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Land reform and private investment can go hand-in-hand

Jun 16 2019 17:57
Darryn Faulds

The debate around land expropriation without compensation has dramatically cooled off since the middle of last year when the topic was on just about every South African’s lips.

The topic briefly made the headlines again this week with President Cyril Ramaphosa and Deputy President David Mabuza receiving the final report of the Presidential Advisory Panel on Land Reform and Agriculture.

But it’s clear that well into 2019, South Africa has fresh challenges with these most notably being a new national government settling in after the sixth democratic general election and a struggling economy that is in desperate need of a turnaround.

Interestingly, one way to create much-needed jobs in our economy potentially rests with equitable land reform combined with a venture capital investment initiative such as Section 12J.

This is exactly what has transpired with a one-of-its-kind Section 12J project called Mdluli Safari Lodge, situated in the Kruger National Park.

The story with Mdluli Safari Lodge starts in 1960s Apartheid South Africa when the Mdluli Community were forcibly removed from their land inside the borders of the Kruger National Park. The Apartheid government then relocated the Mdluli Community to the west of the Park.

It would only be decades later, after the dawn of democracy in 1994, that the Mdluli Community would undergo a successful land claim process to secure freehold title to the 850 hectares that they were previously removed from. The land today is registered under the Mdluli Community Trust.

Looking to maximise economic opportunities from their land, the Mdluli Community decided to enter a partnership with the private sector via Mdluli Safari Lodge - a 12J-backed hospitality venture that officially opens its doors in October this year.

Mdluli Safari Lodge will feature 50 luxury double air-conditioned én-suite tents, private patios, indoor and outdoor showers as well as an elevated 360-degree viewing deck atop a large rock formation. As a result of working closely with the South African National Parks (SANParks) and the Kruger National Park (KNP) regulations and requirements, other key features include an eco-friendly, sustainable design that has sought to ensure minimum impact on the existing environment.

Opportunities, income

The project is viewed as a good venture for investors and the community, especially as there is a shortage of affordable luxury accommodation options inside the borders of the Park.

The Lodge, which is underwritten, will also be managed by Nkambeni Safari Camp, a division of Tourvest Accommodation and Activities, South Africa’s largest inbound tour operator. The Lodge is expected to create new job opportunities, uplift the community and generate sustainable income for the Mdluli Community.

Tourvest recently announced at the recent African Travel Indaba 2019 in Durban that it’s investing a meaningful amount in the Mdluli Safari Lodge project.

The total investment in the project now stands at R34m, with more opportunities for investors to still enter the project. The realisation of this multi-year project has all been made possible with Section 12J and thanks to the backing of The Grovest Group, which is South Africa’s most-experienced promoter in the 12J space.

Members of the Mdluli Safari Lodge board include Nelly Mdhluli and Buyile Mdluli as non-executive directors as well as experienced corporate veterans Malcolm Segal (non-executive director) and Nick Dennis (non-executive chairman).

In recent comments about the project, the Mdluli Community Chief, Inkhosi MI Mdluli, said he views the project as bringing “stability and social cohesion to the Community” while ensuring that “schools, roads and clinics shall be upgraded, and poverty eradicated through the creation of skills and employment opportunities”.

The economic potential of Section 12J

Woven into South Africa’s Income Tax Act, Section 12J enables investors to provide much-needed capital to Small-to-Medium Enterprises (SMEs) while receiving an immediate tax deduction equal to 100% of the amount they’ve invested.

The end result is that investors in the top tax bracket can see relief of up to 45% on their investments. In turn, their risk capital is also substantially reduced.

On the flip-side, SMEs — which are the engine room for economic growth — receive a better chance at success and, ultimately, becoming large taxpayers in future.

As of February 2019, in excess of R6bn has been ploughed into Section 12J funds in SA, helping countless SMEs get off the ground.

What Mdluli Safari Lodge shows is that the right private investment vehicle coupled with land reform can unlock fresh economic opportunities for the country. The opportunities are particularly abundant in our country’s tourism sector, which has been highlighted as a big area for growth by the likes of the World Bank.

Darryn Faulds is Fund Manager, Mdluli Safari Lodge.

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