and quality verifi-cation.

n Disseminate information about tax incentives,market prospects, and import market contacts.Provide a facility to share the cost of feasibilitystudies.

n Promote Tanzania as a positive foreign invest-ment location to produce tropical products forthe European market, taking advantage of itsACP duty free status, excellent productive poten-tial, low freight costs, and low-cost labor.

Impact: The scope of this study did not enablea complete assessment of the impact of World Bankprograms in Tanzania.

Conclusions: Because of the importance of trans-port costs to NTAEs (30–40 percent of the landedprice), air freight, and to a lesser extent sea freight,costs must be very competitive. For air freight, this

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to some extent dependents on passenger traffic vol-ume.

The EU horticulture and floriculture markets willcontinue to be well supplied; therefore, only thosecompetitors with high quality, high yields, a consis-tent supply, and low labor and transport costs willsurvive.

A shortage of high-quality planting materials andother input supply inadequacies, as well as a smalldomestic market for off-production that does notmeet specifications, constrains the development ofNTAE businesses, especially those involving SMEs.

More than 50 percent of the imported vegetablessold in the EU are imported by wholesalers for thelarge supermarket chains. These chains have verystrict quality and phytosanitary specifications, ex-plicit timing requirements, buy in large quantities, andoften require retail packaging at product origin. Par-ticipation in this large NTAE business by SSA export-ers requires tight control, large-scale operations, andclose linkages with the big EU importers.

SMEs will be best able to participate in highervalue NTAE business if they are able to share expen-sive fixed assets and consolidate their output andmarketing efforts.

Assessing the basis for successful NTAE devel-opment efforts in similar countries, especially com-petitors, should be one of the first steps in any NTAEdevelopment program design process. Ongoing M&Eof these countries’ comparative NTAE developmentstrategies, structures, and progress would also bebeneficial.

Private sector technical and managerial expertiseis a prerequisite for successful NTAE development,which will be significantly constrained until suchexpertise is available on an ongoing basis.

Country-specific, high-opportunity subsectorstudies are needed to identify specific SME operatingconstraints. Associations, cooperatives, self-helpgroups, and local NGOs are often useful in resolvingspecific individual constraints and communicatingwith policymakers to address problems associatedwith the enabling environment. Technical and mana-

gerial assistance must emphasize adaptability to chang-ing local and subsector-specific conditions and de-mand-driven solutions. Program design must includeperiodic assessments of impact and demand to evalu-ate and improve practices.

C-2 FINDINGS ON ASSOCIATIONS

There are only a few agricultural or agribusinessassociations in Tanzania. The emergence from so-cialism, where the government controlled all organi-zations, does not lend itself to the formation of mem-ber-supported associations. However, two relevantassociations were selected to be profiled in this sec-tion.

C-2.1 Confederation of Tanzania Industries(CTI)

Principal Objectives: Support the developmentand success of member firms, primarily by promot-ing the passage and effective enforcement of govern-ment policies.

Discussion: CTI receives support from variousdonors, including SIDA. The basic findings from theCTI are:

n Government policies are not conducive to ex-ports. To successfully export, working capitaland a reliable transportation system are needed,neither of which is available in Tanzania.

n In the past donors tried to help supply the privatesector with working capital, but the administra-tion of these funds was weak and they went toimporters rather than to exporters and domesticindustry.

n TDFL should be a reasonable cost source offinancing, but they have very strict requirementson collateral and their environmental impact state-ment requirements are onerous.

n Privatization should equate to more accountabil-ity in business operations. This has been a seri-ous problem with parastatals.

n Private industry contributes about 8 percent ofGDP but nearly all of the tax revenue. The cor-

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porate tax rate (35 percent) is too high, especiallyconsidering how little the private sector receivesfrom the government.

n There are considerable coordination problemsamong the various ministries of the government,which all too often results in conflicting policies.

n There is a strong need for a regular dialog be-tween the government and the private sector tohelp the government understand the privatesector’s needs. The private sector itself needs toget better organized, especially to assist indig-enous entrepreneurs.

Donors supporting CTI tend to use subjectiveconsiderations when assessing CTI’s impact andeffectiveness. CTI’s influence on the development ofgovernment policies and procedures conducive toprivate sector development is an important measure-ment.

Impact: CTI’s impact is difficult to assess, butit is perceived by many as using its political connec-tions for the benefit of members’ own interests.

Conclusions: The lack of working capital and apoor transportation system are two major constraintsto export development.

When donors supply the private sector with work-ing capital, care must be taken to ensure that largeamounts of it are used to finance domestic and exportindustries rather than imports.

Donors providing financial services must be care-ful that the requirements placed on borrowers arehighly relevant for the circumstances in a country.For example, complex environmental impact assess-ments should not be a high priority.

Policy enhancement projects may need to helpthe various government ministries coordinate theirpolicies, especially those that affect private sectorbusiness, so that the policies do not conflict. Signifi-cant involvement of the private sector in policy devel-opment will help minimize such inconsistencies.

C-2.2 Tanzania Exporters Association (TANEXA)

Principal Objectives: Support members’ exportbusiness success.

Discussion: TANEXA received help from TheBusiness Center during its formation and in 1993 indeveloping an operating strategy.

There are about 50 members, who are primarilyproducer-exporters. The second largest group ismiddlemen exporters. The exports of associationmembers were only about $300,000 in 1994, notincluding the flower exporters.

Members are located in a wide range of agro-nomic zones (temperate and tropical), and thereforethey produce and want to export a wide range of foodand agricultural products, including fruits, vegetables,spices, flowers, and herbs. The target markets formost TANEXA exports are Europe and the MiddleEast. The main products of interest to TANEXAmembers are fruits, including mangoes, avocados,pineapples, (believe they are very competitive), ram-butans (fresh), and grapes, but not apples due tofreight limitations; vegetables, including Asian veg-etables and asparagus (off season); flowers such asroses, especially in Arusha/Moshi; and spices, includ-ing chilies (fresh and dried), pepper corns, cinnamon,and cardamom.

The association is in the process of trying tounderstand members’ needs. One of the problems indoing this is that members tend to want to “justproduce” and not get involved in mush else. Associa-tion leadership wants to do market opportunity andcomparative advantage evaluations.

The main constraints to TANEXA exports are:

n Lack of finance, especially equity for cold chaindevelopment, at both the producer and exporterlevels, and foreign exchange working capital,specifically for spice exports

n Inadequate access to the technology and otherinformation that are needed to meet buyer speci-fications

n Poor market information, especially regardingvarieties, quantities, and timing

n Poor communications systems, both domesticand international

TANEXA would like to develop the following

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services for its members to overcome these con-straints:

n Market potential studies, including customer speci-fications

n New sources of working capital and ways tospeed up financial transactions; group (TANEXA)supported lending seems to have good potential12

n An association-owned domestic and internationalcommunications center

TANHOPE started in 1989 but has yet to becomeactive. The secretary and leadership of TANHOPEare not exporters themselves, but they intend toexport. TANEXA has a horticultural subsector chair-man and subcommittee that has taken on the task ofrevitalizing TANHOPE.

