Commission on Restitution of Land Rights, and Khula Enterprise Finance Ltd: briefings

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
18 March 2005
COMMISSION ON RESTITUTION OF LAND RIGHTS, AND KHULA ENTERPRISE FINANCE LTD: BRIEFINGS

Chairperson:

CRLR PowerPoint presentation on National Implementation Plan Restitution High Drive 2008
CRLR presentation on National Implementation Plan, 2005-2008
CRLR: National Implementation Plan – 4-page Executive Summary
CRLR: Sale of Share Agreement Process
CRLR: Resource requirements
CRLR: Required elements for agricultural production business entities
CRLR: Provincial price per hectare of private land
CRLR: Equity shareholding modeal for restructuring of agricultural entities
Khula Enterprise Finance Ltd: PowerPoint presentation on Land Reform Empowerment Facility
Khula Enterprise Finance Ltd: PowerPoint presentation on Business Plan 2005/06

SUMMARY
The Commission on Restitution of Land Rights presented Members with their Implementation Plan until 2008. Urban versus rural land claims settlements were discussed, and the number of claims settled and still outstanding. Practical challenges around personnel expertise, the time-consuming research involved in rural claims, and the methods of land valuation were elaborated upon. Additional government funding would be required to complete the process.

Khula Enterprise Finance Ltd then presented their Business Plan for 2005/06 as a land reform empowerment facility, which provided revolving funding through highly concessionary loans. They covered the spread of investments to provinces besides the Western Cape, ensuring the sustainability of the fund, and other challenges regarding their bank intermediaries.

Commission on Restitution of Land Rights briefing
Mr Tozi Gwanya, Chief Land Claims Commissioner, said that the CRLR would be receiving additional funds over the next three years to cover outstanding claims. The Commission was committed to delivering 30% of agricultural land by 2015, in order to promote poverty eradication and social, economic and political stability in rural areas. The Minister of Finance had allocated R6 billion to complete the process. There were 12 875 claims outstanding, of which 10 063 were urban claims and 2 812 were rural. These would be resolved within the next three years. An increased rate of delivery was due to the fact that not all claims had to be settled via the claims court. They could be settled by agreement, thanks to the Section 42D Ministerial approval. Urban claims had been fast-tracked by grouping them, and the use of service providers had accelerated delivery. Urban claims were simpler to research than rural claims. Land prices were relatively high in the country.

Mr Gwanya said the valuation of claims required expertise, which was often not available from provincial offices. The calibre of staff seconded to the Commission had been poor, with the exception of Limpopo. Restitution required assisting claimants with affidavits, dispute resolution and mediation, sometimes protracted and costly expropriation and institutional capacity for community legal entities. These processes would need additional financial resources, human resources, administrative support and partnerships with relevant stakeholders. The Belgian government had donated R49 million to speed up verification of remaining claims and a further Euro 6 million for post-settlement support, in order to facilitate sustainability.

The risks of fast-tracking were ‘fiscal dumping’, development issues not being addressed thoroughly, compromises on quality and possible loopholes for fraud. The Commission was responsible for sustainable land settlement and long-term livelihoods, providing post-settlement support and implementing restitution awards. The Commission was working on various financial models for financing land reform. Mr Gwanya said the Commission had been on a study tour to Australia, where they had visited the Australian Indigenous Land Council. This was a parastatal providing agricultural and business support. The Landbank was not fulfilling a similar role in South Africa.

Discussion
Mr A Nel (DA) commended the Commission for its work and supported the budget increase. He asked about the percentage increase required to reach 30%. He also asked whether the valuation of a farm included improvements to the land. It was his understanding that once the valuation had been gazetted, the landowner could not remove anything from the land. Referring to the ‘fiscal dumping’, he questioned how the Commission determined whether a municipality had the necessary capacity to implement development plans.

Dr A van Niekerk (DA) expressed similar support. He asked whether the latest increase in spending had gone towards removing the backlog before moving on to new claims. He queried if Belgium was the only foreign donor. Did the Commision ‘s approach in dealing with landowners differ according to their ‘profiles’? For instance, some of the landowners were old, while others were still young and had only recently acquired their land.

