New quotas set to speed up transformation
Small-scale fishermen and black-owned businesses targeted
Fishing rights were last allocated to commercial fisheries in 2005. These rights are due to expire in 2020. The department of agriculture, forestry & fisheries is in the process of drafting policies to guide the new rights allocation for commercial fisheries, including the hake deep-sea trawl fishery, squid, south coast rock lobster and the small pelagic fishery for pilchards and anchovy.
A total of 12 fisheries are part of the 2020 process. The allocation of rights to smallscale fisheries, on the other hand, is taking place in a parallel, but different process.
Earlier this year Senzeni Zokwana, minister of agriculture, forestry and fisheries, announced that his department was accelerating efforts to transform the multibillion-rand fishing sector in order to ensure that it benefits small-scale fishermen and black-owned businesses.
Government is concerned that the sector is dominated by only a few companies and remains untransformed.
The deep-sea trawl fishery for hake, however, by far the largest and most valuable sector of SA’s fishing industry, has made significant efforts towards transformation in recent years. Hake trawl sales are in the region of R4.5bn a year, meaning it accounts for about 45% of all commercial fisheries value in SA.
The SA Deep-Sea Trawling Industry Association (Sadstia) released the results of a study conducted by independent economic consultants Genesis Analytics earlier this year. The study showed that historically disadvantaged persons currently hold about 66% of equity in the firms harvesting 90% of the hake deep-sea trawl catch and the same or higher among the remaining smaller firms.
The top three companies in the fishery — I&J, Sea Harvest and the Oceana Group — are all level 1 contributors to BBBEE. The study was the first in-depth socioeconomic analysis of the deep-sea trawling industry ever undertaken.
It further revealed that the sector provides employment for around 7,300 people, many of whom live in small fishing communities typically characterised by high levels of unemployment such as Gansbaai, Saldanha Bay, St Helena Bay and Mossel Bay.
The sector pays significantly above the minimum wage, according to the study, which found that sea-going employees earn around R20,000 a month, while quayside and processing employees earn about R10,000 a month, injecting more than R468m into these rural economies each year.
To put the industry in context: at the one end of the continuum is the small-scale fishery sector, which fishes close to shore using simple technology. At the opposite end is the deep-sea trawl fishery for hake, which is an industrial-scale fishery. The latter does not compete for resources with small-scale fishers given that it targets hake in deep waters that are inaccessible to small boats.
The deep-sea trawl fishery industry is a capital-intensive business utilising powerful, ocean-going vessels which have been designed to cope with extreme weather conditions frequently found off SA’s coastline. These ships typically cost between R70m and R250m depending on the size of the processing facilities on board. An average voyage costs between R1.5m and R6m per trip.
The two biggest companies in the sector are I&J and Sea Harvest, both of which operate their own fish factories, each valued at around R1bn. Sea Harvest, a JSE-listed company, is a majority black-owned business.
“A number of policies were put in place during the 1990s which pushed the industry to transform,” says Terence Brown, chairman of Sadstia and a director at Sea Harvest. “Since then the industry has seen a number of new entrants and transformed significantly. Shareholding by HDPs, for example, has more than doubled since 2005.”
In 2017 Sea Harvest and Brimstone (the majority shareholder in Sea Harvest) established a fisheries development fund valued at R100m to assist small-scale players. Due to the capital-intensive nature of the deepsea trawl industry, smaller players face significant challenges, says Brown, including access to finance, cash flow and logistical constraints.
A smaller rights holder in the hake deepsea trawl fishery is black-owned and black managed Nalitha Investments. CEO Bonga Mavume is an MBA graduate with extensive business experience in the food and fishing industry. He agrees with Brown and says the support of Sea Harvest was his saving grace.
“This is a very risky business with high fixed costs. Boats break down and if you’re not fishing you’re not earning. Cashflow is a constant challenge. Banks don’t want to lend smaller players like ourselves money. Without the support and mentoring of a larger player this is a difficult industry to break into,” Mavume says.
Hout Bay-based Nalitha employs about 70 full-time staff, with an additional 30-40 seasonal workers at various times of the year.
There are currently 33 companies that hold rights in the hake deep-sea trawl fishery. These companies, under the umbrella of Sadstia, share a collective concern around the fishing rights allocation process due to take place in 2020.
According to the Genesis Analytics research team, if government chooses to fragment rights in the hake deep-sea trawl fishery, there is a “very real risk of materially reducing the industry’s socioeconomic contribution for very little or no gain in transformation”.
Brown says economies of scale play a vital role, and significant value is created through beneficiation. “Smaller quota holders tend to combine resources and do little beneficiation. Medium-sized enterprises also tend to pool their quotas in order to achieve economies of scale. It’s only the larger players that beneficiate more than 60% of their landed catch,” he says.
It is in the beneficiation space that most small and medium-sized enterprises are supported. The biggest challenge facing the industry is policy uncertainty, given that each company is unsure what quotas they will be allocated in the fishing rights allocation process next year.
“Sea Harvest, for example, spent R120m on upgrading its Saldanah Bay factory last year,” says Brown. “In 2017 we spent R250m on a new ship. The company continues to make significant investments into the business but we are concerned. In Saldanah Bay alone we have more than 2,000 employees relying directly on the company for jobs.”
Brown fears that should rights be re-allocated from established operators to new entrants, it will have the unintended consequence of destroying value for historically disadvantaged individuals who have invested in the industry, including employees who are invested via employee share schemes.
“Quota cuts imposed on established operators between 2016 and 2018 resulted in job losses. Although rights were allocated to 22 new entrants, many of them had no experience in trawling and were unable to offset the job losses that took place,” says Brown, adding that all policy decisions around rights allocations should be aligned with the recommendations of the National Development Plan, which is to create rather than destroy jobs.