Landbank & Khula Enterprise Finance Annual Reports & National African Farmers Union briefings

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Meeting Summary

A summary of this committee meeting is not yet available.

Meeting report

AGRICULTURE AND LAND AFFAIRS PORTFOLIO COMMITTEE
6 November 2007
LANDBANK & KHULA ENTERPRISE FINANCE ANNUAL REPORTS & NATIONAL AFRICAN FARMERS UNION BRIEFINGS

Chairperson: Mr M Mohlaloga (ANC)

Documents handed out:
Landbank Annual Report 2006/2007 [available at www.landbank.co.za]
Landbank Annual Report 2006/2007 Presentation Outline
Brief Analysis of LandBank Annual Report 2006/2007
Khula Enterprise Finance Limited 2007 Annual Report
Khula Enterprise Annual Report Performance Review [Part 1][Part 2]
Khula Enterprise Finance Ltd Presentation to Portfolio Committee [Part 1][Part 2]

NOT RECORDED

SUMMARY
The Deputy Minister of Agriculture and Land Affairs, Hon Dirk du Toit, was welcomed to the meeting.

LandBank outlined the challenges facing the agricultural sector, which included negative contributions, the fluctuations in the rand, the declines in net farm income and low maize prices which resulted in reduced planning. LandBank’s Land Development Funding transactions had led to a Forensic Audit which was finalised in early September 2007 and forwarded to Cabinet for consideration. Positive developments were summarised. LandBank had assisted 15 000 clients and had provided R793 million funding. It contributed to skills by providing 48 bursaries. The accounting system had changed, and income was increasing. Some sums that had been written off were now written back; and bad debts were generally reducing, although focus was placed on a case caused by a land claim. There were quarterly reports. The audit had been qualified, in respect of the land development schemes. A decision had been taken to focus on development rather than profit.

National African Farmers’ Union commented upon the presentation. It represented black emerging farmers and was a signatory to the Sector Plan that aimed at equity participation by all parties and efficient use of resources. It felt that the current government was not doing enough for white and black agriculture. Major challenges lay in availability and cost of land, the availability and cost of finance, limited skills, lack of market information and a limited voice. The Union wished to have better plans and targets and felt that the LandBank’s turnaround time for loans was too long, and the loans too expensive, with foreclosures and repossession being a problem, as well as insufficient after-care being given. The Union suggested that LandBank should change direction, have better consultation and reduce financing costs. Interventions should assist both the farmers and black businesses to support farmers. It did not feel that LandBank was fulfilling its developmental mandate.

Members raised a variety of questions, but emphasis was placed on loans to Board members, which were now regarded as bad debt, assistance to bursary holders, and the apparent deviation from the mandate by entering into Land development schemes. Lack of internal controls, the disjuncture in the new business model, the struggling projects, the biofuel developments, and the forensic audit were also questioned. There was a sense that LandBank was driven too much by profit motives, that there was insufficient planning and inadequate consultation and improvement to people’s lives.

Khula Enterprise Finance Limited reported on its activities. Khula activites covered 6 000 farmers in 49 projects to a value of around R180 million. It concentrated on assisting black people, with a focus on tourism and agriculture activities. Income came from funding, including from the LandBank, but those funds not immediately required would be invested. The main aim and intention was training and capacity building, and Khula would become involved in projects where the commercial banks were not prepared to invest. The cost of finance to a Khula borrower was currently prime, plus 3%. Khula still needed to maximise profits against development. Members raised queries on the identification of and criteria for projects, its assistance to women, the need for a better balance of projects, and the unfortunate disappearance of co operatives.


MINUTES
The Chairperson informed the Committee that he had received written notice that Dr Philimon Mohlahlane, Acting CEO of LandBank had been required to have urgent medical treatment on the day of the meeting, and that accordingly his presentation would now be made by Mr Lungile Mazwai, Chairperson of the LandBank.

A welcome was extended to the Hon Dirk du Toit, Deputy Minister of Agriculture and Land Affairs.

Landbank Annual Report Briefing
Mr L Mazwai, Chairperson, LandBank, stated that his verbal presentation would differ from the prepared written presentation.