Impact: The impact of the association on Tan-zanian NTAEs appears to be minimal at this time, butleadership is serious and trying to develop a viable andsustainable association in a very difficult but appar-ently high-potential environment.

Conclusions: Members of producer-based NTAEassociations tend to want to focus on production andnot be bothered with processing and marketing, In-tegrated producer/packer/exporter associations seemto be a viable way to overcome this tendency.

Countries with traditional or ethnic-based ties tomedium-size markets should consider using theseconnections as a basis for export development, andalso for major markets.

It is very difficult for SME exporters to obtainthe technical and market information needed for suc-cessful NTAE.

NTAE association group lending schemes willnot require large amounts of capital because mem-bers’ export volume is usually quite modest. Propercash management techniques will help reduce thetotal amount of working capital required.

NTAE associations need a core of actual export-ers. Success will be questionable and prolonged with“want-to-be” exporters or non-exporting producers.

Before providing support to an NTAE associa-tion, donors must determine the amount of export

experience association members should have, theirexport opportunities and potential, the status of theexport-related enabling environment, the extent towhich association organizers and leadership under-stand members’ priority needs and have viable pro-grams to serve these needs, and the quality of asso-ciation management.

C-3 FINDINGS ON DEVELOPMENTFINANCE ORGANIZATIONS

Tanzania has a narrow range of financial institutionsthat serve the NTAE and SME subsectors. The highcost limited and availability of financing are signifi-cant constraints to private sector development. Thebanking system is very underdeveloped. While Stan-dard Chartered has a bank in Dar es Salaam, the bankserves primarily its international customers and thebetter parastatals’ international business. The Na-tional Bank of Commerce (NBC) is the only commer-cial bank with close to a national network. TheCooperative and Rural development Bank (CRDB)finances primarily the cooperatives and agriculturalmarketing boards. The current 35–42 percent domes-tic bank rate makes debt very difficult to afford, evenwith high inflation. For farmers without clear title toland, which is quite prevalent, financing is a particu-larly serious constraint.

Following are profiles of the most significant andactivity-relevant finance institutions in Tanzania.

C-3.1 First Adili Bank (1st Adili)

Sponsor: Shareholders; USAID for the RMPS

Project Value: RMPS, $1 million

Start Date: RMPS, late 1995 or early 1996

Completion Date: RMPS, 2000

Principal Objectives: Stimulate the development ofthe SME private sector by facilitating access to fi-nancing using 1st Adili as an intermediary.

Financial Services: Improve SME access to fi-nance, both debt and equity.

SME Development: Target beneficiaries.

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Discussion: 1st Adili is a new private bank thatwas set up partially with the help of Swede Corp.consultants. Management believes there are privatesector business opportunities created by the reduc-tion in power of the state marketing boards. How-ever, the official changes in regulations often are notimplemented (e.g., the movement of maize acrossregional borders is still unofficially prohibited, al-though officially allowed).

The bank’s Enterprise Unit will manage the RMPSfund for USAID. The Business Center, or its outsideconsultants, Venture Financing Consultants (VFC),will recommend clients and do the feasibility studyfor the financing as well as the hands-on follow-up toensure repayment and to resolve default situations.VFC also will be responsible for seeing that theregistered MSE client provides frequent reports onthe status of their operations and the prospects forloan repayment. The financing, anticipated to be be-tween $5,000–$30,000 per borrower, can be basedon a standard retail loan agreement with some flexibil-ity in collateral based on VFC recommendations andcommitment to help manage repayment. Financingterms will be 18–36 months. SMEs will be able to useequity substitutes, such as converting part of debtinto equity, and income participation notes. The bor-rower must understand that this is a commercial loan,because often it is generally assumed by borrowersthat government and donor-associated loans do notneed to be repaid.

The challenges that RMPS is likely to face in-clude doing all of the paperwork necessary to makeit operational; getting clients to understand the instru-ment and believe that it is a commercial loan that mustbe repaid; and achieving the geographic reach that isnecessary to find enough qualified borrowers.

Qualified borrowers are believed to be available,but 1st Adili will require borrowers to follow muchstricter bookkeeping practices than is the customarypractice of SMEs. Finding entrepreneurs with equityto invest is not anticipated to be an insurmountableproblem. Where there is an equity shortage and aqualified borrower, 1st Adili will coordinate with theTVCF to integrate their equity. Valuation of rural-based assets, however, will be a problem.

An ASC/FADC-type entity should be effective inTanzania, especially if it is focused on a specificsubsector or geographic area. Integrating equity, debt,and managerial and technical assistance into one en-tity would overcome the coordination problems thatarise when these services are offered by differententities (e.g., between The Business Center, TVCF,and 1st Adili). Such an entity would greatly reducetransactions costs, which are very high in Tanzania.

Impact: Both 1st Adili and the RMPS project aretoo new to have their impact assessed.

Conclusions: Official policy and enabling envi-ronment enhancements are often not fully imple-mented.

SME managers often assume that loans, espe-cially when donors or the government are involved,do not need to be repaid.

SMEs are not accustomed to the type ofrecordkeeping required by the financial institutionsfrom whom they seek financing.

Achieving a sufficiently broad geographic reachto identify numerous qualified borrowers is difficultin countries with a poor infrastructure.

Valuation of rural-based assets is a problem,especially when land tenure is insecure and infra-structure is poor.

If an SME entrepreneur must work with severaldifferent institutions to source his business supportneeds (e.g., financing, technical assistance, and mana-gerial advice), his burden is much greater, paperworkmuch more complicated, and coordination problemsbetween support institutions much more likely.

C-3.2 Lake Zone Small Business SupportProject (LAKE)

Sponsor: Overseas development Administration(ODA) and indirectly the Commonwealth develop-ment Corporation (CDC) of the United Kingdom

Project Value: Initially $1 million

Start Date: January 1995 (GoT approval)

Completion Date: 2000

Principal Objectives: Stimulate development and

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employment in the private sector in the Lake Zone byproviding support for 15–20 small enterprises en-gaged in value-added production.

Financial Services: Equity for SMEs involved invalue-added businesses.

SME Development: SMEs are the target benefi-ciaries.

Discussion: Three funds will be established tosupport the development of value-added SMEs in thesomewhat inaccessible Lake Zone on the southernedge of Lake Victoria, which has a population ofaround 6 million and is located around Mwanza,Tanzania’s second largest city.

The main Lake Zone Equity Growth fund (LAZER)will be initially funded at $750,000 to be used as asource of equity (in the $20,000–$50,000 range percompany) for value-added production SMEs (5–50employees). It will be managed by Equity InvestmentManagement Ltd. (EIM) (for $30,000/year), whichalso manages the TVCF based in Dar es Salaam andis 40 percent owned by CDC. EIM will open an officein Mwanza.

