We all want land reform. Let’s make it work!

Meaningful land reform is crucial, not only to allay the farming community’s fears, but to help restore the economy and benefit South Africa’s poor.

We all want land reform. Let’s make it work!
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There is little doubt that land reform is one of the most pressing issues facing South Africa. From the pronouncements of politicians to government policy, to social media commentary, everyone is talking about land.

And with good reason; it has a direct impact on a critical sector of our economy that employs some 850 000 people, contributes about 2,5% to GDP, and ultimately affects food security.

Over and above this, the agribusiness sector, which ensures that primary products reach our shelves and pantries, is a substantive employer and revenue earner for the country. It is estimated that the agricultural sector’s total economic contribution through this multiplier effect is about 28%.

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South Africa remains saddled with massive inequity inherited from centuries of colonialism, which was further exacerbated by the exploitation of the apartheid era.

We cannot continue with a situation in which some 70% of productive farmland 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.

Numerous failed projects

Over the past 23 years, approximately R50 billion has been invested in a variety of land reform programmes.

These include the Settlement Land Acquisition Grant (SLAG), Land Redistribution for AgriculturalDevelopment (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 review of land reform by the Financial and Fiscal Commission confirmed that these initiatives had failed to achieve their objectives. It attributed this to:

  • The state being torn between equity and economic development considerations, resulting in 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-agriculture skilled officials slowing down the process.
  • Leasing farms to beneficiaries, which leaves them without assets to use as collateral for loans that could enable them to develop and run 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.

Effective land reform, and avoiding undue risk

The Banking Association South Africa (BASA) firmly supports the need for more effective land reform and the orderly redistribution of commercial farms to black beneficiaries.

At the same time, we must ensure that it does not worsen the plight of the poor, either as a result of job losses, or more importantly, increased levels of food insecurity due to a collapse in food production. If this were to happen, everyone would suffer, but mostly the poor, who are supposed to benefit from land reform.

Importantly, such a policy should not place the country’s financial system at risk. With this in mind, the policy of ‘expropriation without compensation’ mooted in some quarters is worth unpacking.

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

This credit is provided primarily by commercial banks, which in turn derive funds from deposits made by the public in the form of salaries and savings, among others.

Commercial banks, therefore, have a fiduciary responsibility to ensure that when they grant loans from these deposits they do so without placing depositors at undue risk. This requires that borrowers repay loans.

The problem arises when property no longer serves as attractive collateral, because lenders are unable to recover debt by using it. This would result in lenders suffering losses, which, if severe enough, could result in these financial institutions collapsing.

The commercial agricultural sector has capital assets (land and fixed improvements) valued at about R208 billion, machinery and vehicles/implements worth about R61 billion, and livestock or produce worth about R124 billion.

Against these assets, the R166 billion that the primary agricultural sector secures in loans is broken down as follows: about R112 billion from commercial banks; some R38 billion from the Land Bank; about R10 billion from agricultural cooperatives; and approximately R6 billion from other lenders and investors.

Catastrophic impact on the economy

Should agricultural property be expropriated without compensation, both private sector financiers and 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 debt as possible.

In addition, lenders might no longer provide further loans to the agricultural sector, which would have dire consequences for employment, the economy and food security.

While commercial banks would be able to absorb the initial losses suffered due to expropriation without compensation, it would result in secondary shocks to the economy.

These would take the form of investor flight (both international and local), and the further downgrading of the country’s sovereign credit rating and commercial banks’ international credit ratings. There would also be a severe negative impact on listed agriculture-related businesses and on pension funds.

All in all, this would be catastrophic for South Africa, especially with regard to employment and the concomitant adverse impact on the poor.

In addition, while it may be argued that expropriation without compensation would affect only a minority of commercial farms, many in the value chain would ask: “Who is next?” Investors would be concerned that expropriation without compensation would migrate to other asset classes such as residential or commercial property.

The way forward

We all have to acknowledge that we are in this together. The fortunes of business, labour, civil society and government are intertwined.

Key private sector stakeholders, including financiers, recognise the important role and responsibility they play in helping 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 Agri SA, has developed financing models premised on a partnership with government.

These aim at transferring an additional 20% of commercial agriculture properties to black beneficiaries by 2030, as set out in the National Development Plan. They are underpinned by developmental support, including mentoring and upskilling of the new farmers.

These models would represent meaningful land reform, with beneficiaries receiving title deeds to their land, enabling them to borrow funds for improvements or production purposes.

Our hope is that policymakers will make decisions in a responsible and informed manner that will reverse the current economic and social plight borne by our citizens, particularly the poor.

The views expressed in our weekly opinion piece do not necessarily reflect those of Farmer’s Weekly.

Cas Coovadia is the managing director of the Banking Association South Africa, and currently serves as the chairperson of the International Banking Federation (IBFed). He is also treasurer of the African Union for Housing Finance.

For more information, phone 011 645 6700, or email [email protected].