Mr Mazwai began by outlining some of the challenges with which Agriculture was faced, including a negative contribution of 13%, the fluctuations by the rand, which had impacted severely upon Agriculture, and the decline in net farm income over the preceding three years by 48%. The maize industry was faced with a low price in 2005, and this resulted in reduced maize planting in 2006 and a drought in 2007. Land Development Funding transactions (LDF) had led to a Forensic Audit which was finalised in early September 2007 and forwarded to Cabinet for consideration. The result of the forensic audit was that all LDF would be stopped from 22 February 2007, a divestment from LDF, which was a work in progress as such schemes could not simply be dropped, and a recognition that there was a dichotomy between development and profitable and sustainable interventions, especially as there was a call for development interventions by the LandBank.

Ms
Nopasika Lila, Deputy Chairperson, LandBank, said that despite the prior problems with maize, as already set out, the general outlook for maize was promising and the LandBank was determined to focus on assisting clients. In fact the cumulative contribution to empowering developing farmers was R793 million, divided among 15 000 clients. There had been a contribution to the Joint Initiative on Priority Skills Acquisition (JIPSA) in that R3.2 million was spent on 48 bursaries, and although Gauteng received the overwhelming majority all the other provinces, except Western Cape, also received a share.

Mr Xolile Ncame, Chief Financial Officer, LandBank then stated that the accounting procedures had been changed to allow conformity with Internationally Generally Accepted Accounting Practices (GAAP) so that interest generated was no longer used to balance non performing loans. A result was that income was increasing. These changes had been running over the last two years, leading to a cleaning up of the business. Some sums that had been written off were now written back; a trend in the right direction. Although the bad debts were reducing, one case caused by a Land Claim had led to an increased provision for bad debts. Losses from bad debts were declining consistently. The loan book was considerably increased but was showing a degree of stabilisation. The capital basis of the bank was being reduced while reporting standards, in line with Treasury requirements, were upgraded. There were now quarterly reports, and a revaluing of the loans to a fair value and the Treasury target was being achieved.

The qualification to the report of the Auditor General (AG) arose because the margins were quite tight with a new product, and so the question was asked how to achieve bigger margins or more profit. A decision was taken to enter into land development schemes. All land in South Africa was demarcated as agricultural, unless it had specifically been removed from the agricultural land register, so it was deemed justifiable to develop agricultural land for purposes other than agriculture development. The LandBank thus made a decision to become involved in Land Development schemes by lending money to the schemes and taking an extra percentage from the profits of the schemes. There were two challenges to this view from the shareholders and from the Auditors, who queried whether this fell within the mandate of the LandBank. In view of the challenges a decision was taken to get out of this activity, and it was stopped in February 2007. The qualification related to this activity

LandBank was now looking forward and a decision had been taken to focus on development rather than profit, bearing in mind that the borrower must be able to re pay the capital and the interest.

National African Farmers’ Union (NAFU) Address
Mr Molefe Mokoena, Chief Executive, National African Farmers Union (NAFU) addressed the Members. He stated that NAFU represented black emerging farmers and was a signatory to the Sector Plan that aimed at equity participation by all parties and efficient use of the money or resources. The chief question was access to, and participation in, the funding for agriculture. NAFU felt that the current Government was not doing as much for white and black agriculture as the 1910 Government had done for its white farmers.

NAFU saw the major challenges as the availability of land, and its consequent cost, the availability of finance, and its consequent cost, lack of market information, limited skills and a limited voice. With regard to the development of black farmers NAFU wanted targets, plans and reports, and an agreed percentage for all farmers. It lamented the qualification raised by the AG. The turn around time for applications for loans was felt to be unconscionably long. LandBank (LB) was very thin on the ground. Foreclosures and repossession was a problem. Although LB was not the only player in this regard, there were outstanding questions around after care to recipients of LB loans, the high interest rates on LB loans, and insufficient contact by LB with the emerging farmers and the poor. These factors were impeding development.

NAFU wanted to see a new direction from LB. It suggested there must be a different work ethic, consultation with the stakeholders and a reduction in financing costs. From the perspective of NAFU there were two interventions by the LB in the food chain – one was delivery up to the farmer’s gate and another after the farmer’s gate. The first involved individual black farmers and the second involved black business. The erosion and disappearance of the co-operatives was a huge loss, which impacted especially upon the black farmers. The cost of finance was not only of concern but was a substantial handicap.

