EXCLUSIVE: Wandile Sihlobo on SA’s land debate
Wandile Sihlobo is the chief economist of the Agricultural Business Chamber of SA and a member of President Cyril Ramaphosa’s economic advisory panel and the advisory panel on land reform and agriculture. This is an edited extract from his new book, Finding Common Ground: Land, Equity & Agriculture
After 24 years of land reform, it is not possible to conclude in any definitive way whether it has actually benefited our economy or society. For every new urban and peri-urban settlement, and for everyone who has had the heritage they lost through discriminatory laws and practices restored, there is a “failed” farming project, or a small farmer in a remote area with no hope of earning a livelihood.
The result is that there are many opinions on what has gone wrong with land reform, and on what should be done about it. There is, however, one that is shared by all: the social fabric of SA and the economy are in danger unless a broad consensus can be reached on the way forward.
Land may not play as strong an economic role as it once did, but its central place in the history of dispossession, and hence in the manifold inequalities of our country, cannot be denied.
As a result, an accelerated process, based on the National Development Plan (NDP), is necessary to kick-start a longer-term land reform programme. Such an initiative would show our people that land reform will happen; it would demonstrate to the investor community that it can be done with no negative effect on the economy; and it would afford those who were most privileged by past injustice the opportunity to contribute to the process — regardless of whether they have any direct interest in land.
It would also create opportunities for inclusive participation by all sectors of the economy in the process of redistributive justice.
The focus here is the provision of land for human settlement, primarily but not exclusively in the urban areas of our country, and the provision of land for agriculture to create economic opportunities, primarily but not exclusively in the rural areas of our country. In the language of our constitution, therefore, the focus will be on land redistribution rather than on restitution and tenure reform.
(These proposals do not negate the need for restitution and tenure reform. There remains a need to relook at the framework within which expropriation can take place towards these ends. As importantly, we as a country need to consider the long-term effects of a situation where the (poor) majority have second-class citizenship because their rights to land are inferior — and are held to be inferior in perpetuity.)
This is, therefore, a call for land, capital, skills and expertise to be contributed in the interest of inclusive economic growth, improved equity in land ownership, and greater economic opportunities. This is the “Thuma Mina” call for land and property owners.
It’s a call that rests on the history of dispossession, unfair discrimination and the resulting inequality in the ownership and occupation of land in SA, which has contributed to the inequality in wealth. We must recognise that current land ownership patterns may lead to political and social instability, which could slow economic growth and development.
If we consider the numbers, the 70% of South Africans who live in urban areas occupy less than 5% of the land. As a result, land reform will always be measured against progress in the transfer of agricultural land. Of the 100-million hectares of agricultural land in SA, about 85-million are commercially farmed, and 14-million lie within “communal” farming areas.
In the absence of concerted action, there are four possible scenarios:
- SA reverts to the land ownership patterns that existed in 1994 (i.e. white commercial farmers own and farm all the commercial agricultural land and black people occupy, but don’t own, less than 14% of the agricultural land). This occurs because newly settled farmers cannot use the land productively due to inadequate support, and too few black farmers can afford to buy their way into the existing commercial farming systems.
- The current pace of land reform is maintained. By mid-2018, 12.2% of freehold land had been redistributed through the government’s restitution and redistribution programmes. If we add land bought by the state for land reform but not yet transferred, the proportion is slightly higher. In this scenario, the land is used beneficially by the new owners (and they are granted secure property rights). However, given the slow progress to date, SA is unlikely to move rapidly towards an improved scenario along this path.
- Land reform is fast-tracked by the expropriation of at least 50% of the remaining freehold land owned by white farmers without compensation, bringing about a 75:25 occupancy ratio. This may be politically acceptable in the short term, but it would be economically disastrous in terms of its impact on the property market, the financial system and the investment ambitions of the country.
- An initial 30% (28-million hectares) of freehold land is redistributed to black South Africans through a fast-track state-supported programme to achieve a new ownership pattern. In addition to that 30%, black farmers have access to communal land (14%); white farmers retain access to 55-million to 60-million hectares of agricultural land.
