Publication Date: 30/08/2018

Banks continue to provide loans to commercial farmers, despite the uncertainty about land reform and possible amendments to Section 25 of the constitution.

The unaudited figures of the big four banks show that loans to commercial farmers have increased to R148 billon at the end of June 2018, from R133 billion at December 2017. This is hard evidence that banks are committed to sustainable land reform and are confident that South Africa can find practical solutions to the challenges of restitution, redistribution and security of tenure.

However, to be effective and sustainable, any solutions, including a possible amendment to the constitution, must provide for:

  • Secure property rights. Amending section 25 – the property-rights clause – has the potential to undermine all property rights. This represents a risk to every home owner, business owner and investor in the country. Insecure property rights retard investment and economic development, which South Africa needs to deal with the challenges of unemployment, inequality and poverty. BASA does not support a change to section 25 of the Constitution, as it already has a provision for expropriation without compensation.

Formalising security of tenure for those living in communal lands will promote access to the formal economy and facilitate the extension of credit in these areas.

  • Stability of the economy and the financial system. Banks have invested about R1,6 trillion of South Africans savings, salaries and investments into property loans. Banks rely on these properties as security for the loans. Should property values decrease markedly due to legislative changes or loss of investor confidence, banks – and the economy – will not be able to absorb a shock of such magnitude. Banks must be able to recover the loans that they have already extended against properties and agricultural operations.
  • Integrated urban and rural development legislative and policy frameworks. Land invasions primarily occur in urban and peri-urbans areas where there is a shortage of suitable housing. Some 1.2 million families live in informal settlements.

The economic value of land in rural areas can only be released if proper infrastructure and technical and financial support systems are in place. Without these, land reform cannot support inclusive economic growth.

Banks recognise that the present patterns of land ownership in South Africa, which have their origins in apartheid and colonial dispossession, are neither just nor sustainable. Our commitments to land reform include public-private partnerships with government and the agribusiness sector. Other proposed solutions, include:

  • A land summit to review the land-reform programme
  • A comprehensive land audit and the creation of an electronic national database
  • Releasing suitable state-owned land for urban human settlements and redistribution in rural areas
  • Urgently creating market certainty by expediting resolution of the proposed constitutional amendment and clear, crisp legislation that provides a framework for expropriation and land reform.
  • The creation of an Ombudsman for Land Reform

There is not a single solution to the challenge of sustainable land reform in South Africa. However, these proposals can make a significant contribution towards achieving land reform which supports inclusive economic growth and the creation of generational wealth.
BASA and its members have no objection to a state-owned bank that will compete with the commercial industry.

However, a state-owned bank will have to be subject to the same prudential, market conduct and corporate-governance legislation and regulation applicable to existing commercial banks, to guard against bringing risk into the country’s financial system. We are acutely aware of the governance, funding and administrative challenges that have taken hold in many state-owned enterprises.

Consideration must also be given to putting safeguards in place to ensure that state institutions are not forced to use the facilities of state-owned banks. Currently commercial banks compete via tender to provide various arms of government with banking services. A state-owned bank should also have to tender to provide government services, to ensure they receive quality services at a competitive price.

A seemingly unintended consequence of the Bill is that it would enable all state-owned companies to operate or own a bank. While there may be state-owned enterprises that could carry out the business of a bank, in the public interest, it would be best to limit those state-owned enterprises that could be considered. The amendment does not provide a motivation or purpose for a state-owned bank or explain how it might better support financial inclusion and transformation in South Africa.

Applicants for bank licenses must have the financial means to comply with the requirements of the Banks Act and be able to guarantee depositors’ money, without exposing taxpayers to losses or introducing systemic risk into the financial system. Given the state of the South African fiscus, it is not advisable for the state to take on any additional guarantees.
Our overall concern with these – and other Bills – is that they do not seem to be the legislative underpinning of a comprehensive, implementable national economic recovery plan. Rather they seem ideologically motivated and do little to address the real needs of an economy desperately in need of jobs, effective transformation and empowerment programmes and inclusive economic growth.