Land Bank: 2007/08 Strategic Plan and Budget

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Meeting report

 

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
04 September 2007
LAND BANK: 2007/08 STRATEGIC PLAN AND BUDGET

Chairperson:
Mr R Mohlaloqa (ANC)

Documents handed out:
Land and Agricultural Development Bank (Land Bank) Corporate Plan: Presentation
Land and Agricultural Development Bank) Land Bank) Corporate Plan 2007/2008
Committee : Programme of Oversight Visits, September 2007

Audio recording of meeting

SUMMARY
Mr Rubben Mohlaloga took office as new Chairperson of the Committee, and welcomed the Minister, Ms Lulama Xingwana.  

A delegation from the Land and Agricultural Development Bank (Land Bank) briefed the Committee on Land Bank's strategic plan and budget for 2007/2008. This appearance was the follow-up to the meeting of 07 August, when the absence of senior leadership was regarded with extreme displeasure by the Committee.
The presenters outlined the mandate and governance of the Bank. The corporate plan took into account the macroeconomic outlook in the agricultural industry. Rise of producer prices and land prices had led to increased optimism in agriculture. Credit risk was still a problem but new opportunities were inviting a different focus. The new business model was outlined. It aimed to include all levels and transform subsistence and emerging farmers into commercial farmers. The performance indicators were tabled. The key challenges were to find a proper mix of resources, and Land Bank would shift its focus from commercial farmers to development financing, focusing particularly on the black emerging farmers and agri-business.  IT would also promote, facilitate and support ownership of and access to land by the previously disadvantaged groups, and support financial services to the agricultural sector. The emphasis was to be on commercialisation at all levels. The new model was set out, and the strategy plan had identified a number of internal arrangements to strengthen the business. Development should grow by R300 million in 2008, R1bn in 2009 and R2bn in 2010. A full financial statement would be tabled at the time of the next budget.

Some Members expressed their grave concern at the performance of the Land Bank, in particular a perceived rapid turnover of senior staff and the disappearance of assets, queried sustainability of the Bank's continued operation, and asked if the forensic audit report on the Land Bank would be made public. The Minister for Agriculture and Land Affairs gave an historical perspective of the Land Bank as explanation for its present situation. ANC Members were concerned about how Land Bank would fulfil expectations, insufficient marketing of the Land Bank's services, especially in rural areas, and its lack of accessibility. They queried the need to simplify the mandate, the high interest rates, the marketing plans, progress since the last corporate plan, impact of the strategy on performance, initiatives undertaken to achieve agricultural black economic empowerment, and benefits to women, youth and people with disabilities. Further questions concerned bad debts, the need to uplift poor farmers, and attachment and sales in execution of land.

MINUTES
Election of new Chairperson

Mr Reuben Mohlaloqa (ANC) was elected Chairperson in succession to Ms D G Nhlengethwa (ANC).

The Chairperson welcome the Minister of Agricultural and Land Affairs, Ms Lulama Xingwana .

The Chairperson thanked the Committee for their confidence in him, expressed his pleasure at "robust membership" of the Committee and complimented the excellent work done by his predecessor Ms Nhlengethwa.

Land Bank presentation
Mr Lungile Mazwai, Chairperson of the Land and Agricultural Bank (Land Bank) noted that the Land Bank was an agricultural development finance institution wholly owned by the South African Government providing retail, wholesale and project financing to development and commercial farmers as well as agri-business entities. It was the sole shareholder of the Land Bank Insurance Company (LBIC) which provided insurance products to the Land Bank's clients.

The Land Bank was governed by the Land and Agricultural Development Bank Act 15 of  2002, the Commission of Inquiry into the Provision of Rural Financial Services, 1996 (Strauss Commission) and other relevant policy framework documents including the Agricultural Sector Plan. The Land Bank was exempt from the payment of income tax. It did not pay dividends to its shareholders.

The corporate plan took into account the macroeconomic outlook for 2007/2008 for the South African agricultural industry. There had been a rise in producer prices in response to a weaker rand, and firming of grain prices internationally. Land prices were rising and optimism in agriculture had improved. There was still the problem of credit risk in agriculture. However, opportunities in the value chain had created and invited a different focus for the Land Bank. All stakeholders in the food value-chain were expected to benefit from the improvement in the financial position of agriculture.

The Land Bank's new business model emphasised integrating new players into the agricultural sector's mainstream as a first priority, and continuing to participate in the agricultural value chain. It would focus on activities to transform both subsistence and emerging farmers into commercial farmers. It sought to achieve this by co-operatives, provincial developmental financial institutions and other supportive structures.

Nine performance indicators were identified, which were employment creation and maintenance, establishment of emerging farmers, conclusion of black economic empowerment transactions, percentage growth in the development loan book over three years, performance of the development loan book, provision of advisory services, geographic spread, working closely with the Department of Agriculture (DOA) and with the Department of Land Affairs (DLA) in respect of the integrated grant management process, and food security at both national and household levels. Implementation of the business model would run concurrently with the realignment and review of the Bank's internal processes.