To build social cohesion while creating opportunities for inclusive economic growth, the final scenario is the most plausible. It may, however, be fiscally unsustainable. We propose a fast-track plan, with two vehicles — a virtual “land depository” and a land reform fund (to which those with interest, expertise and wealth can contribute, and from which those with the need can draw) — to address this potential pitfall.
Fast-tracking land reform
This fast-track plan for land reform, which should be in place for a five-year period only, will strive towards the goal of scenario 4: to demonstrate that it will be possible to achieve a new land ownership pattern of at least 44% black and 56% white in the medium term. The first leg of that plan involves the establishment of a “land depository”.
The land question is not only an agricultural land problem; it also relates to urban and peri-urban land. So it requires land from different sources, to address different demands. Possible sources include churches; mining houses; land expropriated from absentee landlords; municipal land; government land not under beneficial use, including land owned by state-owned enterprises; urban landlords; commercial farmers, including game farmers and foresters; agribusinesses; foreign landowners; and farms in distress and close to failure.
According to the proposal, these landowners will be called upon to donate land voluntarily, give up some of their time and expertise to mentor new entrants into the farming sector, invest in land reform bonds, or contribute some combination of these. An inventory of this land will be maintained, and the land title itself will be transferred directly to beneficiaries, because the organs of the state have proved to be inefficient and often corrupt landlords.
The determination of conditions for transfer will be the responsibility of local land management committees, as envisaged in the NDP to address inequality of ownership, provide for urban housing demand and create new entrepreneurial opportunities in housing provision and maintenance, and in farming and agroprocessing.
The second leg of the proposal is the land reform fund, which will have the following sources of capital:
- Land reform bonds issued by the Land Bank with the necessary state guarantees;
- Donations; and
- Joint venture financing models, particularly between agribusinesses, large commercial farmers, property developers and the commercial banks. The agribusinesses and commercial banks, through the Agricultural Business Chamber and the Banking Association SA, have already committed to matching the state’s budget for land reform in the form of a loan at a preferential rate over a set period.
Though the housing and agricultural sectors are at the forefront of land reform, the capital required for such a programme far outstrips the capacity of these sectors; hence, opportunities will need to be created for other investors to contribute to the challenge of restoring social justice, equitable land ownership, decent housing, and equitable economic opportunities.
White farmers were not the only beneficiaries of the old regime, and most of those who benefited from apartheid live in urban areas while still benefiting from the injustices of the past. The proposal, therefore, also includes a call for voluntary financial donations from the financial services industry, mining and manufacturing, and other nonagricultural sectors. This is specifically relevant to businesses that do not own any landed property.
The endgame of this process is to unlock economic growth and employment opportunities, to create a vision of a dynamic and vibrant rural economy, and to restore decent life and economic opportunities in the urban areas through a better-serviced local community and a much more integrated and improved spatial dispensation in urban areas.
The process is one in which every South African buys into land reform as either a conscientious contributor, or a responsible recipient. The options that can be followed are diverse, and can be tailored to unique circumstances. Most importantly, though, under such a programme the state would put in place incentives for contributions to this critical “restoration” process, in financial terms or in kind (empowerment, for example).
Rural land and farmland
When it comes to rural land and farmland, there are two possible ways in which to proceed.
The first involves churches, mining houses, state-owned enterprises and the like voluntarily releasing land directly to beneficiary households, communities or the land depository (linked to the Land Bank). This entity will keep a proper record of all of these land parcels and provide a certificate of recognition to the donor, which will entitle the holder to benefits such as procurement preferences or a wide range of preferential financial arrangements.
The entity will — in collaboration with stakeholders — allocate the land to beneficiaries in a decentralised fashion, with limited government engagement and no patronage, on the recommendations of district land committees. A key issue will be the will to subdivide land with speed and ease, but also with responsibility.
At the same time, clear criteria for beneficiary selection should be in place. If beneficiaries are paired with land parcels that are not aligned to their needs and aspirations, they are being set up to fail.