Mr Mokoena added that the collective view of NAFU was that the LB had not worked for them. It did not seem to be discharging its developmental mandate, and the comparatively few black farmers who were in the competitive business considered that immediate change was necessary. There should be focus on the developmental side of the LB, and black farmers and agricultural development must be targeted. He referred to an article dating back to 1972 which, even then, had questioned the profit motive of the LB.

Discussion
Mr Mazwai indicated that he would attempt to answer all the questions that would be raised as crisply as he could but noted that he was not a full-time member of the Board and so did not have all operational information at his finger tips.

Mr D Dlali (ANC) raised a number of issues. He was concerned that the Board members had received loans which were now regarded as bad debts, and he wanted to know what measures were being taken to recoup such loans.

Mr Mazwai said that with regard to bad debts loans there was no action taken by the LB because it was a function of the Minister, and that office was taking action.

Mr Dlali enquired for detail about the demographics of the bursary holders, the criteria on which selections were made, whether solely agricultural or solely educational, and whether, on graduation, the bursary recipients would be taken into employment or left alone to find their own way.

Mr Mazwai responded that bursaries were not specifically given for agriculture subjects but awarded on merit. Where the subjects studied were of use to the bank, internships were created for the bursary recipients, but if not, then the bursary holders were left to their own devices after graduating. The concentration on Gauteng arises because that was where the most qualified applicants came from.

Mr Dlali asked why the LB had deviated from its mandate by entering into Land development programmes or schemes. He viewed this as a contravention of the legislative intention behind the LB, and wished to know what actions had been taken against the persons responsible.

Mr Mazwai said that the LDF had been an attempt to produce new or additional sources of revenue for the bank. It was believed at first that the LB was acting within its mandate and although it was early days, there appeared to be no loss from these activities that had been ended. The LB had not withdrawn but was trying to sell of the whole book of such investments.

Mr Dlali said that lack of internal controls was a concern and he wished to know what preventive measures were to be put in place to prevent this in the future, and how this concern was to be resolved.

Mr Dlali did not think the new business model made sense. He asked how it was envisaged that black farmers would participate in bio-fuel schemes. He wanted a provincial breakdown of the assistance to black farmers and black emerging farmers.

Mr Mazwai commented that with regard to the approach to, or distinction between, black farmers and black business, the LB was concerned about both elements, but regarded (black) farming as any activity which ends at the farmer’s gate and (black) business as any farming or agricultural related business that began at the farmer’s gate and that concerning agriculture or farming as a whole

Mr A Botha (DA) referred to the struggling projects and the LB projects, and wanted to know why, when such applications were considered, no thought was given to the availability of markets as a deciding factor.

Mr Mazwai noted that the approach of LB was to seek out a business that was struggling and attempt to resurrect it by means of a monetary and skills transfer. Occasionally the intended result did not happy, or the funding might prove inadequate. The LB was addressing such issues.

Mr Botha thought that Bio fuels were not viable without blending, as an attempt against changes in the prices of bio fuels, and he wanted to know what arrangements were being made in this regard.

Mr Mazwai said, in relation to bio fuels, that although there had been exploration, there were in fact no plans in this regard and so there was no answer at this stage other than to say the matter was proceeding slowly.

Mr J Bici (UDM) expressed concern that such presentations were too rosy and not realistic. He thought that the question of projected cash flow, when considering applications, was irrelevant.

Mr Bici asked if the LB had been making any presentations to any political parties or caucuses before making presentations to this Committee. He also asked if anyone had brought political pressure to bear on the LB to move outside its mandate.

Mr Mazwai responded that there was no political influence in the LDF decisions. The motivation was that such activity was viewed as within the LB’s mandate and the intention was to acquire a stake in the food chain. As regards political influence, because the General Secretary of the ANC was one of the Trustees/ Directors associated with the enterprise, the matter was referred to the Public Protector for an opinion and he had cleared the scheme as being without political influence.

Mr Bici, speaking of the forensic audit, asked why Members of this Committee had not been favoured with a copy of the audit document, so they could exercise their oversight properly.

Mr Mazwai noted that the forensic audit was initiated by Cabinet, which “owned” the results and until Cabinet had met and discussed these results, they remained in the preserve of Cabinet. preserve.

Mr Bici, with regard to the non agricultural development, wanted details of the persons involved in each scheme and also details of the land involved and the financial arrangements.

