Land Bank boss Tshokolo Nchocho on the dire consequences of expropriation
Bank wary of politics’ effect on issue, and on its own credit profile
● If expropriation without compensation is not handled carefully, the likely consequences don’t bear thinking about, says Land Bank CEO Tshokolo Nchocho.
“They are just too dire to contemplate.” President Cyril Ramaphosa has given assurances that land expropriation will not harm the agricultural sector or the economy.
Nchocho says he doesn’t know, “to be honest”, if such consequences can be avoided.
“We have taken a view that we have no reason to doubt the bona fides of the leaders of government when they make such a public declaration, but we cannot prophesy what is going to happen in parliament when the politics plays itself out.”
Nine years ago, the Land Bank was on its knees after years of corruption, looting and maladministration. It had to be taken under management by the National Treasury. The then finance minister, Pravin Gordhan, said he hoped new leadership would steer the bank “safely through the challenges that lie ahead”.
Nchocho, 51, and his chairman, Arthur Moloto, who were appointed in 2014, have done that, turning the Land Bank into SA’s only professionally run and profitable stateowned entity.
But at the presentation of its annual results last week, they warned that the biggest challenge facing it now is the government’s land expropriation policy, which could bankrupt it.
Nchocho says they were not being unduly alarmist.
“Policymakers have to be made aware of what the financial consequences would be if the creditor status of a bank such as ourselves is not duly protected in the expropriation policy framework.”
Legislation must “explicitly state” that the providers of finance to the agriculture sector will be compensated for what they’d be exposed to when expropriation gets under way, he says.
The Land Bank is owed R49bn from farmers, which will be at risk if their farms are taken.
“Every cent we have lent to the sector is backed up by a mortgage on a piece of land.”
Where compensation would come from is “something the policymakers will have to answer”, he says.
“What stops government saying to the new owner of expropriated land, ‘You will carry the debt service obligation and continue to service that debt’?”
If the new, supposedly black, owner defaults, “then the bank must be entitled to repossess”.
The bank needs to protect its assets, its loans, he says, because it has liabilities to the tune of R41bn that it owes to its funders.
“Whatever the politicians or policymakers decide to do, this is a crucial decision variable that we hope they take into account.”
The bank is completely dependent on outside funders. Should they pull the plug, or just pull back, because of fears about what expropriation will do to the bank’s credit status, bankruptcy will loom.
An investor road show in a couple of weeks will be an indicator.
The bank’s main funders are the Development Bank of Southern Africa, the local fund management industry, European Investment Bank and the World Bank.
The last time Nchocho spoke to them was in March, and “unavoidably” the subject of expropriation came up pretty quickly.
“Our key message to them was that we have the word of no less a person than the president that whatever is done will not be done in such a way that causes destruction to the economy and banking sector.”
The Land Bank is a critical funder of commercial and emerging farmers.
A substantial portion of its loans are production loans. So any pullback by funders would “of course have a serious downward pull on agricultural productivity, food security, jobs and transformation”, he says.
“If funders have any doubts about the credit quality of our loans, that anything will be done to endanger loan repayments, we can expect a pullback.
“So we really, really hope government doesn’t go down that path. The consequences are just too dire to contemplate.”
Finance minister Nhlanhla Nene has now instructed the Land Bank to provide him with a risk assessment on what expropriation without compensation could mean for the bank.
Nchocho says the worst-case scenario in the event of widespread expropriation and removal of property rights is “the real destruction of the economic base of agriculture, as well as the economy of the entire country”.
“In this scenario we would not get repayment of the R49bn of mortgages and production loans we have advanced, and would not be able to honour our obligations to the funders who have supplied us with capital.”
This would trigger default clauses.
“We are saying to the Treasury and the policymakers: please take this possible scenario into account. Beware of the dangers.”
The Land Bank’s loans are “explicitly guaranteed by the National Treasury. So the fiscus would have to make good on the obligations of the bank. Is that the path we want to go down as a country? No.
“Is it a feasible path? No, because we already know that the fiscal framework of the country is under pressure in terms of the liabilities the state already carries.”
He says whatever the eventual outcome, “the noise and uncertainty make our work difficult as development bankers using commercial solutions and commercial resources to address social needs such as employment and enterprise creation”.
“It is deeply regrettable that this kind of work gets contaminated in the dust of political rhetoric.”
He makes the point that Ramaphosa has said the government “wants to be explicit” about how land expropriation will be undertaken.
“Our hope is that we reach that point of explicitness as soon as possible, hopefully taking into account these real downside risks that we, amongst others, have pointed out.”
He says the biggest boost for transformation would be giving tenure to the almost one-third of the population living in former homeland areas.
The Land Bank lends where it can arrange long-term leases with the chiefs, “but this is not nearly enough for transformation”.
“If there were stronger tenure rights we would be doing much, much more in those areas.”
Every cent we have lent to the sector is backed up by a mortgage on a piece of land
Tshokolo Nchocho
Land Bank CEO