Companies needing funding to develop proposalsfor LAZER investment, including a quality businessplan, can draw upon the Investment Appraisal Fund(IAF), also managed by EIM and initially funded at$75,000. Firms whose proposals are accepted andreceive LAZER funding must repay the full cost ofproposal and business plan preparation. Firms whoseproposals are rejected still must make a significantcontribution to the costs of project proposal prepara-tion.

The project will also strengthen local service-providing organizations such as management con-sultants (e.g., Business Care Services in Mwanza),training institutions, and accountants by providingtraining for individuals from these professions. Thiswill be paid for from the Training and Advisory Fund(TAF) to be managed by the British Council andinitially funded at $150,000.

The LAKE agreement negotiated between theODA and the GoT allows for duty free import ofequipment for supported projects and for shares in

LAZER to be sold to the public at some time after theproject terminates.

The SME operational constraints analysis thatpreceded the design of LAKE found that inadequateinfrastructure (especially power, telephones, androads), high duties on imports, lack of access tofinance (especially to pay for needed imports), andcompetition from imports that often pay no dutywere the major constraints to SME development.However, none of these constraints will be addressedby LAKE.

On those rare occasions when financing is avail-able, the real cost of financing from the National Bankof Commerce is 50–60 percent due to hidden costs,and they are not extending any new medium- to long-term loans.

Much of the production machinery used by theprivate sector was contributed by donors and wasoften secondhand. When this equipment has not beenwell maintained, replacement (and therefore consid-erable capital investment) will be necessary to achievereasonable production efficiency. For those who havemaintained their equipment, some relevant TA andworking capital will help improve productivity,throughput, and quality.

Given the rural nature of the Lake Zone and thepresence of fish processing, leather, and other agri-business enterprises, it is likely that many of thecompanies interested in LAZER and IAF will be agri-business firms.

Impact: Just being implemented.

Conclusions: Apparently an underlying assump-tion of this project is that LAZER equity, and thepreparation work necessary to qualify for LAZERsupport, will help entrepreneurs establish the collat-eral base and credibility needed to apply for debt fromcommercial sources.

Very limited equity availability is viewed by somedonors as a major constraint to SME development.

Inadequate infrastructure (especially power, tele-phones, and roads), high official duties on imports,lack of access to finance (especially to pay for neededimports), and competition from imports that often

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pay no duty were major constraints to SME develop-ment.

Improper and/or inadequate equipment mainte-nance often results in very high operating and reha-bilitation costs for parastatal and private sector com-panies.

Financial services management teams need to beinvolved with either a large single fund/institution orseveral funds/institutions to spread the high cost oftheir services and keep the cost from being a burdenon any one project.

Providing special funds to help SMEs apply forequity investment and to develop local business ser-vices capacity is a reasonably integrated approach toSME development.

Issues: Can organizations that provide businessservices to Mwanza businesses be developed quicklyenough to support SMEs in which LAZER will in-vest? How will TA and managerial assistance beprovided to entrepreneurs interested in businesseswhere there is no knowledge base in Mwanza i.e.,where locally consultants have no prior experience?

Did ODA consider asking TDFL to join them inthe LAKE project so their favorable rate debt could becombined with LAZER equity?

Tanzanian companies must deposit 100 percentof the value of any foreign exchange they need inShillings, plus pay interest on the foreign currencythey borrow until it is repaid. This is a major con-straint to exports that require imported inputs. Howwill LAKE help overcome this serious constraint?

C-3.3 Standard Chartered Bank (StanChart)

Sponsor: Shareholders

Start Date: December 1993

Principal Objectives: Establish StanChart as an im-portant commercial banking competitor in Tanzania,serve international customers, achieve an acceptablereturn on investment.

Discussion: StanChart’s major business is pro-viding lines of credit to Tanzanian divisions of itsmultinational clients and to the most viable Tanzanian

parastatals (i.e., overdrafts for companies with salesin excess of $1 million). In mid-1995, outstandingloans and overdrafts were valued at about $10 mil-lion.

Cooperatives in Tanzania are not very profes-sionally managed and therefore represent a high risk.Nearly all of the local banks have balance sheets thatwould not meet international standards.

Prevailing short-term interest rates are 37 percentplus 2 points, or 39 percent. StanChart’s cost ofmoney is 33 percent, so it cannot afford to do muchbusiness at 39 percent. The up-front fee StanChartcharges helps defray operating costs and is its mainsource of sustainability. Foreign exchange lending isquite risky for the borrower (due to high local infla-tion), and therefore for the lender, given the level ofinflation.

Privatization is moving slowly ahead, but thereare problems with the durability of the arrangementsmade as a part of a privatization acquisition (i.e., “adeal is not necessarily a deal”).

There is a shortage of viable borrowers, primarilydue to inadequate management. Human resource ca-pacity limitations, managerial and technical, are themain constraints to private sector growth and suc-cess. Also, infrastructure is inadequate and expensiveto use, especially the ports.

Subsectors that appear to have good potentialinclude:

n Cashews, as a Kuwaiti company recently enteredthe business and is rehabilitating a shelling plant.

n Sisal was once very competitive and there isconsiderable interest from the private sector inrehabilitating the industry.

When considering an ASC/FADC in Arusha/Moshi(the most logical place for one) the following con-straints would have to be overcome:

n Bankable businesses are in short supply becausethe private sector is very new and few managershave adequate experience or training.

n Poor infrastructure would limit the ability of ASCmanagers to supervise their clients.

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n There are very few models or mentors to provideexamples of successful operations or to act astrainers.

n There are very few mid-level managers and tech-nicians available, a serious training program wouldbe required; however, non-Tanzanian Africanscould be used in the interim.

n Investors should expect the returns to be longerterm only.

n Fraud is rampant at high and low levels.

Impact: StanChart’s business has grown quiterapidly in the less than two years it has been inbusiness, and management is satisfied with its returnon investment potential and risk factors.

Conclusions: Investors in privatization projectsshould be cautious about the durability and enforce-ability of the agreements associated with these acqui-sitions. The involvement of an investor’s home basegovernment or a major multinational donor such asIFC may help preserve agreements.

Lack of entrepreneurial and management experi-ence and a lack of management training is a majorconstraint to private sector development, especiallySME development.

Cashew and sisal products seem to have goodNTAE potential for Tanzania.

Africans from other countries may be able tosupplement the supply of local managers while localsare trained and gain more experience.

Agribusiness ventures are likely to have longerterm returns than those of most other businesses.

C-3.4 Tanzania Development FinanceCompany Limited (TDFL)

Sponsor: Tanzania Investment Bank (TIB; with 25percent); CDC (with 2.5 million), Deutsche Invest-ments (DEG; with DM 3.8 million in income notes);Netherlands Financie Rings (FMO); and EuropeanInvestment Bank (EIB; with ECU10 million)

Project Value: TDFL currently has about $14 mil-lion available plus $16.8 million in loans and equityoutstanding.