Mr A van Niekerk (DA), commented that the time allocated to this matter was too short to allow proper oversight to be done.

Mr van Niekerk agreed with NAFU that LB was concentrating on the profit motive and not its developmental function. He felt that the developmental aspect was depleting the LB’s capital and that this was something government could increase only by way of subsidies. He thought that LB was in possession of previous plans, which could be quickly updated and implemented. He was worried that if the haphazard approach continued, LB would run into one difficulty after other.

Mr Mazwai apologised for the fact that sometimes in the exuberance of development there had been insufficient planning. This strategy was implemented two years ago and the LB was trying to implement.

Mr van Niekerk was worried that there was no attempt to identify problems and weaknesses. He called for an assessment of the issues both in numbers and individuals, and noted that this would require some details that had not been presented.

Mr van Niekerk asked if the LB officials had declared their financial interests as recipients of loans. He stated that each person concerned should be asking the questions, not leaving it to others to volunteer information. He also asked what procedures had been implemented for the recovery of loans.

Mr van Niekerk noted that in the Mafisa loans, one person had received a R15 million loan, which had gone sour and been written off. He added that R300 million was a lot to write off as bad debt.

Mr van Niekerk asked if the CEO had received a full bonus, or merely part, if any at all, and what were the criteria.

Mr Mazwai noted that the CEO and the CFO had both been paid full bonuses. The CEO had been paid R546 000, but in this regard he referred to page 99 of the Annual Report, where the bonus was stated to be R1 million. There was a performance basis on which such bonuses were established. 75% of the desired changes had been effected under the CEO’s work. He was therefore given a rating of 4, which entitled him to a bonus of 50 % of his annual salary. If he maintained or bettered such a rating for three years he was entitled to 100%.

Mr van Niekerk commented that if this Parliamentary Committee did not receive the information on the LB there was no way in which Parliament could perform its constitutional oversight functions. He noted that full disclosure was required. The questions he had posed were serious and required full answers.

A Member noted that if an institution was to be successful it must play by the rules. The agricultural sector had to comply with the ability to use the land, weather and climactic conditions. Similar to NAFU he wanted to see the LB consult with smaller farmers and groupings, especially the emerging farmers. He wanted to know how many emerging farmers had been dispossessed of their land by the LB in an effort to recoup loans. He also asked how did the LB quantify the assistance it was giving to emerging farmers, and how long would it take for emerging farmers to become sustainable.

Mr Ncame said that he was not in a position to give the numbers of the black farmers that had been evicted from their land as a result of legal action to recover the loans on which they had defaulted but would liaise with NAFU to establish the figures.

Mr S Abram (ANC) said that he wanted to be brutally frank. The people on the ground had had enough. They were not seeing any improvement in their financial and social conditions. He agreed with NAFU that the turn around times for applications to the LB were too long and the detail required by the LB was too onerous and inconsequential. Much of the information required had no bearing upon the security for a loan. LB wanted more security than even the commercial banks. In addition, the interest rates upon loans by the LB were too high. He agreed that LB must make a profit or go out of business, but it was not doing so in the right way.

Mr Mazwai noted that in regard to the weaknesses around interest on page 45 of the Report, the product had been stopped and there were no new transactions contemplated.

Mr Abram asked what was the intention of the post-1994 Government with regard to agriculture, the LB and emerging farmers, especially when this was measured against the intention of the 1910 Government when it had established the LB. White farmers, whatever their ages, could have received a loan from the 1910 LB, and his descendants would have been left in peace to pay it off, which was no doubt the reason why one farm had been farmed by one family for generations. He urged that the distinction between developmental functions and commercialisation be established and maintained in favour of developmental issues.

Mr Abram felt that interest rates charged by the LB were untenable. He urged that the LB remain within the parameters of Government policy. He asked what was the inhibition in terms of the mandate and asked that the frustrations of the people on the ground be remembered.

Mr N Singh (IFP) suggested that the answers to the numerous questions should be provided in writing.

Mr Singh did not think that sections of the Annual Report, in particular page 43, made for good or easy reading. There was a huge difference between developmental and commercial activities. He asked whether there was a need for LB as it seemed to be encroaching on the activities of the commercial banks.

