Letters Land plan will scare financiers away
As always, the Financial Mail’s coverage of the budget made for interesting and informative reading (Budget 2018, February 22). However, the contention that “government has put its money where its mouth is” on land reform requires some scrutiny.
True enough, the allocation of R10.8bn over three years to settle restitution claims — along with R8.8bn for redistribution — is welcome. The overall allocation (by function) for “rural development and agriculture” for 2018/2019, at R30.2bn, represents an increase of close to R3bn on the previous year. This is a substantial sum of money.
But the projections supplied in the Budget Review do not show much growth in this over the coming years: R30.3bn in 2019/2020 and R31.8bn in 2020/2021. Rural development and agriculture will account for 1.8% of consolidated government expenditure in 2018/2019. This will decline to 1.6% for each of the coming two years.
This hardly seems to match the rhetoric about the urgency of land reform and the importance of agriculture to SA’S future, increasingly common in the public square and repeated by President Cyril Ramaphosa in his state of the nation address (Sona).
These figures become far more meaningful when viewed within the context of current policy debates, especially regarding the administration’s intention to advance land reform by expropriation without compensation. Assurances to the contrary notwithstanding, such a regime would have a major effect on the agricultural sector. Nowhere is this likely to be more keenly felt than in relation to its financing.
With its primary asset — land – being the target of expropriation without compensation, the agricultural sector would struggle to secure financing for investment or operating costs. Cas Coovadia, MD of the Banking Association SA, has warned that banks would be reluctant to expose themselves to such risks, and many would simply cease servicing the sector.
Coovadia was reported in your sister publication, Business Day, to have put farm debt at some R180bn. A large majority of this is held by commercial banks. This figure dwarfs government’s total commitment to land reform and agriculture. Indeed, it is equivalent to about 11% of consolidated government expenditure. Given the scale of funding needed, the consequences for the agricultural sector of its financiers (or even some of them) withdrawing would be dire and entirely predictable. Government would not be able to make up the shortfall, and with government policy ramping up the risk, appeals to financial institutions to support its efforts (as were made at Sona) would probably fall on unreceptive ears.
Whether government has put its money where its mouth is, is the wrong question. Rather, will government policy towards land and agriculture chase away the money that others have committed?
Project manager: SA Institute of Race Relations, Johannesburg