Start Date: 1962

Completion Date: Ongoing

Principal Objectives: Stimulate the development ofindustry in Tanzania by offering preferential ratedebt, and occasionally equity, to highly qualified in-dustrial companies.

Financial Services: Supplies preferential rate debt,and occasional equity, to larger borrowers.

NTAE Development: Some focus on export-ori-ented industries.

SME Development: Some interest, but smallestloan is $30,000.

Discussion: TDFL is a privately owned, interna-tionally funded, and commercially operated local de-velopment finance institution that mobilizes foreignand local funds to offer preferential rate financing toqualified industrial projects. Started and initially man-aged by CDC, it currently places primary emphasison the establishment and expansion of manufactur-ing, agricultural, mining, service sector, and otherundertakings based on utilization of natural and hu-man resources, and secondary emphasis on develop-ment of enterprises that are export-oriented and at-tract (e.g., tourism) or save foreign currency. TheFund does not invest in social infrastructure such asschools, roads, and hospitals. TDFL’s invested eq-uity base is $1 million, and it makes loans only toprojects that have undergone a fairly rigorous evalu-ation process.

The company will invest between $30,000 and$1 million in any single project and wants its portionof the investment to be between 10 and 50 percent oftotal investment. The average size loan over the lastyear was around $500,000. While the vast majority ofTDFL’s more than 200 investments are in the formof fully secured debt, it will also invest equity in thebest projects. Its current portfolio of 65 projectsrepresents investments of $16.8 million, about 50percent to parastatals and 50 percent to the privatesector, although it has not financed parastatals forseveral years. Some 30 percent of its investments arenonperforming (mostly parastatals). A TDFL repre-sentative sits on the board of all companies in which

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it invests.

Shilling loan terms are usually 8–9 years in totalwith a two-year grace period and interest of 29percent (in a market of 39–42 percent). Foreignexchange loans are offered at LIBOR + 3–4 points.About 25 percent of TDFL’s loans are denominatedin foreign exchange.

TDFL has some $14 million available to loan, butonly about $3 million in the pipeline because they areconstrained by the unavailability of investableprojects. The major constraints on firms being able toqualify for TDFL loans, other than a nonviable invest-ment, are that:

n Most private sector managers are relatively inex-perienced in commercial business and come fromparastatals where loans were disbursed on thebasis of relationships, not on anticipated pay-back. They are therefore not familiar with per-forming rigorous feasibility studies or developingviable business plans.

n Most new entrepreneurs have very minimal eq-uity, which limits the collateral they can offer.This makes the debt-to-equity ratio of the firmvery high if TDFL financing is approved.

n The typical bookkeeping practice in family-ownedand -managed operations does not lend itself topre-financing analysis or post-financing monitor-ing.

n The skills needed to develop a bankable proposaland operational business plan are scarce. There-fore, it is very difficult to get the informationneeded to assess the viability of an enterpriseapplying for the financing or to monitor itsprogress afterward.

Because of the difficulties assessing the viabilityand repayment capability of a project, TDFL does itsown project appraisals, and recently established aCorporate Advisory Service (CAS) to help potentialclients perform high-quality feasibility studies. Thismost often involves extensive market analysis andfinancial projection work. This group will also dorehabilitation and restructuring work. CAS will helpTDFL monitor the performance of borrowers duringproject implementation based on mutually agreed bud-

gets, and will help prepare and monitor clients’ regu-lar business progress reports.

TIB, TDFL’s local partner, is a much largerfinancial institution that finances primarily parastatals,and is therefore having many problems.

TDFL believes there will be opportunities forgood investments in newly privatized companies, andthat TDFL’s participation will be facilitated by thefact that the manager of TDFL sits on the privatizationboard. Other high-opportunity areas include floricul-ture (TDFL recently invested $300,000 in the CombeRose Company in Arusha) and grain (e.g., flour)milling, where they have recently provided financing.

From time to time the company will co-financeprojects with other financial institutions or donorswith similar interests, such as TVCF.

In 1993 TDFL was able to sell six of its equityinvestments at an acceptable price.

The M&E measures carried out by TDFL appearto be the same as those of any other financial insti-tution: return on investment, increase in assets, loanperformance, portfolio balance and risk,nonperforming loans, and balance sheet ratios.

Impact: TDFL has been able to evolve fromCDC management to apparent local management andhas been able to garner continued and increasingdonor support. While 30 percent nonperforming loansis much too high, if most of these are old parastatalcustomers, it is understandable. Formation of theCAS indicates that TDFL understands the importantconstraints to its success, and has taken action toresolve one of the main causes.

Conclusions: There is a strong role for USAIDto sponsor an activity (possibly via TBC) to helpdevelop and package proposals and business plansfor projects seeking TDFL financing, then help theplans become reality. This could be accomplished viatraining support and mentoring for the CAS; possiblymodeled after USAID-supported training provided toAfDB’s new private sector development unit officers.

Donor-supported development finance institutionscan become fully localized given enough time andtraining.

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European donors seem to be able to jointly fundsuccessful development projects, possibly becausethey have similar screening requirements.

Difficulty identifying investable projects, not thelack of finance, is the major constraint to donorsupport for private sector development.

Lack of entrepreneur experience and equity, in-adequate bookkeeping practices, and the lack of know-how to develop satisfactory financing proposals andthe associated business plans are major constraints tofinancing private sector ventures.

Development finance institutions often find itnecessary to establish their own internal consultinggroup to help potential clients apply for financing andto monitor businesses post-financing.

Floriculture and grain milling appear to be goodagribusiness opportunities, the latter created by thereduced role of state marketing boards.

Debt at a minimum of 10 points below the market(and likely below inflation) is a bargain and should bein very high demand. It would be very useful to knowhow TDFL can afford to have 75 percent of its debtin local currency at an interest rate below inflationand 30 percent non-performing loans, yet still remainsustainable. Investments in high-yield governmenttreasury bills must help.

Debt providers (e.g., TDFL) cooperating withequity providers (e.g., TVCF) with similar objectivesseems very logical and beneficial.

C-3.5 Tanzania Venture Capital Fund (TVCF)

Sponsor: CDC (37 percent), DEG (37 percent),National Provident Fund (Tanzania), FMO, Proparco(7 percent), Swede Fund (7 percent), and TDFL (4percent)

Project Value: $7.6 million

Start Date: October 1993

Completion Date: Ongoing

Principal Objectives: Stimulate the development ofthe indigenous private sector by investing equity or itsequivalent in high-potential industrial businesses.

Financial Services: Main area of interest; limitedto equity.

SME Development: Not specifically; minimumsize investment is $50,000; average size to date is$254,000.

Discussion: TVCF is managed by EIM (40 per-cent owned by CDC, heavily [$662,000] supportedby USAID via the FED project, and 20 percent ownedby TDFL) and uses its capital to make equity andquasi-equity investments in indigenous-owned com-panies with high growth potential. It can take up to50 percent of the equity, but wants at least 25 per-cent, of a company, with any one investment limitedto a minimum of $50,000 and a maximum of$500,000. Income notes, which are debt convertibleto equity whose interest rate is a function of companyprofit, are sometimes used for TVCF’s investments,but they do not offer any common debt.