Mr Singh too asked why the Forensic Audit report had not been made available to the Committee and wanted to know what the police consequences of this report were.

Mr Singh agreed with NAFU that details on broad based black economic empowerment (BBBEE) must be given, otherwise it seemed that a restricted small group was once again benefiting.

Mr A Nel (DA), referring to page 6 of the Annual Report, asked how a bad debt could arise from a land claim, where the person against whom the claim was made was paid out by the Land Claims Commission.

A Member of the Landbank delegation explained that when the loan application had been received security checks had been undertaken. The Land Claim against the relevant property emanated from pre- 2004 and was not noted against the Title Deeds. It could even be that the current owners were themselves unaware of this pending claim. Based upon the estimated or future cash flows, a loan application for a certain amount of funding was requested and approved. The loan made was not for the actual security offered, but was based on the legal spes (a hope or expectation of the estimated future cash flow or profits from the enterprise itself). The loss came from the nature of this cash flow differential. The LB only became aware of the land claim in 2007, for it had been lodged, but not published or noted against the Title Deeds.

A Member asked how LB went about rehabilitating struggling schemes, and what kind of support was provided. She wondered whether, in its chase for profit, the LB was not forgetting its developmental role and expressed concern that the ASGISA projects, based upon bio fuels, would be more concerned with profit than food security.

A Member asked what the “little problem” referred to on page 44 of the Annual Report was.

A Member said that she would like to have clarification on the LandBank Act and the Public Finance Management Act (PFMA).

The Member agreed with NAFU that there must be greater and easier access to finance. Black farmers had been struggling for access to finance for ten years and were still not getting it. LB, in her view, must act quickly and grant access.

The Member commented that there was additionally a lack of contact and communication by the LB and it should be working in conjunction with the Departments of Agriculture and Land Affairs to assist poor blacks. Empowerment of developing black farmers should be attended to quickly.

Adv S Holomisa (ANC) wanted to know what kind of support the LB was giving to non-commercial farmers

Adv Holomisa asked what the consequences of the fraud as referred to on page 44 of the Annual Report had been.

The Chairperson was concerned about funding.

The Chairperson asked if the LB had sought legal opinion when it had deviated from its mandate and entered other fields of endeavour, and also asked if this was done with or without the concurrence of the departmental representatives on its Board.

The Chairperson was concerned about the time frame for loans, and felt that some people had no chance of getting loans.

The Chairperson wanted details on the losses, and also on the loans made by officials of the LB to themselves.

Mr Mazwai noted that the Loan Committee of the LB met every two weeks to appraise loan applications.

Mr Xolile Ncame then added that it was mostly Black People who were members of the Board and they followed the principles of good governance, so that if anyone should have an interest, even marginally, in a scheme for which a loan application was made, then such person recused himself from the deliberations about the application. There were only one or two examples of this.

Mr Botha interjected that he still felt that the approach was wrong.

Mr Xolile Ncame added that the PMFA was adhered to.

Mr van Niekerk requested greater details to be supplied

Mr Xolile Ncame then stated that before and at every meeting of the Board the members were requested to identify their interests and place these before the Board in writing, and thereafter the Auditors would do a check upon the information supplied and the activities of that Board Meeting. With regard to Mafisa one person had a loan of R15 000.00 and action was now being instituted to recover it. He further elaborated by saying that the figure of R300 million mentioned in relation to Mafisa was incorrect. It had been R18 million and the Mentor/ Project Manager had committed fraud. This defrauder was linked to someone in the LB who had now been fired, and the whole matter was reported to the Scorpions. The LB had investigated all related transactions and the activity at this stage seemed confined to one branch. The LB felt that the problems had been nipped in the bud but was now very conscious of possibilities of fraud.

Mr Bici asked whether the criteria upon which the bonus decisions were made were ever improved or made more stringent

Mr Mazwai stated that during the hiring negotiations it was agreed up front what the bonuses were to be and that they were input, not output driven. Thus if the person concerned achieved a rating of 4 or more he was entitled to a 100 % bonus. In the case of the CEO, it was felt that he had deserved a certain percentage of his salary as a bonus, and so he had been awarded that.

