Data provided by iNet BFA
Loading...
See More

Stark reality

Oct 28 2010 00:00 Troye Lund
The plan before Cabinet is simple: limit property rights and control land prices so that land sales increase dramatically – by 300% – to accelerate Government’s land acquisition and redistribution drive. However, the consequences of that are grim. At best, if adopted and implemented, the Green Paper on rural development and land reform stands to perpetuate the spectacular pattern of failure that defines Government’s land reform programme. At worst, its proposals have the potential to scare investors and commercial farmers off completely, which would wipe out agricultural production as well as any hope of food security, let alone rural development and job creation.

ANC politicians and white, commercial farmers agree land reform is essential to South Africa’s long-term social stability. But it’s a sensitive subject. The long-awaited Green Paper – which has been billed as a document that will set a new tone and sustainable direction to land reform – can’t be faulted for is objectives. It also has to be commended for making the critical shift that extends land reform beyond agricultural production so its overarching priority is rural development and job creation.

Regardless of the new emphasis, if agricultural production is destroyed so are any prospects of developing rural areas. It’s exactly this – agricultural production – that’s threatened by the Green Paper’s focus: an aggressive drive to speed up State land acquisition and redistribution using a completely overhauled system of land tenure, which limits private property rights and punishes those who hold what’s considered too much land or who are “absentee landlords”.

Ironically, the Green Paper’s proposals seek to perpetuate the very system of proactive land acquisition that’s failed Government on all counts: political, agricultural production, land reform, rural development and job creation.

Government has made a politically symbolic promise to redistribute 30% of all white-owned agricultural land by 2014. While only 7m hectares – of the 24m ha – have been redistributed since 1994, the Green Paper offers a deceptively easy win. It boldly declares: “The new land tenure system would in effect increase volumes of transactions by at least 300% (more than 6m ha to around 20m ha).”

However, the stark reality is that, according to Government’s own figures, 90% of the farms that have been redistributed to date are no longer productive. It’s unclear how many job losses that translates to or how much rural instability it causes.

But what’s beyond belief is how, in its justification of that failure, the Department of Rural Development & Land Reform’s (DRDLR) Green Paper doesn’t explore Government’s inadequate budgets, maladministration, corruption or its lacking institutional capacity to implement existing policy. Instead, it puts the blame squarely on the price of land and the “so-called free market”.

The document states: “The success of agrarian reform hinges on the ability of the State to acquire land for the farmers to whom it intends to offer agricultural land. Land prices, whether pegged around so-called market rates (so-called because of the existence of distortions in land price determination), or at prices set by compulsory acquisition, are already prohibitive enough, making it difficult for Government to raise the needed money to acquire land. If the objective of Government includes the protection and preservation of agricultural land, regulation targeting exemption prices for agricultural land may be a possibility in stemming this tide.”

The Green Paper backs up its case by referring to Treasury figures that show how over the current medium term expenditure framework (MTEF) an additional 2,2m ha will be acquired for redistribution at a total cost of around R12,3bn. “While no comparable figures are provided for restitution in terms of hectares, assuming similar land costs, then the MTEF allocation would allow for the restoration of less than 1m ha, making a total of around 3m ha. Given that approximately 7m ha have been transferred to date, this means that over 14m ha would need to be delivered over the three years remaining between the end of this MTEF period and 2014. In other words, delivery would need to leap from 1m ha per year to over 4,6m ha,” states the document.

It goes on to ask why the 30% target will be so difficult to achieve. “One reason is definitely land prices. They started rising significantly from around 2001 and from 2006 through 2008 rose dramatically. While the redistribution budget has risen quite significantly, it has not been able to keep pace, especially in the last few years. The willing seller/willing buyer approach was specifically framed to facilitate land reform in situations where land reform is carried out within a rule-of-law environment and where it is considered important to protect property values generally,” the Green Paper reads.

It then fingers land owners for holding up transformation by asking exorbitant prices for their farms. That argument isn’t watertight. Research conducted by the Institute for Poverty, Land and Agrarian Studies (Plaas), shows landowners do indeed have some power to determine price. But they aren’t able to make up any price they want to. Forces of demand and supply keep them in check.

AgriSA has also argued the main problem is bureaucracy and institutional capacity to spend budgets and to value land correctly. For example, the DRDLR is investigating a case where officials are said to have pocketed the difference between what the farmer was paid and the inflated price the farm was sold to Government for.