More than 1,300 projects were reviewed in thefirst twenty months of operations; 1,000 were con-sidered; feasibility studies were completed on 42; and13 were invested in with $3.3 million in equity (anaverage of $254,000 each) and $9.3 million in totalinvestment.

The Central Bank of Tanzania has frozen debtavailability to the private sector and most commercialbanks are only taking deposits and investing in trea-sury bills, not lending. Therefore, there is very littletrade or mid-term finance available. Also, entrepre-neurs have very little equity available to at least matchthat of TVCF, which is the only source of formalequity in Tanzania. These factors impose major limi-tations on investable projects.

The $500,000 limit on any one investment hasnot been a constraint to TVCF’s growth so far butTVCF is planning to increase the limit to allow moreflexibility. The short history of the private sector inTanzania means there are very few opportunities formezzanine finance.

TVCF uses TDFL debt for some of its invest-ments. TDFL likes to do this because TVCF doeshigh-quality feasibility studies and its equity invest-ment will help lower the debt-to-equity ratio of a

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client. TVCF wants a 40:60 debt-to-equity ratio in itsinvestments. If this were to be modified, TCVF coulddo more business.

TVCF has more than $4 million available forinvestment, yet it is currently focusing on protectingexisting investments. Factors, in addition to thosementioned above, that limit TVCF’s growth includethe following:

n Venture capital is new in Tanzania, and entrepre-neurs, especially indigenous, have yet to becomecomfortable with the concept.

n Many entrepreneurs are not willing to developand maintain audible records or to provide themonthly and quarterly reports that enable TVCFto assess and monitor performance.

n Exit mechanisms, such as owner buyback ofshares, sale to another investor, and a stockmarket (especially one interested in IPOs) haveyet to become available.

n The services sector offers good potential, butTVCF is prohibited from investing in non-indus-trial ventures.

n Joint ventures with foreign investors would fa-cilitate the use of foreign know-how and invest-ment, but these are not allowed by TVCF’s char-ter.

There may be some opportunities in privatizations,but most of these would be investments larger thanTVCF’s maximum.

While verification of collateral for agribusinessesnot based in Dar es Salaam is not considered a majorissue, it is much more difficult for TVCF to monitorand evaluate the performance of non–Dar es Salaaminvestments, primarily due to communications prob-lems.

USAID provided TVCF some early organizationalsupport.

EIM will be managing the LAZER and IAF fundsfor the Lake Zone development project in Mwanza. Itis also developing a new fund that will allow a largermaximum investment, participation in new sectorssuch as service industries, and that will be less re-

stricted to indigenously owned businesses.

M&E for TVCF is the same as for other financialinstitutions and is based on financial performance(TCVF’s performance and that of its investments),as well as on an assessment of the number of newinvestments. Over the long term, the ability to sellinvestments at an acceptable price will also be impor-tant.

Impact: While TVCF is quite new, it has in-vested in thirteen enterprises, nine of which appear tobe successful. The other four are developing ways tominimize their problems, caused primarily by officialimport restrictions and inadequate infrastructure. Whilethirteen companies will not have a dramatic impact onprivate sector development in Tanzania, they repre-sent a fairly large portion of new firms in TVCF’starget size range. Also, they may become models ofhow to succeed in the private sector, and EIM willhave helped develop private sector business analysisand development experience, as embodied by TVCFstaff.

Conclusions: The lack of debt financing andentrepreneur equity are both important constraints tothe success of venture capital projects.

Financial development projects that require a lowdebt-to-equity ratio will find few investable projectsavailable in private sectors in the early stages ofdevelopment. Convertible debt and income notes,along with loan officers who have a good under-standing of the applicants’ businesses, will help re-duce this constraint.

Important factors that limit a venture capitalfund’s ability to invest its available resources includeentrepreneurs’ lack of familiarity and comfort withthe concept, inadequate recordkeeping practices, theunavailability of exit mechanisms, and restrictions onclient size, business sector, or owner nationality.

Monitoring and evaluating investments outsidethe major metropolitan areas (e.g., for many agribusi-nesses) is quite difficult, primarily due to communi-cations problems.

High-quality management and support from adonor experienced in business development and fi-

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nance in developing countries will enhance the prob-ability of success of a venture capital project.

There is a significant opportunity to coordinateand integrate several different existing donor-sup-ported SME development activities: specifically TDFL(debt), TVCF (equity), and The Business Center (TAand managerial assistance). StanChart may even bewilling to provide a working capital line of credit toclients who are working with all three of the aboveentities.

C-4 FINDINGS ON PRIVATEAGRIBUSINESS FIRMS

Following are the findings on agribusiness firms inTanzania. Due to the limited number of private sectoragribusiness firms, this section is brief.

C-4.1 Sluis Brothers (E.A.) Ltd. (Sluis)

Principal Objectives: Manage the production ofplanting seed for export and sale to NGOs, especiallypulses, in a manner that will generate a reasonablelivelihood for the owner/operator.

Discussion: Sluis produces planting seed (mostlypulses), some on its own farm, but also some byfarmers in the Arusha area. Seed exported to the EUis produced on its own farm and under contractswith outgrowers and is sold to commercial seedcompanies in Europe, who repack it for retail sales.Open-pollinated varieties are produced for NGOs todistribute in Tanzania for subsistence farmers to plantfor food. Pulse seeds also are exported to Latin andCentral America. The company has cleaning facilitiesfor the commercial seed.

Predictability of supply is a major problem.Weather varies a great deal and therefore so do yieldand total production. For the contract grower goodweather equates to high production and deliveries toSluis from their own farm and typically from theirneighbors’ farms. Poor weather often means they eatthe seed. Sluis supplies the planting seed, and for themost reliable contract growers, other inputs such asfertilizer. The average contract grower commits to50 –100 acres, but yields are very low due to weather

variability and input shortages. Irrigation is not avail-able and would be very costly. The minimal use ofinputs and weather variability means that extensive,rather than intensive, production methods are used.

Considerable applied R&D is needed on foodpulses for the domestic market since there is a veryminimal information base available, but the trend istoward exotic varieties. Varieties are needed that canbe consumed locally if necessary and exported if ingood supply.

Sluis has tried to produce and market coriander,fennel, and other higher value products, but the mar-ket is very volume- and commodity-oriented and astrong, ongoing relationship is needed with an im-porter/buyer.

Roses seem to be successful in the Arusha/Moshi area, but some of the initial investments werebased on very advantageous EU-sourced financing,or on wealthy locals seeking ways to get their moneyout of the country. Most flower producers in theArusha area have their own boreholes for water, butthey are having problems with water salinity.

Organizing producers into an association is verydifficult due to past problems with government- con-trolled cooperatives.