The key challenge was to find a proper mix of resources that would allow the Bank to direct its activities towards most needy sectors. The Land Bank currently focused on commercial farmers but must shift to development financing, focusing particularly on the black emerging farmers and agri-business in support of the development mandate. It aspired to make prudent investments and use its financial resources for the development of farmers and the rural economy.

Land Bank had set itself the task of promoting, facilitating and supporting ownership of and access by previously disadvantaged groups to agricultural resources such as land. It also sought to promote, facilitate and support financial services to the agricultural sector of rural South Africa. It would continue to support commercial agriculture to enhance and maintain food security at a national level, and support creation of employment in the sector.

The new vision and orientation would mean a decease in some of the Land Bank's current activities. The new initiatives lay in processing of agricultural products, production of bio-fuels, areas with growth potential within the agri-business sector, black economic empowerment opportunities, rural credit markets, and insurance markets. The emerging sector should be especially targeted. The emphasis was to be on commercialisation at all levels.

Department of Agriculture statistics stated that there were currently 3.5 million farmers, of whom 40 thousand were commercial, 240 thousand emerging, and the remainder subsistence, the majority of whom were rural households. Mr Mazwai tabled and explained the difference between commercial, emerging, subsistence and small scale farmers (see attached presentation). He noted that development for subsistence farmers should not just be about tilling the soil, but bringing them into the mainstream agriculture market, where they could graduate to emerging farmers and then to commercial farmers.

The Land Bank's new modus operandi envisaged 100% loans to commercial farmers, support on the basis of 60% loan and 40% grant to emerging farmers, and 100% grants to subsistence farmers. Together with the DOA and DLA it hoped to become a one-stop agency for the distribution of grants in the agricultural sector.

Land Bank initiatives were being fully aligned with government programmes and initiatives to deliver employment creation, economic empowerment, skills development and infrastructure, poverty alleviation, agricultural development and support.

The Land Bank, in its strategic plan, had identified internal matters to turn around the business. All projects would assume a commercial posture, all Land Bank Products would be branded, there would be partnerships with other organs of state and with co-operatives, and with other development finance institutions and commercial banks. Specific accountability indicators had been devised. Its way forward would be the development of implementation plans for the new business model, with operational and financial strategies to be finalised by 30 November 2007. It was envisaged that development would grow by R300 million in 2008, R1bn in 2009 and R2bn in 2010. The Land Bank had still to complete a detailed review of operating expenditure required to support the revenue stream.

Mr Xolile Ncame, Chief Financial Officer, Land Bank, said that there remained only six months before the next budget was due; therefore, not much was expected to change in the financial figures. In the next three years the full impact of the new model would become apparent.

Discussion
Dr A Van Niekerk (DA) asked if the new strategy was an instruction from the Land Bank's shareholder, the Government. He questioned the Land Bank's ability to implement its strategy and referred to promises in its previous annual report. The presentation had not addressed the seriousness of the Land Bank's finances. Commitments had to be fulfilled and strategies followed through. It appeared that the commercial banks had taken over the Land Bank's best clients, leaving the Bank with mainly a high-risk clientele. He believed that staffing at the Land Bank was in a deplorable situation with 40% of positions remaining unfilled and a poor state of affairs in the top structures. He alleged that there had been three chief executive officers in the past three years. He asked what the Land Bank could hope to achieve without the necessary personnel. There were many examples of assets that had disappeared. There was not enough capital. He doubted that the Land Bank could be kept afloat.

Ms Lulama Xingwana, the Minister of Agriculture and Land Affairs, responded with an historical perspective on the Land Bank, which had its origins as an institution to give support to poor white farmers and keep farmers white.

Dr Van Niekerk believed it was unfortunate to revert to politics.

The Minister continued  that a skills audit was in progress and staff would be redeployed as appropriate. She requested Dr Van Niekerk to read the Land and Agricultural Development Bank Act, 2002. She noted that the reference to three chief executive officers in as many years was incorrect, and noted that he should not mislead Parliament.

Mr Mazwai said that the Government was determined to support the Bank in fulfilling its mandate.

Dr Philemon Mohlahlane, Acting Chief Executive Officer, Land Bank, said that with regard to vacancies, the Bank was on a learning curve. He noted that the Bank had always worked through other people and agencies, and therefore was re-engaging with non-governmental organisations and co-operatives. The Bank was obliged to learn from the best practices of others. It had linkages with the commercial banks, and it was not true that the commercial banks were taking the best clients. It was not the Bank's aim to compete with commercial organisations.

