MEGA FUND FOR TRANSFORMATION AND DEVELOPMENT

The following is a summary of the last meeting held with Landbank in taking forward the concept of a mega fund.
THE PROBLEM STATEMENT – agenda for the meeting
The Amadlelo development challenges have been used as a means of highlighting the areas for discussion.

WHY A MEGA FUND?
There is a critical need to address the following:
1.1.Equitable Ownership of Agricultural Land.
1.2.Rural Development and Job Creation
1.3.The Legacy of Racial and Gender Discrimination is removed
1.4.Agrarian Reform and Land Redistribution Implemented
1.5.The National Development Plan Targets
1.6.In addition the intended programmes of the DRDLR in terms of:
1.6.1. Strengthening Relative Rights
1.6.2. Land Ceilings
1.6.3. Land Reform

2.BLACK FARMERS ACQUIRING LAND
There is a gap between the current REM offerings and finance that is suitable for established commercial farmers. Black farmer managers with the necessary skills and experience cannot access finance to enable them to acquire their own livestock or farms on any scale.

3.FARM PURCHASES AND EXPANSION FOR FARM STAFF
Commercial farmers wanting to buy farms for their staff do not have preferential finance. The ELRAD funding went a long way in allowing profitable established commercial farmers to acquire land for their staff and so empower them. There are examples of highly successful operations that were started in this way.
The lack of ELRAD type funding and or the old “ Credit and Land Tenure” has a left a gap in the emerging farmer space.
Those of us operating in the area of Transformation and Rural Development are coming up against a brick wall when it comes to suitable funding to enable all the above shortcomings to be addressed.

4.FORMER HOMELANDS and NDP TARGETS
Amadlelo is trying to resurrect irrigation schemes in the former Ciskei and Transkei and currently dependant on grant funding from government departments – mostly DRDLR for funding for the community side being fixed infrastructure. Private Partners are willing to fund operating costs and moveable assets but not fixed improvements. The grant funding process is far too slow to have significant impact due to limited funds.
If the NDP targets for irrigated land are accepted and then costed some R35b is required to make these targets a reality.

5.UNEMPLOYMENT SPIRALLING OUT OF CONTROL
Unemployment is spiralling out of control in the Eastern Cape and is over 51% currently. This is not socio politically sustainable and there have already been riots in the Ugie area of the Eastern Cape by people wanting jobs.

6.SUGGESTED SOLUTIONS
1.REM funding model be extended to include the following product offerings:
2.Land purchases over 25 years at 3% interest rate.
3.Current commercial farmers to stand surety in the case where they are doing joint ventures and to contribute moveable
assets and operating capital.
4.Transformation and Development Fund to enable the NDP to be implemented and the former homelands to be developed.
There are already provisions in REM to manage the process but the product offering through partners needs to be expanded to include all the REM funding and the expanded offerings.

THE R100b TRANSFORMATION AND DEVELOPMENT FUND
If we are going to break the back of unemployment, bring the former homelands into mainstream commercial farming and expedite Land Reform then above funds needs to be brought into existence. The Landbank is ideally placed to do this.
In the initial discussion with the CEO there would appear to be institutions that can be approached to make this happen.
The purpose of the proposed meeting is to address these challenges and come up with solutions that are both practical and possible.
Without this the bank will not meet its development mandate and those of us championing transformation and the cause of emerging farmers will not be able to make the impact this country so desperately needs.

THE SOLUTION
The solution to the Land Reform impasse is not the shortage of land but the shortage of funds – there is plenty of land for sale in the country and the involvement of a proper commercial process with borrowed funds will insure that land prices are not distorted. The inclusion of existing commercial farmers in the mix will insure the necessary skills are available and a properly set out and monitored implementation will insure proper skills transfer and empowerment.
The ability to access sufficient funds will unleash rapid and sustainable Land  Reform and insure the orderly and sustainable development of the former homeland areas.

Transformation and Development Fund

COMMERCIALLY DRIVEN TRANSFORMATION AND DEVELOPMENT
The above model serves to solve all the current shortcomings in both Land Reform and Development of the former homeland areas as per the NDP model and plan.
At its core it is driven by successful commercial farmers who have the desire to see transformation becoming a reality and indeed to be part and parcel of the process and guarantee its success.

The commercial farmers will provide the following:
1. Balance Sheet
2. Cash Flow
3. Expertise
4. Experience
5. Moveable Assets
6. Skills Transfer
7. Markets

In short the commercial farmer would have to demonstrate his ability to support the new venture in full.

The Aspiring Black Commercial Farmers:
1. Need to have demonstrated their ability for selection and should have come through the ranks and currently be successful farm managers who have aspirations and track record to become successful commercial farmers.
2. They will acquire the new farm in their name.
3. There will be a clause in the title deed that prohibits the farm from being sold unless it is to another black farmer or to the state.

This is summarised as follows:

Business Relationship

FUNDING CHARACTERISTICS
The finance should be repayable over 25 years at 3% interest rate. The state will have to blend the Mega fund so that these criteria can be met.

MEGA FUND – governance and structure
The fund structure and governance should be such that it will be internationally recognised and accepted. In all the interactions we have had this has been a pre requisite by potential funders.
Land Bank’s independence could be criticised in this respect.

DELIVERY MECHANISM
The current REM funding model must expand its product offering to insure that all of the above mentioned constraints can be properly addressed. The current partnerships with delivery partners strengthened through a broader base.

EXTENSIVE CONSULTATION WITH COMMERCIAL CONSULTANTS AND FARMERS
It is suggested that an intensive consultation process with private commercial farming consultants and farmers takes place to insure the validity of the proposed product offering is tested on a pilot basis as soon as possible and across various commodities and geographical areas to insure that it fully addresses the market requirements.
It is concerning that Land Bank, an institution that serves commercial farming, consultants so extensively with government but we don’t see the same for commercial agriculture which are the almost exclusive users of the funding and are the de facto customers of the bank.

IN CONCLUSION
The above will unlock major private funding on a sustainable basis transforming agriculture and unlocking the latent potential in the former homeland areas addressing unemployment and poverty and allowing black commercial farmers and communities into mainstream commercial agriculture growing the economy in a transformed South Africa.