SOUTH AFRICA needs land reform. We have to engineer a more equitable distribution of land so that our country’s black majority not only has access to land, but can earn a living from it and make a real contribution to the economy.
South Africa’s land reform programme has seen more than 90% of land reform projects fail completely or turn out not to be viable. Reasons for this include beneficiaries not getting title deeds to properties (and hence being unable to obtain loan finance) and inadequate support once they have acquired the land.
Without ownership or technical and financial help, such beneficiaries are set up for failure.
The Finance and Fiscal Commission indicates in its 2016 report that, despite spending R50 billion on 20 years of state land reform programmes, these have failed to achieve their objectives. An urgent review of the current land reform framework is required.
South Africa can learn from India’s Green Revolution model, which combines technological improvements with state-led initiatives to support farmers.
This model involves government input subsidies, development of new seed varieties, irrigation extension and giving farmers access to credit and markets.
As much as economic transformation and/or inclusive economic participation is needed in South Africa, expropriating agricultural land without compensation will seriously damage agricultural sector sustainability, its commercial viability and national food security, which will only deepen poverty.
Expropriation without compensation erodes property rights. And once this happens, land can no longer serve as collateral.
This places the public and private loans to the agricultural sector – worth roughly R162 billion – under threat, and makes financiers more likely to exit the sector. This will make food production even more expensive. South Africa will need to import food to feed its population, driving up food costs.
Households will feel financial pressures amid rising inflation, job losses, further credit rating downgrades and generally weak consumer confidence.
A policy of expropriation without compensation will discourage investment in farm technology and innovation, which drives agricultural productivity. The sector will regress, productivity will be compromised and further job losses will follow.
South Africa will face international disinvestment and the risk of losing the benefits it currently enjoys from the African Growth and Opportunity Act (Agoa). Agoa gives sub-Saharan nations – including South African farmers – duty-free access to the lucrative US market.
In 2014, South Africa’s agricultural exports to the US were worth R2.9 billion. It is projected that the US market will offer R1.6 billion per year in additional export opportunities from 2014 to 2019.
Agoa is a unilateral pact (renewable at the discretion of the US president) and one of its primary criteria is respect for property rights. The US has shown itself more than willing to revoke eligibility for Agoa.
Furthermore, South Africa’s biggest trading partner is Europe, with agricultural exports totalling around R26.7 billion in 2016. The combined effect of South Africa not being able to export agricultural products to the US and/or Europe would be catastrophic.
Far from fast-tracking land transfer to previously disadvantaged people, land expropriation without compensation would more likely do irreparable, Zimbabwe-style damage to the agricultural sector.
There is, therefore, an urgent need to review and accelerate transformation in the sector on a market mechanism basis.
Following the lacklustre medium-term budget policy statement and the gloomy economic projections unveiled by Finance Minister Malusi Gigaba, the world is watching South Africa.
Fortunately, there are win-win land reform solutions on the table that can hasten meaningful, productive land transfer; empower beneficiaries; preserve property rights; and restore foreign investor confidence.
To reach the National Development Plan (NDP) land reform targets of transferring 20% more agricultural land to black beneficiaries, the Banking Association SA (Basa), together with the Agricultural Business Chamber (Agbiz) created a voluntary, commercial-based financing model in 2015. It includes the upskilling/mentorship of black beneficiaries as well as land transfer.
The model allows farmers to not only own their farms, but also to acquire neighbouring farms, ensuring they are viable economic units.
This model is premised on at least 50% of the cost of such transfers/acquisitions being funded via private sector financiers, thus leveraging scarce state resources.
In addition, the integrated development finance policy framework, approved in 2015 by the department of agriculture, forestry and fisheries, seeks to integrate all “on farm” agricultural finance for subcommercial farmers. This proposed “blended financing” model is supported by both Basa and Agbiz, as it focuses on the mentorship/upskilling of beneficiaries. The model seeks to address enabling issues and specific government policies that limit the flow of financial services to sub-commercial farmers.
Implementation of the two models will result in the “integrated private sector finance model”. This focuses on farm finance, such as: working capital, inputs, crops, livestock, implements, vehicles and infrastructure.
It applies only to subcommercial and commercial farmers, due to the credit mandates and regulatory constraints private sector lenders face. Indigent and subsistence farmers will therefore require financial assistance from the state or development finance institutions.
The South African agricultural sector realises all parties must actively collaborate to address land reform. Regrettably, private sector market-based financing models have yet to be accepted by the state.
There is therefore a need to promote a land engagement imbizo where stakeholders can commit to a path to achieve NDP targets.
Such a comprehensive engagement forum is what our country needs to reconcile all interests and perspectives. However, we believe the integrated private sector finance model offers the land reform solution we all seek: meaningful, productive transfer of land in a developing, economically viable agricultural sector.
* Cas Coovadia is the MD of the BAnking Association of South AFrica (BASA).* SUBSCRIBE FOR FREE UPDATE: Get Fin24's top morning business news and opinions in your inbox.