Mr B Radebe (ANC) asked the reason for the turnaround in staff motivation levels. He queried how many expropriations of land had occurred, how costly they had been, and why they had been necessary. He was concerned that the municipalities who received funding from the Commission did not have the capacity to look after their own budgets, let alone anything more. He asked if the Commission had a strategy for dealing with fraud.

Mr T Ramphele (ANC) said the Commission faced many unique challenges in ‘social engineering’. They should therefore keep a record of their successes and failures, in order to create a model. The insights gained by the Commission on their study trip to the Australian Land Council should be shared with the Members at some point.

Mr D Dlali (ANC) said that questions raised previously by the Committee, had remained unanswered. The issue of giving land to those without the necessary experience or skill had been visited before, and had been dealt with adequately. Issues of identifying and addressing outstanding policy or procedural issues and capacity should have been resolved by now. He asked for clarity on the provision of post-settlement support.

Mr M Ngema (IFP) asked whether the year for settlement of 30% of land claims was 2014 or 2015. He asked why sugar cane farming land was cheaper than land elsewhere.

Mr Gwanya was not concerned about the amount still required for claims settlement as these were essentially claims against the state and therefore the state would have to pay. There was still a three-year backlog, which was being finalised using R1.6 billion of the budget, while R2.7 billion was being used for old claims. Belgium was the only donor to date. A British fund had been approached, but this was unsuccessful so far. The EU was interested, but the application process took more than two years. Most countries were more interested in donating for health, particularly HIV/AIDS.

Mrs Thabishangu said that valuations had been made by professional valuers, who included the value of improvements to the land in their valuation. Fixtures were valued, while movables, game and implements were not included. Similarly, irrigated land, which fetched on average R60 000 per hectare, was valued differently to dry land at about R20 000 per hectare. The Act stated that no improvements should take place once the valuation had been gazetted, but this did not mean that production should come to a halt.

Mr Mashele said that they had encouraged experienced farmers to hand over to new farmers over a certain time, especially where the commercial farming land was involved. This could take ten to fifteen years to complete. The Commission had also looked into joint ventures and strategic partnerships in overcoming this challenge. The process required trust and commitment from all role-players, and co-operation was not necessarily ‘guaranteed’. The difference between the Sale of Share Agreement model and the Share Holding Agreement when land was brought from Private Land Owners, was that in the first process, the government would sell, while in the second process, the land was privately owned.

Ms Linga said municipalities were vetted before they received any funding from the Commission. It was mostly district municipalities that received funding, and not local municipalities. The municipality had to have a business plan in their application for the funds.

Mr A Mphela of the Commission’s North West and Gautend division, said that low staff morale had been an ongoing challenge, but that conversion and extension of contracts had gone a long way towards increasing motivation. Once the Commission ended, many of the staffmembers would be redeployed in other departments.

Ms T Shange of the Commission’s KwaZulu-Natal division, said that improvements, such as a milling plant or packing house, were not included in the valuation of land, since these were considered separate businesses viable in their own right. The land would be far too expensive if these improvements were included in the price. These businesses would pay for themselves over time through partnership arrangements. These portions of the farms were then excised from the land title deeds and were accorded separate title deeds.

Mr Gwanya said the Commission had processed three cases of expropriation, one of which was in Grahamstown. The process had taken over a year to date. Regarding policy and procedural issues, the handover of farms could take up to ten years, and none of these processes had been completed. The new landowners lacked sufficient support structures. The Land Redistribution for Agricultural Development (LRAD) review had identified projects, which had failed, but the Commission could not afford to fail in the claims they were settling. The Landbank was a development organ which needed to fulfil its responsibility of providing support to reform beneficiaries. Another organ was not required. The Department of Agriculture, the Industrial Development Corporation (IDC) and Landbank should revisit this issue.

Mr Gwanya said that 2015 was definitely the correct year as per their planning document. Some government documents stated 2014. Land reform consisted of three processes: (1) restitution; (2) redistribution and (3) the tenure programme. They had settled 813 000 claims for 3.5 million hectares. They had focussed on urban claims initially, since these were far simpler and quicker to settle than rural claims. The latter often entailed lengthy research and mapping, which required more capacity.

Ms B Ntuli (ANC) asked who paid the salaries of the seconded officials. The ‘buy and lease back’ agreements seemed to be a short-term solution, which added value to the productivity side of the farm, but did not add value to the human resources side in the long run. The role of the person leasing the land should include training the recipients of the land in some form of mentorship programme. According to which maps were boundaries and original ownerships determine? What was the criteria used for subdivision of land? She asked if the Commission used similar strategies to those used by the Australian Land Council.

