Magwa Tea Estate in the Eastern Cape has long been regarded a political white elephant, mired in corruption and kept afloat by state subsidies. With an expected record yield and its land claim finally settled, Magwa now looks set to turn a corner and could become the springboard for expanded agricultural investment in the region. Stephan Hofstätter reports.
Magwa tea estate near Lusikisiki, Eastern Cape is no stranger to controversy. When it was established in the 1960s and 1970s by the former Transkei government the Lambasi, Mandebeleni and Ntlavukazi clans living there were forcibly removed with army backing and relocated to seven nearby villages. The move would come to haunt the estate in the form of a land claim lodged in 1998.
In November, after years of uncertainty that discouraged investment and created insecurity for workers, and mounting frustrations among the claimants, the claim was settled at a gala event officiated by land and agriculture minister Lulama Xingwana, Pondo king Mpondombini Sigcau and Eastern Cape agriculture minister Gugile Nkwinti. Now, after years of being a sinkhole for public funds, the estate hopes to start a new chapter as an investment catalyst for this wretchedly poor region.
Like most tea plantations in SA, Magwa was originally conceived of as a job creation scheme, employing thousands of workers, each with an average of six dependants. When the ANC government took over in 1994, it intended to turn the estate into a showpiece workers’ project, demonstrating that employees could own and run a profitable enterprise. It proved an expensive experiment.
Within four years the estate had been run into the ground, with managers arrested for corruption, workers’ salaries unpaid for over a year, and creditors baying for blood. When the Eastern Cape Development Corporation (ECDC) – a parastatal – was appointed by government to liquidate the estate and come up with a comprehensive bailout plan the same year, it took over R34 million in debt. Taxpayers footed much of the bill.
Repeated efforts to revive the estate came to nothing until 2004, when the ECDC brokered a deal with German submarine makers MAN Ferrostaal and Indian tea giant Gokal. As part of SA’s arms deal offset programme, MAN Ferrostaal provided the estate with a R23-million grant, disbursed through the ECDC in annual R3,5-million tranches, R7 million of which remains due. Gokal was contracted to rehabilitate the estate.
The results so far are impressive, despite unfavourable market conditions for tea in SA. The estate’s two tea processing plants were refurbished, schools were upgraded, plantations were revived and new heavy machinery invested in. The 2005/06 harvest from 1 800ha, the first in three years, was 2,1 million kilograms of black tea – a respectable comeback in under two years, considering peak production last reached in 1988 was 2,5 million kilograms. The bulk – 58% – is sold to SA packers Unilever and National Brands, and the rest is exported to Europe and Asia.
Nevertheless, this represents revenue of only R32 million, against production costs of R42 million. The shortfall will be covered by grants for another three years, after which the estate must fend for itself.
Labour accounts for over 60% of costs, with the estate employing 3 200 workers during peak season, 1 200 of whom are permanent. “In Malawi labour costs R5,40 a day, compared with R4,54 an hour in SA, increasing 10% a year,” says Magwa’s general manager Ian Crawford, who has run estates in Zimbabwe and Malawi.
He expected to break even this year with a record harvest due to good rains and improved production techniques, and an increase in primary grades from 79% to 87%. Total output was expected to be 3,5 million kilograms of black tea. “But we based projections on a rand/dollar rate of R7,60,” he says. “The rand’s strength in the last four weeks has hit us hard.”
Nevertheless, Crawford foresees a very positive future for the estate. “The rain and soil conditions are good. With the same plantings and improved production management it’s possible to get 4,5 million kilograms,” he says.
Crawford regards the land claim settlement in a positive light. “At least we know who owns the estate now. With the right frame of mind and good management, we can only prosper.”
Ownership of the estate’s two title deeds, totalling over 5 000ha, has now been transferred from the state to the claimants. The new company established after the ECDC bailout, Magwa Enterprise Tea, would still be part-owned by a workers’ trust, with a stake going to the land claimants and a new investor that is still to be found since Gokal pulled out in July.
Crawford says Gokal’s departure has not affected production. The final shareholder structure would only be worked out once new partners were on board, in negotiation with the claimants as landowners.
New investors would probably use the remainder of the estate’s land for biofuel production to supply Magwa’s considerable energy needs, and planting more viable export crops. Crawford says essential oil production is being considered, and more tea plantings would only be an option with government incentives, such as tax rebates, import tariffs and subsidies.
Limpopo-based company SA Farm Management accompanied the top-level delegation for the land handover ceremony, and could become a principal investor (see sidebar). Chief land claims commissioner Tozi Gwanya says it’s too early to provide details about investors, agricultural products and shareholding structures. But he wants the claimants to have a minimum stake of 55%.
He says a feasibility study is being conducted for the estate, and another 6 000ha will be handed to the claimants. “We want this to be a big-time job creator and investment drive in the region,” says Gwanya.
His vision, if enacted, would exceed the expectations of the claimants. When Farmer’s Weekly visited the district earlier this year locals were seething with resentment at government’s failure to resolve the claim. Claimants Mthuthuzeli Mkwedini and Khafula Mdaniswa said they’d expected the 1 651 families forcibly removed from Magwa – about a quarter of whom work on the estate – to have a 40% stake in any joint venture formed, but believed they were sidelined by the ECDC. “When we scheduled meetings, the ECDC representatives didn’t come,” says Mkwedini. “We expected to be part of the development and management decisions. Instead we felt left out in the cold.”
“They government and ECDC officials] never use our views,” confirmed Mdaniswa. “We are just told about the favour the minister will be asked to do on our behalf.”
The right of forced removal victims to lodge claims on ancestral land is enshrined in the constitution, and restitution law stipulates claimants must be consulted when land-use options are decided on. When asked by Farmer’s Weekly why the claimants were sidelined in the estate’s recovery plan, the ECDC declined to comment.
The total settlement of R62 million includes a R30 000-payout per family as compensation for homes destroyed and grants to invest in the estate and surrounding land.
For tractor driver Sihlobo Nceleni, the fact that the estate is up and running again is all that’s important. He started working on the estate in the early 1990s after being retrenched as a mine supervisor in Boksburg, Gauteng.
Once the estate was revived, workers only received three months’ pay back. “I worked for nothing for a year,” says Sihlobo. “But now we are back to full production. That is all that matters.” |fw