Time for state to beef up Land Bank
This week, I undertook what has become an annual pilgrimage to Nampo Park in Bothaville to hang out with the people who ensure we have food to eat every day.
When so many farmers are gathered in one place in the middle of a very cold Free State, the racial lines on which this industry was built smack you in the face. One cannot help but rethink the solutions.
In his state of the nation address President Cyril Ramaphosa said expropriation would take place without harming economic development, productive agriculture and food security. Whether or not this was about striking a political or ideological balance, given the recent calls of faster land restitution, the president was unequivocal in linking land redistribution with the agricultural sector.
Then, a few weeks ago, he expressed support for the creation of a state-owned bank. He seems to be driven by a need to break the monopoly of the big four commercial banks and to better drive economic transformation. Here he lost me.
There are already state-owned entities (SOEs) that are mandated to do exactly what the president and others are calling for in a state-owned bank. They want to see better and faster facilitation of economic transformation and inclusivity, where previously disadvantaged people enter and stay in the mainstream economy.
The important question is whether a state-owned bank will address the challenges faced by state-owned entities.
At Nampo I presided over a panel discussion that revealed the limitations of the Land Bank in supporting black emerging farmers as a result of its funding structure.
The bank is already working to facilitate transformation in the agricultural sector, and has been doing so with a healthy set of financials and a clean record of governance for more than five years — not something you see every day in our SOEs.
So, before we start a new state-owned bank, we should do an honest assessment of what is stopping the already existing Land Bank from playing a more meaningful role in creating and sustaining black farmers.
The bank has a dual mandate: to serve established commercial agri-businesses across the agricultural value chain to ensure the food security the president speaks of; and to support black emerging farmers.
This second part of the mandate is focused specifically on facilitating transformation in the sector by creating more inclusive and equitable access for previously disadvantaged groups.
The Land Bank, however, has no direct funding from the government. Yes, every cent it lends to these black emerging farmers is raised in the capital markets. This is not an issue when lending to established commercial farmers as they are typically more stable and have operations that can weather commercial debt that requires to be serviced at market-related pricing.
To exacerbate matters, capital market investors place specific conditions on the bank to ensure that they yield a return on their money. While the bank does get support from the government in capital guarantees, providing a level of certainty on the capital adequacy considerations to investors, it does not get any allocation of grants towards its funding portfolio.
This means that it carries virtually the full risk associated with the unique challenges posed by South Africa’s emerging-farmer sector, such as lack of equity, lack of security and the uncertainty that comes with any new venture.
To add insult to injury, this funding model is such that the bank is hardly able to price its loans at significantly reduced rates for emerging farmers because of the stringent conditions placed on it by its investors. In short, the bank is forced to act as a commercial bank to black emerging farmers because our government has not capitalised it appropriately to give it the firepower to finance this key segment of the market.
To rub salt into the wound, the government then has a spectacularly inefficient way of coordinating its various efforts in other key areas to support black emerging farmers. Successful delivery of such support relies on a comprehensive and coordinated support programme that must address access to land, water resources, technical support and skills, and markets.
So speeding up access to land by the Department of Rural Development and Land Reform and access to licensed water by the Department of Water and Sanitation, and funding for farm infrastructure, equipment, machinery and working capital are key.
We could leverage the state’s procurement muscle by creating accessible markets for these emerging farmers by supplying to the likes of the various education departments for their schools food programme or the Department of Correctional Services through agricultural supplies to prisons. And what about the health departments, which need food for hospitals?
Even with the funding challenge raised here, the Land Bank says it will triple the value of its lending to emerging farmers to R15-billion or 30% of total lending in the next four years. There is no need to start another bank, at least not in agriculture. The government must entrust the Land Bank with the appropriate capital structure to carry out its mandate towards the creation and sustainability of black farmers.
Entrust the Land Bank with the appropriate capital structure