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Cas Coovadia: We all want land reform. Let’s make it work

Oct 27 2017 07:46
Cas Coovadia

Cape Town - There is little doubt that land reform is one the most pressing issues facing our country. From the pronouncements of politicians to government policy to social media commentary, everyone is talking about land. And with good reason.

It impacts directly on a critical sector of our economy which employs some 850 000, contributes about 2.5% to the country’s GDP as well as towards food security. Over and above this, the agri-business sector which ensures primary products reach our shelves and pantries is a substantive employer and country revenue earner. Estimates are that the agriculture sector’s total economic contribution through the multiplier effect at about 28%.

South Africa remains saddled with massive inequity inherited from centuries of colonialism and apartheid exploitation. We cannot continue with a situation where some 70% of productive farmland in the country is owned by the minority white population. The frustration and anger of the landless is clear, not to mention the poverty, unemployment and hopelessness of the rural dispossessed. A workable land reform solution must be found.

Various land reform programmes have been implemented over the past 23 years, with some R50bn invested into a number of programmes, such as the Settlement/Land Acquisition Grant (SLAG), Land Redistribution for Agricultural Development (LRAD), the Proactive Land Acquisition Strategy (PLAS), Land Acquisition for Sustainable Development (LASD), the Recapitalisation and Development Grant (RDG), and the Comprehensive Agriculture Support Programme (CASP).

A 2016 report by the Financial and Fiscal Commission reviewing land reform confirms that land reform initiatives have failed to achieve their objectives. It attributed this to:

• The state being torn between equity and economic development considerations, resulting in a tension between promoting pro-poor land reform and encouraging larger scale commercial agriculture.
• State subsidies to alleviate farming risk discouraging beneficiaries from investing and learning the skills needed to farm successfully.
• Remote decision-making on support programmes by non-agricultural skilled officials slowing down the process.
• Leasing farms to beneficiaries, leaving them without assets to borrow against so that they can develop and work their farms.
•  A lack of support and upskilling to ensure that beneficiaries can effectively translate their presence on the land into operational and developmental success.  

The Banking Association South Africa firmly supports the need for more effective land reform and the orderly re-distribution of commercial farms to Black beneficiaries. At the same time we must ensure that it does not increase the plight of the poor either as a result of job losses or more importantly increased levels of food insecurity, caused by the collapse of food production. If this were to happen, we would all suffer, and mostly the poor, whom we are hoping will benefit from land reform.

Also, such policy should not place the country’s financial system at risk. Hence the policy mooted by some quarters of "expropriation without compensation", is worth unpacking.

For most individuals, property (either a home or a farm) is the biggest investment they will ever make in their lives. In turn it is also an attractive asset class against which they are able to raise credit, which can then be used for further investment into their lives or businesses. For better or worse, credit drives much of the South African economy.

This credit is primarily provided by the country’s commercial banks, which in turn is money sourced from deposits which the public place with commercial banks e.g. in the form of their salaries, saving and so forth.

Commercial banks therefore have a fiduciary responsibility to ensure that when they make loans from these deposits they do so without placing depositors like you and me at undue risk. This requires loans to be paid back by borrowers.  The problem arises when property no longer serve as an attractive collateral as lenders will not be able to recover the debt from the collateral provided, which would result in losses being experienced by lenders. If this is exacerbated by severe enough it could even cause the collapse of the lender.

The commercial agriculture sector has capital assets, that is land and fixed improvements, valued at about R208bn, about R61bn worth of machinery and vehicles/implements, and about R124bin worth of livestock/produce. Against these assets, the R166 billion the primary agriculture sector gets in loans is broken down as follow: from commercial banks about R112bn, the Land Bank approximately R38bn, agricultural co-operatives approximately R10bn and other lenders/investors approximately R6bn.

Should agricultural property be "expropriated without compensation" both private sector financiers and the state owned enterprise (that is the Land Bank) would be adversely affected as these loans would not have the necessary collateral to support them. This would in turn force lenders to review their loan portfolios and resort to the courts to recover as much of their debt as is possible. Also, lenders may seek to withdraw from providing any further loans to the agricultural sector with dire consequences for employment, the economy and food security - already 25% of our population are food insecure, with 5% of our poor experiencing hunger).

Whilst commercial banks would be able to absorb the initial losses due to "expropriation without compensation", the resultant secondary shocks to the South African economy in the forms of investor flight (both international and local), the further down grade of South Africa and commercial bank international credit ratings, the plight of companies registered on the stock exchange and whose business models are agriculture related, and the negative impact on pension funds would be catastrophic for South Africa, not to forget the impact this will have on both employment and the poor.

While it may be argued that “expropriation without compensation” would impact only a minority of commercial farms, many in the value chain will ask: “who is next?’. Also investors would be concerned that “expropriation without compensation” would migrate into other asset classes such as residential or commercial property.

What is the way forward? We all have to acknowledge that we are in this together. The fortunes of business, labour, civil society and government are all intertwined. Key private sector stakeholders, including financiers, recognise the important role and responsibility they play in helping to shape a just and equitable society and the future of our country.

BASA in collaboration with the Agricultural Business Chamber, as well as other stakeholders such as AgriSA, have developed financing models premised on a partnership basis with government which will realise the transformational target within the National Development Plan of transferring an additional 20% of commercial agriculture properties to Black beneficiaries by 2030.

These models are underpinned by developmental support, including the mentoring and upskilling to the new farmers – there is no debating the principle that unproductive land is of no value to beneficiaries nor for food security.

This represents meaningful land reform, where such Black beneficiaries receive title to their land, failing which they would not be able to use their newly acquired asset to borrow money from financiers for improvement or for production purposes.     

South Africa stands at a cross road in a number of areas, including meaningful land reform. Our hope is that the heavy burden that rests on the shoulders of policy makers is made in a responsible and informed manner, and which will reverse the current economic and social plight borne by our citizens and in particular our poor.

•Cas Coovadia is the MD of the Banking Association South Africa and currently serves as the chair of the International Banking Federation (IBFed). He is also Treasurer of the African Union for Housing Finance.

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