Don’t play the fool with land restitution partnerships
JOHANNESBURG – The main reason for the failure of most restituted farms to empower intended beneficiaries in South Africa is the behaviour of established farming entities who enter into dodgy business partnerships in the various forms of post-settlement partnership models.
The sugar industry has seen in excess of 22 percent of cane land transferred from white to black hands. This accounts for 76 538 hectares of transferred land, which amounts to more than 40 percent of the area under cane.
The government has spent more than R2.3 billion in acquisition of restitution farms for more than 231 communal property institutions (Trusts and CPAs).
Various post-settlement business models, which include among others leasebacks (39 percent), self management (31 percent), joint ventures (29 percent) and co-management (1 percent), have been used to work the land.
Despite the total of 40 percent of industry land in black hands, black small scale and land reform farmers have only managed to contribute between 12 to 15 percent of gross industry produce per annum.
This demonstrates clearly that land transfer on its own, without appropriate post-settlement business models, will not translate to creating black farming communities.
Accounting for a total of 68 percent of all land in black hands in the sugar industry, leasebacks and joint venture agreements appear to be the two most common partnership arrangements in most agricultural commodities. Leaseback is an arrangement where the government buys the land for a qualifying community, and the land is subsequently leased to the same or a different farmer.
The problem of leasebacks often starts with bad advice being given by appointed transaction advisers both in the government and those appointed outside of government. Often there is suspicion that when advisers give such advice, they will subsequently receive some form of a kickback from the current farmer for ensuring that he/she doesn’t lose the land.
I am currently involved in the transaction advisory process and have recently witnessed a senior government official literally begging the community to sign R65 million worth of a land transfer deal, that will result in the land being bought by the government and transferred to the community on condition that it will be immediately be leased back to the same farmer for at least the next 18 years.
In this situation, the current land owner is being set to continue to be in possession, working and profiting from the land, while the community only receive some small rental amount. The land has not been transferred. We have just played around with the legal writing on the paper.
If it is common knowledge that one farm which has been supporting one family cannot be expected to suddenly be able to support the whole community, how then does one expect an even insignificantly small amount of rental to do so?
Land reform beneficiaries who have been persuaded to believe that a community signing on a leaseback arrangement is better than the one working the land have been fooled!
Joint venture arrangements are often based on some percentage sharing on business ownership. In this kind of partnership, we have seen communities receiving restituted land coming into partnership with established farming entities to create a new business venture. The usual percentage split often ranges between 50/50 to 53/47, depending on the agreement between the parties. The percentage ownership split in joint ventures is only a token to many communities.
For most of the entities, management of the entity only belongs to the well-established partner and the community is completely excluded on the basis that they have neither the requisite knowledge nor experience to contribute in running the business.
But even worse than that, how does one arrive at a 50/50 split between partners when one of the partners brings the land, the whole asset land. I have always struggled to find out what the well-established partner brings into the joint venture arrangement that qualifies them to claim the whole 50 percent of the partnership.
Often I have been told that it is the skills. Sometimes the balance sheet, which allows for the security in case of need for qualifying for a business loan. But the liability on the loan is often jointly shared equally between the partners. Something does not make mathematical sense here.
Second, they bring another 50 percent liability on the business loan for the joint venture entity. That must add up to a total of 75 percent stake in the entire partnership. Why 50/50? Any community that is being made to be on a 50/50 ownership arrangement on its restituted land joint venture arrangement is being fooled!
Over and above that, the fact that management is dominated by one side of the partnership has, for many joint ventures, meant that most decisions, especially procurement decisions are made by one side of the partnership.
Suspicions suggest that the operational and production costs are being inflated to allow the dominant partner in management to loot the entity and thereby reducing profit to a point where there will be too little or nothing to declare dividends.
When it comes to restituted land, there can only be one of two situations. Either the land is returned and the community is benefiting, or the community is being fooled to believe that the land has been returned when the current owner is still in possession, working and profiting from the land.
Sfiso Mnguni is Grower Affairs head at South African Farmers Development Association.