The major constraints to SME agribusiness ven-tures are:

n Very limited availability of financing, and financ-ing that is available is very expensive, 40 percentplus; there are very few clear titles to land, socollateral is minimal.

n Packaging materials are scarce and expensive.The jute bags needed to transport seeds from thefarm to the factory or port cost Sh850 ($1.55)when made from local sisal fiber and Sh550($1.00) to import.

n Privatization has resulted in poor local servicesand input supply, especially if the companies are“managed” by inexperienced locals. Asian (In-dian) managed companies are more reliable andcheaper.

n Inadequate infrastructure is probably the mostserious problem, especially telecommunications.

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There is a good opportunity to receive certifica-tion for organically grown products, both seeds andfinished products, because most local producers donot use chemical inputs.

Note: According to Sluis management, whileSunRipe is often mentioned as an example of thesuccessful use of outgrowers, it should be noted thatlarge sums of World Bank money that was supposedto finance the company “got lost” and several direc-tors were jailed. Equatorial Progressive in Moshi isprobably a better example.

Impact: Sluis has been in business for manyyears and appears to be doing quite well, althoughmuch of its success may be a function of Jap Smit’sindividual experience and capabilities and his goodpersonal contacts with EU seed buyers and LACpulse importers.

Conclusions: There are opportunities in agri-business for good, experienced managers who havesome capital.

Input supply problems and the unpredictability ofweather are two of the major constraints to outputpredictability and therefore successful agribusinessventures in the Arusha/Moshi area.

A mechanism should be developed to tap into theexperience of the few successful agribusiness entre-preneurs in the Arusha/Moshi region, and with theirhelp to determine how to accelerate the rate of agri-business development in the region.

NTAE opportunities exist in high-value specialtyproducts such as fennel, coriander, and organicallygrown planting seeds and finished products, but strong,ongoing relationships with importers are needed tocapitalize on these opportunities.

Past problems with government-controlled co-operatives makes organizing producer-based associa-tions quite difficult.

The main constraints to SME agribusiness ven-tures are the very limited availability of financing,poor local business services and input supplies (espe-cially packaging), and inadequate infrastructure (es-pecially telecommunications).

The success of NTAE outgrower arrangementsin the Arusha/Moshi area should be further investi-gated.

C-4.2 Sun Flag (Tanzania) Ltd. (Sun Flag)

Principal Objectives: To press unique, locallygrown oilseeds and to market specialty oils to inter-national buyers.

Discussion: Sun Flag, a relatively new companyfounded by a white Tanzanian, produces specialtyoils from locally grown seeds. Many of the seeds aregathered by the local population, and a few are cul-tivated. The buyers of these specialty oils are majorfirms such as the Body Shop and small specialtyimporters such as suppliers to massage parlors.

Based on recent test production and marketing,Sun Flag believes there is considerable potential forthese specialty oils including citrine, an antimalarialoil, and oils used in pharmaceutical applications. Thecapital investment required is not high and the tech-nology to press or extract the oils is not complicated.

The company is particularly interested in an oilthat can be pressed from a common weed in the area(Chinese thistle?), which yields a very high-value oil.The seeds could be collected by local inhabitants, anddue to the high value and low yield of the oil, therelative importance of infrastructure problems shouldbe minimal.

Sun Flag would be very interested in cooperatingwith a donor to help further develop the market andprocessing technology for specialty oils that are basedon locally available seeds that can be collected orgrown by local residents. Sun Flag would be glad toshare this information with other entrepreneurs be-cause it believes there are enough opportunities forseveral SMEs.

Impact: Sun Flag has just started its business,but seems to have an abundance of good ideas and isbacking them up with considerable personal financialand “sweat equity” investment.

Conclusions: Innovative entrepreneurs with anintimate knowledge of locally available raw materialsand a reasonable understanding of international mar-kets can often come up with good business proposi-

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tions. Some of these propositions deserve furtherevaluation, especially where they can have a signifi-cant broad-based local impact.

A more detailed assessment of the opportunitiesfor producing and exporting specialty oils from theArusha/Moshi area has merit.

C-4.3 Tanzania Industrial Studies andConsulting Organization (TISCO)

Principal Objectives: Provide consulting adviceto industrial entities.

Discussion: TISCO, founded in 1976 is currentlya parastatal that reports to the Ministry of Industries andTrade. It has four divisions — Engineering Consultancy,Industrial Studies, Management Consultancy, and theInformation Center. It is in the process of being priva-tized. In the past it has worked primarily for otherparastatals preparing project feasibility studies, but itnow must develop private sector clients.

Due to its excellent contacts with the govern-ment, TISCO believes it can help a private sectorclient with both the operational aspects of a project as

well as the regulatory aspects and political relation-ships.

The Information Center division offers informa-tion management consultancy services, a library, reg-isters of basic industrial information, and publicationsfor potential investors.

In 1993 TISCO helped SADAC prepare reportson Regional Trade Opportunities for Tanzania and anExport Development Strategy for Tanzania. (See Mr.Palangi at SADAC for information on these studies.)

Impact: TISCO’s impact on parastatals apparentlydid not include helping them to operate effectively,efficiently, or in a financially responsible manner.

Conclusions: Given the success of parastatals andthe lack of private sector support from the GoT, TISCOmay or may not have the capabilities or reputation toexpand into private sector consulting.

If the GoT is sincerely interested in TISCO’s suc-cess, TISCO could be a good partner for a donor towork through to supply expertise for privatization ef-forts.

65

Appendixes

The following appendixes present the detailed profilesof the entities studied for this activity. Most of theinformation used to develop these profiles was ob-tained from personal interviews with senior managersof the entity, but a few are based on secondary sources.

The level of detail presented in each profile varies.When the management of an entity was unavailablefor an interview, the profile is brief, intended primarily

to identify an entity relevant to agribusiness develop-ment.

AMIS II will be doing follow-up work for AFR/PSGE/PSD on NTAE development and the role ofSMEs therein and on financial services for IndigenousSMEs in Southern Africa. The profiles relevant to thatwork will be detailed and expanded at that time.