A needs assessment, followed by a means test, must be at the forefront of the process. Support systems through, for example, agribusinesses, commercial farmers, mining companies and churches should work to operationalise these newly established farming enterprises or housing developments.
The financial contribution to kick-start the process will come via the land reform fund, with finance offered on preferential terms (such as deferred interest payments and subsidised interest). In addition, a state guarantee for these on-lent funds could act as collateral to ease the access to finance for new farmers.
In the second option, commercial farming operators could contribute or donate land in a number of ways:
- Donating land without any ties attached (as in option 1);
- Subdividing land and allocating viable portions to workers, tenants and potential beneficiaries;
- Entering into joint ventures with privately identified beneficiaries. These could access subsidised capital, water rights, market contracts and the like, while agribusiness could provide well-integrated support services.
This option largely gives commercial farming unions the opportunity to offer land for land reform in a proactive manner. Commercial farmers who participate should receive a certificate of recognition for their contribution, as well as incentives. Guarantees regarding future tenure security for contributing farmers, for example, will go a long way in attracting more commercial farmers to participate.
The urban question
Like rural land and farmland, buildings (underutilised, vandalised, hijacked or empty) and vacant and unoccupied urban land can be donated to an entity linked to the departments of co-operative governance & traditional affairs and human settlements, with supportive finance, and urban and spatial planners and developers. This would immediately relieve the pressure on land for housing and shelter, while creating an ideal opportunity to deal with the legacy of apartheid spatial planning.
Housing developers and local government need to join forces, using the opportunity to renovate buildings and invest in bulk infrastructure on vacant land. In essence, developers and municipalities will “donate” their expertise and skills, and co-finance the initiative to relieve the housing backlog. As in the case of farmland, the finance can also be sourced from the land reform fund.
Privately owned farmland next to rural towns is highly contested and should be addressed within the ambit of this proposed plan.
Farmers and municipalities should establish models whereby the joint development of these farms (which are often un-or underutilised because of contestation and crime) could be activated to satisfy the increasing need for serviced plots and houses.
Donation of the land by farmers, which would be formally recognised under the land reform programme, would also contribute to creating social stability and reducing racial tensions in these communities.
Municipalities also have a key role to play. Well-located land is required to reverse the legacies of apartheid spatial planning. Peri-urban households spend a significant amount of money on transport to and from urban centres for employment. Well-located land for social housing is therefore a key enabler to fight poverty.
The challenge is that well-located peri-urban land is valuable due to its development potential, and so is too expensive for low-income families to afford. This situation could be remedied if municipalities were to act proactively in their spatial planning and, through a simple administrative process, zone well-located land for social development.
Finally, the personal wealth of the elite, including business leaders and urban professionals, vests in various financial assets and is substantial. This could be a valuable source of voluntary contributions to fund the implementation of land reform. Donations to a land reform fund by individuals or asset managers should be encouraged through incentives such as tax relief.
The main vehicle for such investments will be the envisaged land reform bonds.
There is already considerable international interest in investing in such bonds, with the understanding that the National Treasury will issue the necessary guarantees.
The creation of the land reform fund should be a simple process, whereby government funds, capital raised through land reform bonds and donor funds are merged into a fund that can be accessed with ease by the implementing agents and beneficiaries of land reform. In essence, it would be the main element of a blended financing model for land reform, facilitating the funding of land reform in a much quicker way, without any additional fiscal burden.
An enabling framework
This plan relies strongly on the voluntary contribution of all South Africans to the goal of equitable land ownership.
To make it work at scale and within a five-year period, there should be some form of quid pro quo or, alternatively, a list of enablers that will encourage participation.
A potential list of enablers includes: capital (to be accessed at preferential terms for contributors and beneficiaries); real land rights with tenure security; water rights; and preferential market access contracts (e.g. in the form of export permits); reduced reliance on bureaucracy; and incubators for aspiring farmers.