Nevertheless, Plaas researcher Stephen Greenberg’s report argues that: “Under the willing buyer/willing seller model, prices may be inflated artificially where the seller doesn’t really want to sell.”

While white commercial farmers are going to have to come to the land reform party, the State doesn’t have to buy specific land for redistribution. It shouldn’t be forced to buy farms their owners don’t want to sell. AgriSA says that at any given time there are enough farms on the market for Government to acquire land without messing with property rights.

Scrapping the willing buyer/willing seller principle raises two key questions: what about the Constitution’s absolute property right and who will decide what the land value is? How will that be calculated?

Professor Dirk Kotze of Unisa says property rights can’t be done away with. But they can be qualified. However, when it comes to price the Constitution doesn’t mention anything about a willing buyer/willing seller or market-related prices: it just requires compensation for land to be “just and equitable, reflecting an equitable balance between the public interest and the interests of those affected…”

The Green Paper proposes a “Valuer General” (VG) who will calculate and co-ordinate land value. The VG will be aligned to and will work with the Land Management Commission (LMC), which will, it’s proposed, have powers to subpoena, prosecute and confiscate land owned in contravention of the new land tenure system.

The Green Paper explains: “The new valuation regime can be created within the LMC. Within this system the State may also impose other measures, such as a progressive land tax and a further discount in terms of transactions undertaken for social and economic reform purposes, such as for human settlement and land reform.”

Those plans raise the obvious questions about how independent of political influence/personal agenda the VG and LMC are likely to remain, especially given the current institutional weaknesses.

The LMC will also oversee the implementation of other instruments aimed at preventing farmers from holding large tracts of unused land. These include land ceilings (unspecified) as well as land tax on tracts that aren’t used. But it’s those proposals that show the document up to be big on politics and low on pragmatism.

Stellenbosch University agricultural economics Professor Nick Vink says implementing land ceilings is going to be complicated, open to manipulation, bad for farming and, ultimately, something that will make it difficult for farmers – black and white – to expand.

For example, how are land ceilings going to be calculated and how is the already inadequate bureaucracy going to monitor what’s likely to be a huge administrative task? You can’t impose the same ceiling on a sheep farm in the Karoo as you would on a sheep farm in Mpumalanga. Apart from differences in regions, farms within regions differ from one another. And what if a sheep farmer decides to change over to cattle? To keep tabs on those questions is going to require an annual audit.

But Vink says the overall effect of the proposals underscores a general political tendency to make increasingly dramatic statements in the face of failure and an inability to tackle the real issues. These aren’t proposals that emulate best practice in land reform, where shared equity arrangements give established farmers an incentive to stay involved in solid broad-based empowerment.

“It’s a case of the State intervening until the market doesn’t work and then – when it doesn’t work – you (the State) intervene some more,” says Vink, who questions why Government treats black farmers differently. They also need land markets to work if they’re going to succeed and expand. “Land reform isn’t rocket science,” he adds.

Indeed. But it has delicious political potential for anyone wanting to be credited with finally ending apartheid’s land tenure system, within symbolic redistribution deadlines.

Government is playing it cool and, when asked, is playing the contents and status of the DRDLR’s proposals down. Minister in charge of land reform Gugile Nkwinti wasn’t available to comment.

However, his Cabinet counterpart in charge of agriculture – Tina Joemat-Pettersson – told Finweek there was no need for “pandemonium” with regard to the contents of the DRDLR document. “It’s still very raw. It has a long way to go. We’re working together in the cluster (Cabinet) to enrich this document. We’re cognisant of the fact that if we don’t have a solid land reform process we could jeopardise progressive transformation as well as the agricultural sector. We shouldn’t be malicious in our comment (of the document) now.”

But Joemat-Pettersson is equally adamant about empowering black farmers and remains committed to meeting Government’s deadline of transferring 30% (24m ha) of white-owned farmland to blacks by the 2014 deadline.

And that’s exactly where Nkwinti’s dilemma begins: the need to achieve, without much money, politically satisfying percentages of post-apartheid land redistribution versus the need to work within the bounds of budget and constitutional constraints.

In turn, Joemat-Pettersson must ensure redistributed farms remain productive. However, she only has 1,6% of the national Budget. But Plaas’s research shows the primary constraint in State support to small-scale farmers isn’t so much the level of the Budget but the misallocation of funds. For example, the Department of Agriculture’s Comprehensive Agricultural Support Programme (CASP) Budget has grown substantially but isn’t translating into more people getting better benefits. Quite the opposite.

