Long-term rights for 12 commercial fisheries will be allocated by the department of agriculture, forestry and fisheries next year. Among the 12 fisheries earmarked for allocation is the hake deep-sea trawl fishery, which is of critical importance to the ocean economy because it accounts for approximately 45% of the value of all SA’s commercial fisheries.

A study of the hake deep-sea trawl fishery completed in December 2018 by independent economic consultants Genesis Analytics determined that the fishery is by far SA’s most successful — it generates annual sales of at least R4.5bn and provides what President Cyril Ramaphosa repeatedly refers to as “decent work” for approximately 7,300 South Africans, at least 2,430 of whom live in small fishing communities such as Gansbaai, Mossel Bay, Saldanha Bay and St Helena Bay, where unemployment levels are extremely high.

According to the Genesis Analytics researchers, sea-going employees in the hake deep-sea trawl fishery earn approximately R20,000 per month and quayside and processing employees earn R10,000, on average. These wages are substantially higher than the national minimum wage that came into effect on January 1, and are believed to inject at least R468m into rural economies every year.

The researchers suggest that if the government wants to retain, and perhaps even grow, the thousands of decent jobs the hake deep-sea trawling fishery provides, the policy being developed ahead of the fishing rights allocation process of 2020 (Frap 2020) must take cognisance of the well-developed, unique economic characteristics that prevail in this fishery.

Above all, the hake deep-sea trawl fishery is an industrial fishery. It is situated at the opposite end of the continuum from the small-scale fisheries that provide a livelihood for coastal people in SA. It does not overlap with small-scale fisheries, nor does it compete for resources with small-scale fishers — the fishery targets hake in deep, offshore waters that are inaccessible to small boats.

If the government adopts a similar strategy of “fragmentation” when it allocates rights to the hake deep-sea trawl fishery in 2020 ... ‘there would be a very real risk of materially reducing the socio-economic contribution [of the hake deep-sea trawl fishery] for little or no gain in transformation’
Genesis Analytics study

The vessels used to land the annual catch of Cape hake (approximately 125,000 tonnes per year) are powerful, ocean-going trawlers, equipped to fish at sea for long periods and built to withstand the often extreme conditions in the fabled “Cape of Storms”.

Because of the requirement for robust deep-sea trawlers, the harvesting of Cape hake is highly capital-intensive and exhibits high levels of fixed costs.

For example, purchasing a deep-sea trawler costs anywhere between R70m and R250m, depending on the size and degree of onboard processing it allows, whereas voyage costs range from R1.5m to R6m per trip.

Industrial hake processing facilities are similarly capital-intensive. The two fresh-fish factories currently operated by I&J and Sea Harvest have an asset value of approximately R1bn each.

The Genesis Analytics study estimates that investments made in fishing and processing assets since 2005 (the last time that rights were allocated to the fishery) total R3.8bn.

Jittery about fragmentation

The 33 companies that currently hold rights in the hake deep-sea trawl fishery are understandably jittery about Frap 2020 because similar processes conducted by the department in 2013 and 2015/2016 were highly controversial and characterised by lengthy delays, prolonged litigation, disruption of fishing and the destruction of value for companies invested in fishing.

For example, established operators in the inshore trawl fishery for hake and sole suffered quota cuts of 44% between 2016 and 2018. Rights were allocated to 22 new entrants, many of which are very small companies with no experience in trawling and no ability to offset the anticipated losses in jobs and investment suffered by established operators.

According to the study, if the government adopts a similar strategy of “fragmentation” when it allocates rights to the hake deep-sea trawl fishery in 2020 — opting to take substantial tonnage away from established operators to allocate it to many small new entrants (essentially aspirant fishing businesses) — “there would be a very real risk of materially reducing the socio-economic contribution [of the hake deep-sea trawl fishery] for little or no gain in transformation”.

And this is the crux of the matter. The Genesis Analytics study demonstrated that historically disadvantaged persons (HDPs) currently hold approximately 66% of the shares in the firms that harvest 90% of the hake deep-sea trawl catch catch, and most likely the same or higher among the remaining smaller firms. Shareholding by HDPs has more than doubled from about 30% in 2005.

Because the hake deep-sea trawl fishery is much more transformed than it was in 2005, the re-allocation of rights from established operators to new entrants will likely destroy value for HDPs that have invested in the industry, including employees that are invested via employee share schemes.

The Genesis Analytics study represents the first in-depth, socio-economic analysis of the deep-sea trawling industry and its findings are unequivocal: in 2020 “a potential 30% allocation to new entrants will destroy scale in the industry, at the expense of efficiency, margins and jobs”. Even a 10% reduction in quota for existing rights holders “will impact scale and unit costs, resulting in job losses and forced restructuring of rights holders business models”.

The SA Hake Deep-Sea Trawling Industry Association, which represents 100% of the 33 rights holders active in the fishery, is engaging with all levels of the government to ensure an equitable rights allocation policy that will retain international competitiveness and jobs, making sure that the hake deep-sea trawl fishery continues to deliver a full range of benefits to the people of SA for generations to come.

• Brown, a director of Sea Harvest, writes in his capacity as chair of the SA Deep-Sea Trawling Industry Association.