Admarc is racing against time to finalise negotiations for a credit facility for K89 billion from the Export Development Fund (EDF) meant to procure maize from farmers, Weekend Nation has learnt.
Further, the State-run grain trader is also facing resistance from Parliament regarding its capacity to effectively manage the huge sum of finances as well as storage of the anticipated maize to be procured.
Admarc (Agricultural Development and Marketing Corporation) intends to use the K89 billion from EDF—a private limited financing institution fully owned by the Reserve Bank of Malawi (RBM)—to supplement the K7 billion it got from Treasury last year to buy about 400 000 metric tonnes (MT) of maize, the country’s staple crop.
RBM spokesperson Mbane Ngwira confirmed on Tuesday that Admarc and EDF are in talks over the loan, but that as it stands now, the ball is in Admarc’s court to finalise its part of the deal.
“The discussions are in a negotiation phase and there is nothing concrete at the moment. This is the phase where the borrower is given the conditions precedent to satisfy before proceeding with the transaction,” explained Ngwira.
According to Ngwira, EDF gave Admarc a term sheet with all conditions precedent to negotiate or accept, but the produce marketer has not yet responded.
The Parliamentary Committee on Agriculture and Irrigation also summoned Admarc in May to explain the rationale for borrowing the K89 billion without its knowledge as it is not convinced Admarc has capacity to handle the huge amount of money, according to the committee’s deputy chairperson Ulemu Chilapondwa.
He said: “As a committee, we are not satisfied with how Admarc will handle such huge funds. Again storing 400 000 MT of maize in warehouses is very risky as it will be prone to discolouring or rotting as was the case last year when almost 7 000 MT of maize was damaged.”
University of Malawi (Unima) professor of economics Ben Kaluwa in an interview on Thursday wondered why government was backing Admarc to borrow such money when it always struggles to pay back it loans.
Kaluwa agreed with the Parliamentary committee that Admarc has no capacity to handle huge amounts of money.
On his part, Budget and Finance Committee of Parliament chairperson Sosten Gwengwe observed that while government has guaranteed the loan, it was still important for Parliament to be consulted on the same because losers will be the taxpayers if Admarc fails to repay.
“It’s worrisome that Admarc wants to obtain such huge loans when it’s still operating under a commercially-risky environment. Such huge loans will haunt taxpayers later, unless Admarc demonstrates it is able to commercially stand on its own,” he said.
But Admarc’s chief executive officer Felix Jumbe justified the intention to buy such a huge amount of maize, saying it requires over 240 000 MT every year during the six-month lean period to manage food security in the country.
Jumbe, who was hopeful that Admarc would finalise the EDF deal in time to buy the maize, also parried observations that Admarc does not have capacity to handle the huge amount of money it wants to get from EDF.
Said Jumbe: “The process of getting the money is complex … But we are very positive of getting it. At the moment, we are using the K7 billion we got from government and so far, we have used almost 50 percent of it but by the time we finish that, the other facility would have come,” he said.
According to Jumbe, Admarc has bought about 21 000 MT of maize valued at about K4 billion since it started buying farm produce in April, about 1 300 MT of cotton and around 4 000 MT soya, among other crops, from its 403 markets across the country.
Jumbe dismissed fears that the money might come after the buying and selling season has ended, arguing that June and July are the peak months for buying the commodity.
During the 2018/2019 financial year, government gave Admarc about K53 billion as a bail out to offset bank loans it failed to service for three years after allegedly mismanaging grain trading.
Admarc has also not repaid about K2.9 billion which it got from the Malawi Energy Regulatory Authority (Mera) in February 2016 to buy 10 000 MT of maize from the Auction Holdings Commodity Exchange. The Mera board which approved the release of the money did so without the approval or knowledge of the Minister of Finance.
During the 2018/2019 farming season, maize production was 3.3 million MT but this year, according to the first-round agricultural production survey, production was estimated to have increased to 3.6 million MT, translating to a jump of 8.8 percent. The annual national maize requirement is 3 million MT.