The country’s agricultural sector continues to be pivotal, with c. 60% of the working population directly or indirectly employed in the sub-sector as per World Bank estimates. Economic performance is largely correlated with developments in the agricultural sector via value chain additions downstream. The past three farming seasons have seen a shift in maize production as area under cultivation grew from 0.87mn hectares to an average of 1.8mn hectares annually. The government has notified of intention to export 40,000 tonnes of maize to East Africa, signaling the resumption of grain exports by the country. For wheat, the country harvested a record 375,000 tonnes in the 2022/23 season and expects to increase production in the current season off increased hectarage (+7.5%). A total of 294mn kg of tobacco was harvested against a target of 275mn kg, representing a positive variance of 45% to the last season. Notably, Zimbabwe exported its first 30 tonnes of industrial hemp in 2022. Growth for Agriculture, Hunting and Fishing and Forestry is expected to grow by a revised 9.7% in 2023, from a 14.1% downturn in 2022.
The local agricultural sector remains a key driver of national GDP. The sector however remains heavily exposed to climatic conditions due to high dependence on rain-fed farming. The World Meteorological Organization has warned of El Nino conditions for the remnant of 2023, which could point to production downside for drought-prone countries in Sub-Saharan Africa like Zimbabwe, impacting yields. Costs of key inputs such as fertilizer have eased significantly in line with global developments but still remain elevated above long-term averages. Whilst funding gaps still remain prevalent in the agricultural sector, the current joint financing model between government and the private sector has overall seen production on an upward trajectory. The government has been steadily upping retention ratios for agricultural exports, increasing viability of operations.
Despite commendable volumes performances in key commodities, we have observed pressure on margins driven by high raw material costs (particularly fertilizer and energy). Unique challenges like long working capital cycles have impacted businesses like SEEDCO and on a P/E of 13.5x and EV/EBITDA of 9.4x, we recommend reducing exposure.