There is little point in handing out land and ending up with assets that are dying in the hands of the poor.
Well, detractors might think, that’s what the IRR would say; they’re against expropriation, they’re only interested in existing property owners, and they don’t have any constructive ideas to offer on land reform.
As it happens, this is wrong on all counts.
For a start, it was then director general of land, Tozi Gwanya, who cautioned in 2007 that land transfers are meaningless unless they bring real benefits to the disadvantaged in terms of jobs created and incomes earned. There is little point, he said back then, in handing out land and ‘ending up with assets that are dying in the hands of the poor’.
And it so happens that this line of reasoning frames the IRR’s detailed contribution to the debate about what could and should be done to rethink land reform in city and countryside in a way that is far more likely to extend the benefits of property rights, break the stubborn patterns of apartheid-era land use and create conditions conducive to prosperity and success.
One element of this contribution is the report of September 2019, Reaching the Promised Land: An alternative to the report of the Presidential Advisory Panel on Land Reform and Agriculture, written by IRR head of policy research Dr Anthea Jeffery.
Desirable and possible
It is natural that the IRR’s vigorous opposition to the Expropriation Bill should earn the lion’s share of attention in the countdown to the 28 February deadline for public comment on the draft law, but it’s worth emphasising that our opposition rests on a conviction that effective land reform is both desirable and possible.
What can be done, and how?
Reaching the Promised Land offers what it calls ‘practical measures to shift rural land reform from failure to success, help address urgent housing needs in urban areas, and unleash the country’s enormous growth potential’.
It is worth dwelling on in some detail – not least to demonstrate that South Africa’s problems are not as intractable as many might think.
IPULAZI PROPOSAL
The first essential, Jeffery argues, is to shift the focus of policy from land to farming. This is central to the ‘Ipulazi’ (‘farm’ in isiZulu) proposal.
The issue is to avoid the dangers highlighted by director general Gwanya in 2007, ‘(the) crucial issue is not the scale or speed of (unproductive) land transfers, but how best to increase the number of successful commercial farmers’.
The essentials for turning land reform in rural areas from failure to success, she argues, are ‘not difficult to discern’. First is acknowledging the three key elements – secure individual title, access to finance at preferential interest rates and appropriate support from the state – which ‘played a vital role in helping to build up the established commercial farming sector’.
Disadvantaged entrants deserve no less and the Ipulazi proposal shows how it can be done, and how the greater demands of modern farming – requiring both sophisticated skills and economies of scale to unlock maximum productivity – can draw thousands of new entrants into South Africa’s commercial farming sector.
Financing
Reaching the Promised Land proposes establishing a Commercial Farming Fund (CFF) within the Land Bank, which should be responsible for issuing Farming Empowerment Bonds (FEBs) backed by Treasury guarantees.
People and organisations that invest in these bonds will receive tax benefits and will also be entitled to CFF empowerment points (preferably in terms of a wider ‘economic empowerment for the disadvantaged’ or ‘EED’ empowerment strategy, as recommended by the IRR).
The CFF will use the monies raised from investors and donors, both domestic and foreign, to lend to established and disadvantaged commercial farmers, with the latter (as identified on a socio-economic test) benefiting from preferential interest rates. Differences between prime and preferential interest rates will be financed by the state out of tax revenues, while the capital repayments made over time will help expand the monies available.
‘Disadvantaged farmers operating on their own would be able to borrow at particularly advantageous rates, set at between 0% and 2%. Established commercial producers who enter into joint ventures with disadvantaged farmers would be able to borrow at, say, between 3% and 6%. All other commercial farmers would pay market-related rates and would generally borrow at prime. Loans for land purchases should be repayable over lengthy periods (of 50 years or more), so as to reduce the burden of repayments. Such interest as is payable should be deferred (but capitalised) in the crucial early years, when new enterprises face particularly heavy start-up costs. Loans for capital spending should also have the benefit of extended repayment periods.’
Under Ipulazi, production capital would also be made available by the CFF. Interest on loans of this kind would be reduced to the same preferential rates for disadvantaged farmers operating either on their own or in conjunction with established commercial producers.
Taxes better spent
Jeffery argues that instead of squandering billions on bailing out inefficient or failing state-owned enterprises, such tax revenues would be far better invested in building up the country’s farming sector.
Consider this: assuming the R59bn which formed part of the 2019 Eskom bailout was paid into a Commercial Farming Fund, and assuming a disadvantaged commercial farmer needed to borrow R20m to buy land and have enough start-up capital (repaying the sum over 50 years at 0% interest a year), the money would have funded roughly 2 950 new commercial farmers in a single year.
The objective, Jeffery says, should be not merely expanding the overall number of commercial farmers (as economies of scale are increasingly vital and will require consolidation into a smaller number of larger and more sophisticated farming units over time), but to increase the farming opportunities available to the disadvantaged – and to find realistic ways of replacing the many commercial farmers who are already drawing close to retirement age.
‘What these broad figures further demonstrate, moreover, is that innovative ways of meeting the vital financing requirement can indeed be found – and that this can often be achieved simply by cutting the fat out of current state spending.’
Skills
The next requirement is to identify and up-skillbeneficiaries.