Mr Abrahams said most land was owned by Anglo-American or by the government. The rest was mortgaged to the banks. He hoped this would not also be the case for new landowners who would have to bear high interest rates for loans. There were various bodies and entities that made it their business to inhibit processes of land restitution and expropriation, and he asked which those were. The Freedom Charter stated "the land should belong to those who work it" and that strategic partnerships could possibly be formed between new landowners and the government. This would assist in monitoring the process.

Dr van Niekerk asked whether it was advisable to subdivide only to the point where units of land remained viable economical entities. Previously white farmers had enjoyed the expertise and knowledge from the Agricultural Commission in each district, as per the Agricultural Credit Act. The new Act did not provide for similar support at ground level. He doubted whether municipalities would be involved in restitution when they experienced difficulty in building houses.

Mr Dlali said even though there were monitoring systems to establish whether municipalities had the capacity to deal with funds, and regardless of whether district municipalities were assisting local municipalities, there was still failures by municipalities in using these funds.

Mr Ramphele asked how the Commission could verify claims made by landowners on the potential value of their land. ‘Inspiration’ was needed to ensure success in the process of restitution.

Mr Gwanya said that the salaries of seconded officials were paid by their own departments. The Commission only paid for travel costs. The Commission was not ‘married’ to any map from any specific year. They tracked the use of the land back to those who used it originally, regardless of boundaries appearing on maps. Neither were new maps of any relevance. Subdivision was not occurring.

The Australian model of restitution would first have to be debated, in order to assess how to achieve optimal use of land and how to support land reform beneficiaries. The Commission had sent a report of their study tour together with recommendations to the Department of Land Affairs and Agriculture and the Ministers, inviting further discussion. There were no outstanding policy issues, but possibly post-settlement support needed restructuring.

Ms Shange said that land valuation was based on what was visible, and not on what might potentially be beneath the ground. A different Act governed land which contained mines. The Land Restitution Act provided for equitable redress in cases where land had already been highly developed, such in instances of expensive coastal land. It was not viable to restore the land in instances where public facilities already occupied the area. Alternative vacant land was offered in these cases. Titlements were being endorsed in order to prevent the selling of title deeds, since this defeated the object of restitution in the first place. ‘Buy and lease back’ agreements were quite complicated as they had many ramifications. This could involve separate businesses, or the harvest for a certain period going to the initial landowners and the harvest from the new input to going the new landowner. In the sugarcane industry, this could mean nine year and eleven month leases. Where businesses were separate from the land, separate trading and land entities were being established.

Mr A Mphela said the Commission was in constant engagement with organised agriculture. Agriserv had privileged access to the President. They were engaged with provincial affiliates in demanding collaboration where prices were obviously inflated, and where beneficiaries required aftercare support. Their task was not an easy one since the Zimbabwean model was often used as an example of failure of restitution and often defended by unscrupulous valuators, such as in Mpumalanga. In some instances, access to information had led to such information being used against them. An ‘unspoken fear’ seemed to be that of the emergence of a successful black farming industry. Certain political parties had argued against the final lodgement date of 1998, which had been agreed upon by all parties concerned. In this way, they had tried to mobilise political support.

Mr Gwanya noted Dr van Niekerk’s suggestion regarding the Agricultural Credit Act, and in using local structures to provide expertise. Unlodged claims were covered by Section 6.2.b of the Act. In such instances, other land reform programmes could provide assistance. Mostly financial compensation had been chosen by those with urban claims, and this had not been in the spirit of the Act. It was about getting land rightfully restored to owners for the purposes of access to that land. The Belgians would be funding the Commission until 2009.

Ms Ngaleka suggested that Members visit regional offices in communicating information regarding restitution to their constituencies.