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Appendix DContacts

Anil SinhaInvestment OfficerAfrica Project Development FacilitySouthampton House(263-4) 730967 - 9(263) 473-0959

Jack ThompsonRegional ManagerAfrica Project Development FacilitySouthampton House(263-4) 730967/9(263-4) 730959

A. JaureProject CoordinatorAgricultural & Rural Development Authority3 Mc Chlery AvenueP.O. Box 8439Causeway, Harare705841

Dr. P.MarambaSeed Production SpecialistAgricultural Development Authority3 Mc Chlery Ave. South EastleaP.O. Box 8439Causeway, Harare, Zimbabwe705841, 700095

Taka E. MutunhuChief ExecutiveAgricultural Finance Corporation, HQHurudza House, 14-16 Baker Avenue, RO.Box 369, Harare795811794932/3

Derick CranP. O. Box 2111Arusha, Tanzania255 057 8162 Off(255) 057-8246

Business Centre, TheAli Hassan Mwinyi RoadP.O. Box 1051630677, 35177, 3513134317

Anthony T. MushipeManaging Director ( CPA, BBA, MBABusiness Development & Promotion (Pvt) Ltd12 Heron DriveNew Ridgeview, BelvedereP.O.Box 310303211 ext. 1419/150789-784

John ScogganSmall Enterprise Development CoordinatorCARE International in Zimbabwe8 Ross Ave., Belgravia,P.O. Box HG 937Highlands, Harare(263-4) 727986/7/8(263-4) 727989

Katherine J. MathersProgramme Development and Monitoring CoordinatorCARE International in Zimbabwe8 Ross AvenueBelgraviaP.O. Box HG 937(263-4) 727986/7/8(263) 472-7989

138

Mike MispelaarDirectorCARE International in Zimbabwe8 Ross Ave.BelgraviaP.O. Box HG 937(263-4) 727986/7/8(263-4) 727989

David NewmanManaging DirectorCargill Zimbabwe (Pvt) LtdIst Floor, Credsure House67 Second StreetPO Box 5398(263) 473-9313(263) 472-0980

Murtaza S. RashidDirectorCargill Tanzania LimitedNoor Manzil Bldg., Makwaba StreetP.O. Box 246, Dar es Salaam(255) 51123849/2831134610(255) 51/34225

Hans R. BlohmVice PresidentEDESA - Societe Anonyme(263-4)750293-750300(263-4) 752022

Erik KorsgrenEconomistEmbassy Of Sweden Development CooperationOffice41013051 46512-3051 46928

Dominic PallangyoInvestment ManagerEquity Investment Management Ltd.P.O.Box 8020Dar es Salaam, Tanzania255-51 44451255-51 44440

S. Peter MachundeInvestment/ManagerEquity Investment Management Ltd.P.O. Box 8020Dar es Salaam, Tanzania255-51 44451255-51 44440

Gordon W. BurrExports ManagerFAVCO LimitedP.O. BOX 1910Harare, Zimbabwe306 Hillside Rd., Msasa486854, 486961/2, 486967/8,487133, 487259487134

Felix M. MasanzuDirectorFETA SERVICESP.O.Box CY 2453 CausewayHarare, Zimbabwe173 - 2784

G. M. CharnungwanaChairmanFirst AdiliPeugeot House, Uwt/Upanga Rd.P.O.Box 9271, Dar es Salaam33432, 3674136741, 46740

Nick HazeldenManaging DirectorFlair (Private) LimitedCooksey House No. 2263-4-728653/4, 707169(263-4) 703316

Chrlstel KullayaDeputy DirectorGMBH German Technical Cooperation65, Ali Hassan Mwinyi RoadP.O. Box 1519 Dar es Salaam46667, 26912 ext. 34(255) 514-6454

139

Andrew WilsonHorticoP.0. Box HG 697, HighlandsHarare, ZimbabweTown (14) 703838 Farm (174) 501/2Town (14) 708968 Farm (174) 503

Keith AtkinsonDirectorImani Development (Pvt) Ltd.P.O. Box 4990Harare Zimbabwe728411/796554728412

Laurel H. DrubenInternational Technology Investment, Ltd.P.O Box 30455780-141780-142

Patrick HenfreyThe Africa Project Development FacilityInternational House (6th Fl.)P.O Box 46534217370339121

Dr. Ingrid U. LewisProject AdvisorNEVPA-Netwrork Vegetable Production AfricaP.O. Box 8182Arusha Tanzania

Gives SelbyMarketing DirectorSelby Enterprises96 Central AvenueP.O. Box CY 982, Causeway(263-4) 723223(263-4) 734726 (263) 473-2833

J. A. SmutGeneral ManagerSluis Brothers (E.A) Ltd.P. O. Box 350Arusha, Tanzania057 8613057 8613

Simon CairoExecutive Director Corporate & Institutional BankingStandard Chartered Bank Tanzania LimitedP.O. Box 9011, 1 st Floor, Core CSukari HouseOhio44590(445) 944-4580

A. K. SethGeneral ManagerSunflag (Tanzania) Ltd.P. O. Box 3123Arusha, TanzaniaOff. 057 - 6303/3739057 - 8210

Anup L. ModhaCommercial ManagerSunflag (T) LTD.Industrial AreaP.O. Box 3123Arusha, TanzaniaOff. 057 6303/3739057-8210

Eng. Jacob F. MsakiDirectorTanzania Industrial Studies & ConsultingOrganizationIPS BUILDINGSamora Ave.Dar es Salaam31421-3, 32981-3255-51 46164

140

F.M. KimarioManager- Project Appraisal & InvestigationTanzania Development Finance Co. Ltd.Office: 1DFL BuildingOhio/ Upanga RoadP.O. Box 247846144; 25091/4255 - 51 46145

S.K. MutabuziChairmanTanzania Exporters Association (TANEXA)P.O. Box 1175Dar es Salaam, Tanzania255-051 48948/48949255-051-72784

Geoffrey BurrellCountry DirectorTechnoServeP.O. Box 2117Arusha Tanzania255-57-6718

Diana B. Putman, Ph.D.Deputy Project Development OfficerUnited States Agency for International DevelopmentATC House+255-51-46429/30, 32922, 30937, 3297746431

Robert E. Armstrong, Ph.D.Agriculture/ Resources ManagementUnited States Agency for International DevelopmentI Pascoe AvenueP.O. Box 6988Harare, Zimbabwe728282722418

Alexander ShapleighChief, Private Enterprise DivisionUSAID/ZimbabweP.O. Box 6988Harare, Zimbabwe(263-4) 720630(263-4) 722418

Calisto ChiheraProgram Specialist: Agribusiness And Agricultural DevelopmentUSAID1 Pascoe AvenueP.O. Box 6988Harare, Zimbabwe720630/720739/720757/728282/793351722418

Peter BenedictDirector, ZimbabweUSAIDP.O.BOX 6988(263-4) 720-353(263-4) 722-418

C.P. GoromonziMarketing and Investment ExecutiveVenture Capital Company11th Floor, Fidelity Life Tower, Raleigh St.P.O.Box 3646, Harare, Zimbabwe753364/6/7, 796605/6, 796605/6796641

David A. CookResident RepresentativeWorld BankFINSURE House(263-4) 729611/2/3(263-4) 708659

Luciano BorinPrincipal Industrial EconomistWorld Bank1818 H Street N.WWashington, DC 20433(202) 473-5201(202) 477-0708

Stephen J. BrushettDeputy Resident RepresentativeWorld BankFINSURE House(263-4) 729611/2/3(263-4) 708659

141

Ernest G. MupungaProject DirectorZimbabwe Oil Press Project5 Stemar House132 Harare StreetP.O. Box 1390(263-4) 735051, 735052735052

Joyce NyandoroProject ManagerZimbabwe Manpower Development ProjectAED-Academy for Educational Development31 Rhodesville Avenue, Highlands, Harare,Zimbabwe(263-4) 495289(263-4) 495289,496522

Stanley T. HeriChief ExecutiveZimbabwe Fresh Produce113 Leopold Takawira StreetP.O.Box 1241Harare, Zimbabwe791881750754

Mike HumphreyDeputy Chief ExecutiveZimTradeFourth Floor, Kurima House89 Baker Avenue, PO Box 2738Harare, Zimbabwe(+263 4) 706772, 731020, 732974-7(+263-4) 706930

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Notes

1 Statement of Work: Monitoring and Impact Assessmentof Innovative Approaches to Agricultural Marketing Sys-tems Development.