Mr J Bici (UDP) asked if reference was made to the Shunduka Turnaround Strategy, that had been  mentioned in the Annual Report for 2005/2007. He asked when the Acting Chief Executive Officer had commenced his duties and when a permanent appointment was expected.

Dr Philemon Mohlahlane said that Land Bank had a new business model and that the process had begun to recruit a new and permanent chief executive officer.

Mr Bici asked what criteria were used to determine if an emerging farmer qualified to be considered as a commercial farmer, and what could be done to help Eastern Cape farmers in times of drought. He asked if  interest had to be paid on the money borrowed. He criticised the budget, which he said was too abridged.

Mr Ncame said that interest had to be paid on money that the Bank borrowed. A more detailed budget would be presented to the Committee at the beginning of March 2008. That budget would cover the years 2008, 2009 and 2010. 

Mr S Abram (ANC) suggested that the mandate should be simplified. There should be increased shareholder funding. The whole issue of the budget should be reviewed. It was not necessarily the case that there should be only an annual budget presented to the Committee as a six monthly budget review would assist the Committee to observe trends.

Mr Abram asked why R1.279 million had been expended on interest, as set out in the income statement, especially in view of the high interest rates charged by the Land Bank itself.

Mr Xolile Ncame, Chief Financial Officer, Land Bank, said that the Land Bank derived most of its revenue from interest; unlike other banks, it could not charge facilitation fees.

Mr Abram noted that the Land Bank's previous corporate plan had promised new delivery channels, and he asked what progress had been achieved, and what had been the strategy's impact on the Land Bank's performance. In particular he queried what initiatives the Land Bank had undertaken to achieve agricultural black economic empowerment and to benefit women, youth and people with disabilities.

Mr Abram asked what mechanisms the Land Bank applied to recover bad debts.

Finally Mr Abram noted that the Land Bank must work with "dedication and patriotism" and do its utmost to help the people. Its staff must not be motivated merely by the prospect of performance bonuses and benefits.

The Minister said that the forensic audit of the Land Bank was in progress. Other funding models and practices of other countries were being considered. She agreed with Mr Abram that there should be no bonuses unless earned by good performance. Referring to a previous question, she asked Dr van Niekerk if he could substantiate the allegations around the assets that had disappeared, so that steps could be taken to recover them.

Mr A H Nel (DA) expressed the opinion that the Minister was again reverted to politics. A development institution such as the Land Bank was of the utmost importance. He asked if the forensic audit report would be made public.

Mr D Dlali (ANC) said that it was necessary to give details as to how the Land Bank would deal with expectations that had not been met. The Land Bank's services were insufficiently marketed, and there was a need to make it accessible to those it wished to benefit.  In the villages few people knew about the Land Bank, but only about the commercial banks.

The Chairperson asked if the Land Bank had a comprehensive communications strategy and sufficient communications resources.

Mr Herman Moeketsi, General Manager for Corporate Development, Land Bank, said that the Land Bank had such a strategy. It was working with the Post Office, supporting public information terminals, multi-purpose community centres, and was also working closely with the Department of Provincial and Local Government, and interacting with rural communities by means of shows and exhibitions.

The Chairperson asked if the Land Bank had a performance management system.

Mr Mazwai responded that the Land Bank had such a system. If a person failed to perform, he would not be given a bonus. It was "a reward and retention system."

The Chairperson said that the Committee should study the Land Bank's performance management system.

Adv S Holomisa (ANC) asked why clients would approach the commercial banks when the commercial banks' conditions were more onerous.

Mr Mazwai responded that clients would go to other banks because of perceptions of poor service on the part of the Land Bank, as well as the range of other services offered by the commercial banks.

Advocate Holomisa said that many clients had been unable to repay loans and had thus lost their land when it had been sold in execution.

Mr Mazwai said that in such cases the provincial DLA was asked to make an offer for the land that had been attached as a result of the client's inability to repay the loan. Failing that, the land would be sold in execution.

The Chairperson said that time did not permit any further questions or responses at present. In the fourth parliamentary term the Committee would have the opportunity to engage with the Land Bank on its Annual Report, and also on the forensic report review.

Programme of Oversight Visits, September 2007
The Chairperson asked the Committee Secretary to give background information on the oversight visits from 16 to 19 September 2007 to Mbizana. The Secretary explained that it was intended that a number of Portfolio Committees conduct visits and report at the People's Assembly. Members made suggestions that the irrigation scheme in the Queenstown area should also be visited, as well as Pondoland and Kokstad. Another suggestion was that half the time suggested be spent in Mbizana, with the remainder being spent in more problematic areas, where intervention and assistance was more urgently required.

It was agreed that further information would be obtained, and it would be conveyed to Public Affairs that the Committee needed to visit other places. Final details would b  circulated.

Adoption of Committee Programme for the Fourth Term
The Committee discussed and adopted provisionally its working programme for the fourth parliamentary term.

The meeting was adjourned.

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