Khula Enterprise Finance briefing
Mr S Luthuli gave the Members a background and introduction to Khula Enterprise Finance Ltd. The Department of Land Affairs had conducted research in 1998, and identified the need for a body that could form partnerships with the private sector in facilitating viable land reform projects. Khula Enterprise was a wholesale revolving funding facility, providing highly concessionary loans. Khula Enterprise Ltd was funded by the Departments of Land Affairs, and Environmental Affairs and Tourism, the European Union and a Danish Development Agency. It offered mortgage loans and equity share schemes. Target sectors were the primary and secondary agriculture sectors and the eco-tourism sector. They also targeted workers from previously disadvantaged backgrounds and neighbouring communities, using a ‘balanced scorecard’ approach. Since 2001, Khula Enterprise had invested R107 million, created 2 932 jobs (1 345 for women).

Net Income had decreased from R14 million in 2004 to almost R9 million in 2006. This was due to the decrease in earnings from projects, as opposed to earnings from the money market. This Committee had expressed concerns at a previous meeting regarding the provincial spread of investments, equity share versus mortgage schemes and skills development. Improvement had occurred in all areas of concern.

Challenges for the future related to LRAD processes affecting the rate at which Khula could function. Commitment from banks had to improve in the case of potential land claims. A limited budget meant they could only invest R37 million per annum. This would increase to R49 million through recapitalisation. Intermediaries were biased towards certain provinces.

Mr George Mothoa, Business Manager of the Land Reform Empowerment Facility Business Unit, said they had a staff complement of four. Their aims were to increase geographic spread by reducing the exposure in the Western Cape and increasing exposure in the rural areas; to balance their portfolio mix by increasing percentage mortgage schemes from 33% to 46%; to source new funding of R50 million by September 2005; to increase fund sustainability by increasing rates, and to broaden product offerings.

Discussion
Ms Ntuli asked how Khula Enterprise assisted ‘micro farmers’, apart from providing them with access to mortgages.

Mr Ngema asked for clarity on the target market of previously disadvantaged workers and neighbouring communities.

Dr van Niekerk asked for more information on interest rates, the time span of mortgages and collateral. He questioned to what extent the company interacted with other departments and whether it facilitated ‘aftercare’.

Mr Dlali asked how was it possible that the Commission failed LRAD projects when Khula Enterprises stated no such instances.

Ms Ngaleka asked what mechanism had been used in determining the allocation of funds and whether the organisation had an outreach strategy to reach rural clients.

Mr Luthuli said they would be assisting micro farmers in the future. Currently they enabled transfers of land to previously disadvantaged individuals and ordinary farmworkers to buy a share of the farm they worked on. Financial support was needed to effect more change. Neighbouring communities benefited from projects, especially with employment and through the profit ploughed back for building childcare facilities, etc. This was particularly the case with tourism projects

Ms van der Merwe insisted that there were many successful LRAD projects. Mr Luthuli added that of all 30 LRAD projects to which they had provided loans, none of them had failed.

Mr Mothoa said they had provided twelve-year loans. Payment on the loans had been deferred for up to four years. Collateral was based on whether an equity share agreement had been entered into, in which case a cession of shares could be used as collateral. In the case of a mortgage, an underlying property could be used. Their relationship with intermediaries was healthy. He admitted that as a development finance institution, they had not paid enough attention to aftercare. They had dedicated internal staff to address the issues of capacity, monitoring, evaluation, aftercare and sustainability.

Previously Khula Enterprises had spent 80% of its funds in two provinces. This was an historical fact that needed redressing, but did not mean that these two provinces would be allocated no funds at all. They simply needed to limit funding to these areas. Therefore 25% of their funding would be allocated to Gauteng, Kwazulu-Natal and the Western Cape. Certain provinces were not agriculturally prominent and would receive very little. The balance of 75% would go to the remaining six provinces.

Marketing of their services was facilitated largely through their intermediary banks. They would become more proactive by acquiring corporate partners and getting large institutions on board. Provincial Land Affairs officers had also exposed potential clients to their presence.

Dr van Niekerk asked whether there was a limit on what they could offer clients, and how did they went about getting clients.

Mr Mothoa said many clients approached them directly, others through intermediaries. They would link up with the intermediaries in approving the funding after having completed the due diligence processes. LRAD projects required one month for internal approval from the provincial Department of Land Affairs. Khula Enterprises then approved the complementary investment together with representatives of the funders. The limit per client was R400 000 per individual benefit in the case of equity share agreements, and R600 000 per individual in the case of mortgages. They did not have a relationship with Landbank, because their original purpose was to leverage the private sector.

The meeting was adjourned.