2 The material in this section applies to all three countriesand will not be repeated again in the individual countrysummaries.

3 There are some NGOs to which individual members ofthe SAEDF board have strong ties (e.g., AfriCare inTanzania). If the local mission agrees, it might be usefulfor AMIS II to work with both the board member and theNGO to develop an economically and environmentallysustainable project for SAEDF consideration as well asfor other USAID support.

4 Conclusions quoted from a draft report prepared for theConsultative Group for Mozambique, International Bankfor Reconstruction and Development meeting, March1995.

5 A British firm Mozambique government venture that isa large producer of cotton, tomato paste, and other spe-cialty products.

6 For example, Entreposto has established considerableacreage to train farmers in cashew grafting and relatedhorticultural improvement techniques.

7 The World Bank and other donors have made fundsavailable via the Bank of Mozambique for commercialbanks to lend to enterprises recommended by IDIL.IDIL, however, has no continuing oversight of the com-pany after it is funded.

8 Background information is updated from a March 1994report from the U.S. embassy in Dar es Salaam.

9 Cargill, for example, has purchased a large up-countrycotton gin, purchasing raw cotton from small farmers(average ownership is 1-2 acres), instructing them as toquality requirements, and paying the farmers more andpaying them more promptly than these had farmers pre-viously received.

10 The case study profiles for each of these entities arepresented in Appendix C.

11 Examples of NGOs with which AFC works are: TheZimbabwe Fund for Education and Production, Self-Help Financing Collective Inc., Heifer International,and Save the Children Foundation.

12 Given that the total exports of the association are$300,000/year, a revolving line of credit of only $50,000would finance all (nonflower) members’ exports for 60days.

SD Technical Papers

Office of Sustainable DevelopmentBureau for Africa

U.S. Agency for International Development

The series includes the following publications:1 / Framework for Selection of Priority Research and Analysis Topics in Private Health Sector Development in Africa*2 / Proceedings of the USAID Natural Resources Management and Environmental Policy Conference: Banjul, The Gambia /

January 18-22, 1994*3 / Agricultural Research in Africa: A Review of USAID Strategies and Experience*4 / Regionalization of Research in West and Central Africa: A Synthesis of Workshop Findings and Recommendations (Banjul,

The Gambia. March 14-16, 1994)*5 / Developments in Potato Research in Central Africa*6 / Maize Research Impact in Africa: The Obscured Revolution / Summary Report*7 / Maize Research Impact in Africa: The Obscured Revolution / Complete Report*8 / Urban Maize Meal Consumption Patterns: Strategies for Improving Food Access for Vulnerable Households in Kenya*9 / Targeting Assistance to the Poor and Food Insecure: A Literature Review10 / An Analysis of USAID Programs to Improve Equity in Malawi and Ghana's Education Systems*11 / Understanding Linkages among Food Availability, Access, Consumption, and Nutrition in Africa: Empirical Findings and

Issues from the Literature*12 / Market-Oriented Strategies Improve Household Access to Food: Experiences from Sub-Saharan Africa13 / Overview of USAID Basic Education Programs in Sub-Saharan Africa II14 / Basic Education in Africa: USAID'sApproach to Sustainable Reform in the 1990s15 / Community-Based Primary Education: Lessons Learned from the Basic Education Expansion Project (BEEP) in Mali16 / Budgetary Impact of Non-Project Assistance in the Education Sector: A Review of Benin, Ghana, Guinea, and Malawi*17 / GIS Technology Transfer: An Ecological Approach—Final Report*18 / Environmental Guidelines for Small-Scale Activities in Africa: Environmentally Sound Design for Planning and

Implementing Humanitarian and Development Activities*19 / Comparative Analysis of Economic Reform and Structural Adjustment Programs in Eastern Africa*20 / Comparative Analysis of Economic Reform and Structural Adjustment Programs in Eastern Africa / Annex*21 / Comparative Transportation Cost in East Africa: Executive Summary*22 / Comparative Transportation Cost in East Africa: Final Report*23 / Comparative Analysis of Structural Adjustment Programs in Southern Africa: With Emphasis on Agriculture and Trade*24 / Endowments in Africa: A Discussion of Issues for Using Alternative Funding Mechanisms to Support Agricultural and

Natural Resources Management Programs*25 / Effects of Market Reform on Access to Food by Low-Income Households: Evidence from Four Countries in Eastern and

Southern Africa*26 / Promoting Farm Investment for Sustainable Intensification of African Agriculture*27 / Improving the Measurement and Analysis of African Agricultural Productivity: Promoting Complementarities Between Micro

and Macro Data*28 / Promoting Food Security in Rwanda Through Sustainable Agricultural Productivity*29 / Methodologies for Estimating Informal Crossborder Trade in Eastern and Southern Africa*30 / A Guide to the Gender Dimension of Environment and Natural Resources Management: Based on Sample

Review of USAID NRM Projects in Africa*31 / A Selected Bibliography on Gender in Environment and Natural Resources: With Emphasis on Africa*32 / Comparative Cost of Production Analysis in East Africa: Implications for Competitiveness and Comparative Advantage*33 / Analysis of Policy Reform and Structural Adjustment Programs in Malawi: With Emphasis on Agriculture and Trade*34 / Structural Adjustment and Agricultural Reform in South Africa*35 / Policy Reforms and Structural Adjustment in Zambia: The Case of Agriculture and Trade*36 / Analysis of Policy Reform and Structural Adjustment Programs in Zimbabwe: With Emphasis on Agriculture and Trade37 / The Control of Dysentery in Africa: Overview, Recommendations, and Checklists38 / Collaborative Programs in Primary Education, Health, and Nutrition: Report on the Proceedings of a Collaborative Meeting,

Washington, D.C., May 7-8, 1996*39 / Trends in Real Food Prices in Six Sub-Saharan African Countries*40 / Cash Crop and Foodgrain Productivity in Senegal: Historical View, New Survey Evidence, and Policy Implications

* Produced and dissemination under contract to USAID/AFR/SD by AMEX International, Inc. For copies or information, contact:Outreach Systems Assistant / AMEX International, Inc. / 1111 19th Street North / Arlington, VA 22209. Phone: 703-235-5276. Fax: 703-235-5064.

U.S. Agency for International DevelopmentBureau for AfricaOffice of Sustainable DevelopmentProductive Sector Growth and Environment DivisionWashington, D.C. 20523-0046