Mr Xolile Ncame indicated that at his own hiring interview he had indicated that as a partner at KPMG he had been receiving a certain figure, and had enjoyed a commensurate lifestyle. In the negotiations regarding his employment by the LB, it was put to him that he could not expect to earn the same figure that he had been earning at KPMG but, to ensure that he would not be lowering his standard of living by leaving KPMG for the LB, a remuneration figure was agreed upon, and also an agreed bonus, to be paid once a year, by which he could match his KPMG earnings. That was the basis on which he was engaged.

Mr Ncame then commented generally on some of the other points and comments that had been made, as follows:

With regard to the development of the black sector of agriculture, he noted that changes were coming but the R700 million Rand was not a lot of money for this recapitalisation project.

Mr Ncame commented that adequate transfer of skills would be a long term matter. He quoted Basil Davidson, who had estimated that it took a farmer 20 years to master his business. He would think that this was probably about the right time frame in which a black farmer could move from emerging farmer to established farmer status.

Mr Ncame said that the LB took its contact with and relations with its clients very seriously. It was looking at ways and means of increasing its footprint and it was felt that it was just a question of time for the Commercial Farming Units (CFUs) to change, with a consequent shift.

Mr Xolile Ncame said he perceived 5 considerations as impacting upon whether LandBank could carry out its mandate effectively. These were provision of adequate funding, a simplification of its mandate, ongoing consultation, co-operation with the levels of stakeholders and a simplified approach. He added that food security was becoming an increasingly important consideration. Although this phrase was open to interpretation, he felt that if food security was to be assured, then the mandate of the LB should be changed.

Mr Ncame added that he felt that a consistent policy was required, for the shifts in policy made the role of the LB very difficult. Whilst he conceded that money had been lost, in so far as it was not recovered from defaulting borrowers, these defaulting borrowers were not exclusively black people. In addition ASGISA had brought about a further change of direction. He felt that a degree of commitment and consistency was required to assist the LB. He conceded that with regard to the failures of the Dairy farm at Ennerdale near Johannesburg and the Paprika Scheme on the Orange River he did not have sufficient detail to be able to enlighten the Committee.

Another Member of the Landbank delegation added that in his opinion the LB was dealing with historical issues and that these had had a delayed impact. He saw the issue as one of inadequate funding and noted that such constraints led to the LB struggling to meet the various calls upon it. Clearly the LB house could not be fixed overnight. However, the management was embarking upon an action plan, and was trying to minimize fraud. He doubted that it could be eradicated completely.

In relation to the occurrences with the Mafisa loans, he noted that these were unexpected but that there was always a chance of this occurring.

He noted that LandBank intended to run 18 road shows in the future and that this was a publicity phrase and not, as one Member had suggested, a concentration on roads and not farms.

He added that LB required drastic changes but that he believed that these should be introduced more gradually, rather than a “Big Bang”.

The Chairperson asked whether the CEO had resigned because of the policies rather than because of an individual problem and it was conceded that this was so.

Mr Bici asked whether the individuals concerned were investigated or probed before they were appointed to the loan committee

A member from NAFU commented that he had been hearing the same themes from the LB since 1994, and the same issues were still being talked about. He appealed for direction. He reiterated that the position of the Black farmers had been postponed, the Strauss Committee recommendations were opposed, and the dissolution of the agricultural co-operatives was not objected to. He concluded by emphasizing that the LB had a responsibility to the Government of the day. It was not simply a question of the Government putting in more money for development. There must be better Executive participation. He asked exactly why the CEO had resigned and who was to bear responsibility. He warned that unless the LB changed, Black farmers would not benefit, and if nothing was done the poor would suffer.

The Chairperson cautioned that when the forensic report became available all must apply their minds to its findings sensitively. He added that performance management applied to all public entities, which in any event were subject to the provisions or requirements of the PFMA. Performance was linked to the audits and was also linked to bonuses. He felt that the LB should deal with these issues and that it was not necessary for the Auditor General to have to express an opinion on what was explicit in the PMFA. He felt that the salaries offered to the Executives and the Senior Management were not insignificant, even before bonuses. The LB must return to the issues of service delivery.