Plaas researcher Ruth Hall’s studies confirm the overall “footprint” of CASP has shrunk in proportion to Budget increases. Even in nominal terms, fewer people are currently benefiting than when CASP started. That means instead of 2,7m “average black farming households” receiving R2 200 worth of annual CASP benefits/support, anywhere between 50 and 200 households are receiving more than R500 000 each. According to Plaas’s data, around 350 000 are receiving R17 000 (in the form of extension advice and other services), while 2,3m households are receiving “close to nothing”.

CASP also places no restriction or cap on the maximum amount of public support a person or project can receive, which is why an official in the Eastern Cape told Plaas how individuals can receive anything between “R20 000 and R9m – there are no guidelines”.

Hall has dubbed it a case of handing out “political Smarties”. She writes: “The reason has to do with political pressure to produce commercial success stories in land reform, combined with the bureaucratic impetus to spend ever-larger doses of CASP support on ever-smaller numbers of farmers. This process exactly mirrors the trends in respect of land redistribution, to which CASP is closely related. While it might appear perverse, the pattern is also understandable: subjected to harsh criticism for under-expenditure, implementers have found the path of least resistance.”

The primary reason for failure in the State’s land reform programme has been a lack of support for small-scale farmers. If agricultural production is going to be maintained – and if rural development is going to flourish if and when Government starts acquiring land at a significantly faster rate – this support is going to have to multiply dramatically.

What this all means is unless unprecedented change is made at bureaucratic and Budget level, the DRDLR’s Green Paper will not only achieve the opposite of what its noble objective is, it will also wreak economic havoc – the same havoc that’s been so prevalent in countries north of South Africa’s borders. There’s no other way of looking at it.

The most successful land reform projects to date have been those that have involved shared equity arrangements that give established farmers an incentive to stay involved and enable genuine, broad-based empowerment to happen over time. Yet that model has been effectively blocked by the State, which seems reluctant to allow workers to pool restitution payments for that purpose.

FOREIGN LAND OWNERSHIP

‘Foreigners’ beware

A PROPOSED BAN on foreigners owning productive land in South Africa is reported to be gaining support in Cabinet, especially because many other developed and developing countries have similar regulations. Officials involved in drafting the Green Paper on rural development and land reform say the proposal was initially received with caution. However, following an intensive inquiry into the matter – complemented by a round of public hearings – the proposal is expected to have a good chance of becoming policy and law.

The 129-page final draft of the Green Paper states: “The problem with foreign land ownership is not the sale or purchase of land by non-citizens per se but the use of the land.”

The use of land is key to this debate, which is now firmly focused on the “effectiveness of measures designed to assuage the ill-effects of foreign land ownership”. Those ill-effects, says the Green Paper, include rising land values, distortion of the land market and perpetuation of segregation, plus the legacy of fragmentation initially created by apartheid land planning.

The document goes a step further and proposes the moratorium on foreigners buying productive land in some instances be extended to “South Africans who do not qualify (whites) for redress under the national land reform policies”. While that’s unlikely to pass constitutional scrutiny, the Green Paper argues for additional land taxes to be slapped on citizens who are “absentee landlords”.

Nevertheless, the document is at pains to stress SA is among the minority of states who don’t have some form of limitation on foreign ownership. For example, in Zambia, Malawi, Ethiopia and Nigeria the state president, on behalf of the people, owns the land and may extend leasehold rights, evidenced by a certificate of occupancy. In Israel, private land ownership is available for around 7% of the country’s land and the remaining 93% is owned by the state, by virtue of basic law. In Fiji, 90% of its land is held in trust for native Fijians. Only the lease of land is possible for non-Fijians. In Australia, its government has the power to screen foreign buying of business and property.

However, the first problem for SA’s Government is going to be setting up a policy and administrative system that determines who “foreigners” are. That’s particularly true when it comes to corporate entities that often have ever-changing shareholdings. Take Absa: now that it’s been bought by a foreign concern, would it be deemed to be foreign or not? 
NEXT ON FIN24X

Under pressure

2011-08-04 00:00

 
 
 
 

Company Snapshot

We're talking about:

Money Clinic

Money Clinic
Do you have a question about your finances? We'll get an expert opinion.
Click here...
Loading...