A land reform model that everyone can get behind

Publication Date:
01/17/2018 06:24:49
south african land reform policy

Opinion Editorial By Cas Coovadia

South Africa urgently needs to review its land reform policy framework in order to create a workable model. Not only does this framework need to engineer a more equitable distribution of land  so that our country’s black majority not only gets access to agricultural land, so they can earn a living from it and make a real contribution to the economy, but it also needs to undo skewed ownership patterns and redress apartheid wrongs.

South Africa’s land-reform programmes introduced post 1994, have seen more than 90% of land reform projects fail or remain unviable. Reasons for this include, amongst others, beneficiaries not gaining title deeds to properties (and hence unable to obtain loan finance) and inadequate post-land support.

Without ownership, technical and financial support, such beneficiaries are set up for failure. The Finance and Fiscal Commission’s 2016 Report indicates that despite the state having spent some R50 billion over the past 20 years on the various land-reform programmes, these programmes have failed to achieve their objectives. An urgent review of the current land reform framework is therefore required.

South Africa can learn from India’s Green Revolution model, which combines technology improvements with state-led initiatives to support farmers. The model includes government input subsidies, the development of new seed varieties, irrigation schemes, energy extension and farmer access to both finance and produce off take 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 deepen poverty and plunge the country into an economic crisis.   

Expropriation without compensation erodes property rights. Once this happens, land can no longer serve as collateral in support of loans afforded to farmers and agro-processors. This would also place the roughly R162 billion of public and private sector loans to the agricultural sector under threat, which will in all probability force financiers to exit the sector. The resultant decline in food production would not only make food more expensive, but South Africa would need to import food to feed its population, thus driving up food costs even further. Moreover, households would encounter additional financial pressures amid rising inflation, job losses, further credit rating downgrades and generally weak consumer confidence.

Moreover, a policy of “expropriation without compensation” would discourage investment in farm technology and innovation, which drives agricultural productivity. The sector would regress, productivity will be compromised and further job losses will follow.

South Africa will also face international disinvestment and the risk of losing the economic trade benefits it currently enjoys from initiatives such as the African Growth and Opportunity Act (AGOA). AGOA gives Sub-Saharan nations – and South African farmers - duty-free access to the lucrative United States market. 

In 2014, South Africa’s agricultural exports to the USA alone were worth R2.9 billion, with subsequent year exports expected to increase to approximately R4.5 billion. 

Agoa is a unilateral pact, renewable at the discretion of the US president, but one of its primary criteria is the respect for property rights. An erosion of property rights due to ‘expropriation without compensation’ could therefore result in Agoa being revoked.  Further, South Africa’s biggest trading partner is Europe, with agricultural exports alone totalling some R26.7 billion in 2016. The combined effect of South Africa not being able to export agricultural products to the USA and/or Europe would therefore be catastrophic.

Far from fast-tracking land transfer to previously disadvantaged people, ‘land expropriation without compensation’ will more likely do irreparable, Zimbabwe-style damage to the agricultural sector. Land for the sake of land without such land being productive is futile. There is therefore an urgent need to review and accelerate transformation in the sector on a market mechanism basis, as following on from the lacklustre mid-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, BASA, together with Agbiz (The Agricultural Business Chamber) created a voluntary, commercial-based land reform financing model in 2015, which included the upskilling/mentorship of black beneficiaries as well as land transfer. The model also allows farmers to not only own their farms, but to also acquire neighbouring farms, thus ensuring the farms are viable economic units. Further, this model is premised on at least 50% of the cost of such transfers/acquisitions being funded via private sector financiers, thus leveraging scare State resources.

In addition, the Integrated Development Finance Policy Framework, approved in 2015 by the Department of Agriculture, Forestry and Fisheries (DAFF), and ratified at Operation Pkakisa seek to integrate all “on farm” agricultural finance for sub-commercial farmers. The policy framework seeks to address enabling issues and specific government policies that limit the flow of financial services to sub-commercial farmers.This proposed “Blended Financing” model which seeks to establish a partnership between DAFF and private sector financiers is supported by both BASA and AgBiz, as not only is it premised on sound business principles, but it also focuses on the mentorship/upskilling of beneficiaries. 

Implementation of the Basa/AgBiz land reform financing model, together with the blended finance model will result in an “Integrated Private Sector Finance Model”. Collectively these models will not only progress land reform but it will also focus on on-farm finance - working capital, inputs, crops, livestock, implements, vehicles and infrastructure.

Private sector financiers are however only able to assist sub-commercial and commercial farmers, due to the credit mandates and regulatory constraints faced by private sector lenders. Indigent and subsistence farmers will still be required to seek financial assistance from the State/Development Finance Institutions (DFIs).

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, at which Imbizo key stakeholders commit to a path to achieving NDP targets. Agreements and compromises must be reached, and implementation deliverables set. Such a high level  key stakeholder engagement forum is therefore urgently needed  to reconcile all interests and perspectives. 

  • 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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