Khula Enterprise Finance Limited (Khula) Annual Report 2006/07
Mr George Mothoa, Business Manager, Khula Enterprise Finance Limited reported on the activities in 2006/2007. He tabled the provincial breakdown of activities, showing that there was a concentration in activities on the Western Cape (WC) and KwaZulu Natal (KZN), but added that steps were under way to change the provincial representation or breakdown. Around 6 000 black farmers were involved in Khula activities, which covered 49 projects and were valued at R180 million. Slide 5 reflected the equity / mortgage mix. There was concentration on black people, and the split was aimed at 55% equity; currently it was 60% and was fairly close to target. There was also an attempt to concentrate upon tourism and agriculture activities. Currently there were eleven approved projects in Eastern Cape (EC) including ostrich farming and chicken broilers. Other chicken ventures were much larger in terms of the numbers of chicks.

Mr Mothoa, tabling the slides dealing with the financial statements, noted that income was divided into operating income and investment income. Investment income related to the money market, where funds were placed either because there were no projects demanding immediate funding or with the intention of increasing government funding. It was noted that further investments would be made in other provinces. R40 million of the funding was granted by LandBank.

Khula’s main aim and intention in selecting or approving projects was training and capacity building, and it would become involved in projects where the commercial banks were not prepared to invest. A change in approach meant that Khula was requiring more equity, either by way of own funding or funding from other sources, from the borrowers so that Khula would restrict its participation to 10 % of the funding of the projects.

There was an additional qualification in that Khula’s funding must be offset between the farms, and should relate more to capacity building ventures such as weed eradication and soil preparation rather than the purchase of seed. There was a current search for suitable and experienced project managers or mentors, but farming did not lead to instant results, being viewed currently as a 9 year cycle. The cost of finance to a Khula borrower was currently prime, plus 3%. The qualifying criteria for borrowers from, or recipients of aid from Khula were tabled. The criteria (see slide 13 of attached presentation) were an attempt to rectify the legacies of Apartheid and there was perceived to be a huge market. However, the dichotomy facing Khula was that it needed to maximise profits against development.

Discussion
Mr Abrams wished assurance that the small black farmers would be assisted to emerge as farmers pure and simple, and not remain emerging black farmers for ever.

Mr Singh observed that his personal experience was that not all applications to Khula were approved. This was not Khula’s fault, but he wished to know whether the value adding aspect of the potential enterprise was considered by Khula before arriving at a decision.

Mr Ntuli wanted to know upon what basis potential projects were identified, and further how user-friendly Khula was towards the applicants. He further enquired what actions were taken or what the approach would be if it became apparent that the projects were failing. He asked how many women were recipients of Khula assistance.

Mr Bici asked for clarification between the budgeted R3.3 million and the actual R9.2 million from investment income.

Mr Mokoena of NAFU noted that there was a concentration upon increased value and urban projects and requested a greater balance in future. Additionally he felt that there were many entrepreneurs, and he wanted to know what time lines there were, and whether the lessons from learned from the past were being appreciated and applied. Again, he regretted the disappearance of the agricultural co-operatives f

Mr A van Niekerk said that Khula seemed to have many successes and was extending sustainable aid to the formerly deprived. He remarked that Khula’s money was not cheap but nevertheless seemed to be making a difference. He asked for a list distinguishing the failures and success, among which he counted the scheme at Grabouw where many people who had formerly had very little had been brought into the commercial mix.

Mr Mothoa said that he would try to answer all the questions in general. He conceded that there had been a concentration upon the WC and KZN but he said the slides reflected a decreasing concentration upon these two provinces to the benefit of the other provinces. He conceded that the situation was not perfect but he felt it was improving.

He also conceded that it was relevant to single out Mafisa but he added that other approaches were being explored. He said the present policy of trying to lower the quantum of any one loan and increase capacity building was showing dividends. He said that the difference between operating and investment income arose from the money made available by the LandBank, which often was not needed immediately. Whatever was needed for immediate projects was utilised immediately, and whatever was not required immediately was invested in the money market. The figures showed the amount of interest derived from such investments.

With regard to the shareholding of the borrowers, he noted that there was an attempt to ensure that 75% was held by black persons.

In regard to loans, he stated that many applications were made to the Banks who identified the needs, assessed the potential borrowers and the role of land reform, and then referred the application to Khula. Among the various factors considered were Employment Equity principles and the adherence to minimum wages. At all times there was an attempt to support enterprise.

Committee draft Report on visit to Eastern Cape
The draft Report was circulated for discussion the following Friday.

The meeting was adjourned.

 

 

 

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