To activate the voluntary contribution of land and support by commercial farmers, there could, in essence, be a few “big tickets”:
- An easy process and one-stop shop to submit the record of the transaction for recognition;
- A recognition mechanism offering an important benefit to the former owner. This could be in the form of empowerment recognition, or financial or other inducement;
- The speedy transfer of title deeds, or long-term and tradable leases to beneficiaries of land reform, including those who occupy land that’s already been procured for land reform purposes;
- The allocation of new water rights to the existing and new enterprises (owned by the beneficiary); and
- Restructuring the Land Bank and establishing a land reform fund, through which acquisition grants, subsidised loans and subsidies for on-farm improvements can be accessed.
As agricultural land covers most of the surface area of SA, it is the dominant element in the land reform debate. At the same time, the productive use of farmland is critical for economic growth, rural economic opportunities and food security.
It therefore is necessary for a specific social compact to be formed for the agricultural sector, drawing together all stakeholders.
We believe that, by sharing responsibilities and leveraging goodwill, it will be possible to accomplish the goal of changing land ownership patterns in SA.
- This is an edited extract of a paper produced by Sihlobo, Mohammad Karaan, Dan Kriek and Nick Serfontein for the presidential advisory panel on land reform and agriculture, from Finding Common Ground: Land, Equity & Agriculture (Pan Macmillan), now available in bookstores and on Amazon Kindle
Bongani (not his real name) planned to start farming commercially in mid-2005. However, it was a dream he was forced to defer when he discovered, after a three-year waiting period, that his application forms to access land from the government had not even been processed — they had been misplaced by the department of rural development & land reform (DRDLR).
In 2009, Bongani reapplied for land under the government’s proactive land acquisition strategy, introduced in 2006. Under this programme, the state would buy land for land reform purposes and lease it to beneficiaries for between five and 30 years, before giving them the option to transfer ownership. In reality, beneficiaries were given only short-term leases of one to five years — not sustainable for farming.
According to Bongani, the process is as follows:
- Identify a farm in your area of interest;
- Submit an application through the district office of the DRDLR;
- The application goes to the beneficiary screening committee;
- It is transferred to the provincial land committee; and
- If successful, it goes to the national land committee.
In all, it takes about three to four years — not factoring in the risk that another applicant may express interest in the same piece of land.
Then, to be eligible for post-transfer support from the government, land beneficiaries must have a fundable business plan — which has to follow a similarly tedious screening process.
If, after this, beneficiaries actually gain access to a farm, they must serve a probation period of about five years. At this juncture, they have no title deeds to use as collateral, so the business, including input costs, largely depends on one source: the government’s post-settlement support system. The result is permanent dependence on state resources, without real economic empowerment.
The government initially vested post-settlement support in different departments. The DRDLR was responsible for delivering the land; thereafter, beneficiaries approached the department of water & sanitation for water rights, the department of agriculture, forestry & fisheries for agricultural inputs, and the department of trade & industry for implements.
The fragmented approach resulted in a misalignment between the land and the associated services, which often set beneficiaries up for failure.
Then, instead of improving alignment, the DRDLR ventured into the sphere of post-settlement support — typically the mandate of the national and provincial departments of agriculture — through the creation of the recapitalisation & development programme in 2009, which recapitalises poorly performing land reform projects. The problem is that this papers over the cracks, rather than identifying the root causes of failing projects, and it spreads the budget for land acquisition very thin.
Today, Bongani farms on communal land near Maclear. But his story is not unique — and it illuminates, in part, the frustrations of many aspiring black commercial farmers.
The bureaucracy that deferred Bongani’s dream of being a successful black commercial farmer could have been largely avoided had the market-assisted land reform programme that existed prior to 2006 been expedited. That approach entailed the transfer of title deeds to beneficiaries — an action that would have solved the problem of access to finance — and included immediate post-settlement support and mentorship.
If such a programme had been implemented at a faster pace, it is hard to imagine that aspiring black commercial farmers like Bongani would experience the challenges they do today.
Written with Johan Kirsten