‘Necessary mentoring and agricultural extension services should be provided, not by inexperienced officials, as now, but rather by existing farming organisations, such as Grain SA and the Milk Producers Association. These organisations, together with purchaser groups, can together fund these extension services, as many already do.’
New entrants ‘will thus be able to obtain the extension services and other help they need from experts with unparalleled practical knowledge and experience’.
Land
Ipulazi proposes that the state should not provide ‘free’ land to farmers (the state doesn’t do the same for entrepreneurs in retail, manufacturing, and so on), but should sell much of the land it already owns – including all it has acquired for redistribution purposes – to disadvantaged farmers at market prices. Other disadvantaged individuals could buy the land they need from the 20 000 or so farms already on the market.
It also proposes that the state’s key role should be to focus on the critically important task of augmentingrural infrastructure and essential services – roads, railways, dams, safety, and bio-security (to safeguard both domestic and export markets). Solar electricity, abattoirs, produce markets, milling and storage facilities could be provided either by the state or the private sector. Where the state is responsible, it should enter into public/private partnerships so as to take advantage of private sector efficiencies. Such partnerships must be concluded through open, non-racial, and competitive tendering processes.
There should be zero tolerance forland grabs, farm attacks, and threats to property rights.
Jeffery points out: ‘This will encourage South Africa’s current commercial farmers (now numbering some 35 250 people) to stay on the land and keep producing’, helping to feed the nation, contributing to export earnings, and providing the necessary mentoring to new entrants.
‘The 7% of farmers who produce most of the country’s food are particularly vital in maintaining food security and must be assured that their land holdings will not in fact be capped in the way the presidential advisory panel has suggested.’
For a growing, increasingly urbanised South Africa (a projected total population of 67 million in 2030 and already nearly 70% urbanised), the ‘need for secure and affordable food supplies cannot be met in any other way’.
‘Essential foundation’
Finally,all commercial farmers, whether established or emergent, must have secure and registered individual titleto their land. This is the ‘essential foundation for their business confidence as well as their capacity to borrow and in time expand their operations.’
Individual title must also be introduced wherever land is held in collective or communal ownership – particularly for the generally high potential but generally unused farmland held in customary communal tenure in former homeland areas, which cannot be made more productive without the benefits of secure individual title.
Taken together, Jeffery suggests, this innovative approach to land reform will create many more job opportunities on farms and in revitalised small towns.
But of course land reform doesn’t end there; the pull of city life and the hope of middle class living standards will continue to draw people to urban areas, where the demand for housing is immense, but poorly served. Again, needless to say, expropriation offers no solution.
INDLU PROPOSAL
Urban housing has long been fraught with difficulty and insufficiency and is often associated with the word ‘crisis’ in South Africa’s towns and cities. The Indlu proposal (from the word for ‘house’ in isiZulu) shows how the housing challenge can be overcome.
Reaching the Promised Land provides a sketch of where things stand that makes it plain why a fresh approach is urgently needed.
Inthe past 25 years, the state has provided more than 2.5 million houses and a further 1.2 million serviced sites. Despite this, the housing backlog has nevertheless grown from 1.5 million units in 1994 to more than 1.9 million units, while the number of informal settlements has expanded from 300 to 1 185.
At the same time, the housing subsidy has shot up from R12 500 per household to a staggering R160 570 per household. Yet many of the RDP (Reconstruction and Development Programme) or Breaking New Ground (BNG) houses built via this subsidy are so small, badly built, and poorly located that the ANC itself describes them as “incubators of poverty” that do more to entrench disadvantage than to overcome it.
State spending on housing has also grown faster than any other budget item since 1999. (Housing and ‘community amenities’ – which includes the administration of housing developments and the supply of water – currently [2019] consume almost 10% of budgeted expenditure and amount to 3.2% of GDP. In nominal terms, spending here has risen from R5bn in 1994 to the R176 billion budgeted in the 2019/20 financial year. This is an increase of some 3 300%.)
Despite this, however, the delivery of ‘free’ houses has slowed, dropping to less than 64 000 in 2016 and averaging some 90 000 houses a year over the five years to 2019.
As Jeffery points out, at this rate, it will take at least two decades for the state to build enough homes for the 1.9m households already on the waiting list, let alone try to meet future needs.
Delivery
Equally, the private sector’s delivery of housing stock for the lower-income market has also fallen sharply, from a high of some 76 500 houses a decade ago to roughly 6 500 a year.
Obstacles to faster delivery include a lack of bulk infrastructure and slow turnaround times due to extensive and poorly administered red tape.
It is clear therefore that housing policy needs what Reaching the Promised Land calls ‘a fundamental rethink to empower individuals, provide better value for money, and break current delivery logjams’.
As in the rural setting, solutions in town and city must rest on the first essential requirement of individual title.
Jeffery points out that most of, if not all, the one million white people who own homes have formally registered individual title, which allows them to borrow against the collateral of their houses and build up important assets which they can bequeath to their children. By contrast, though roughly 8.5 million black, coloured, and Indian South Africans also own houses – most of which are formal brick-and-mortar structures – the majority lack recognised individual title to their homes.
Bring ‘dead’ capital to life
‘Yet if all households across the country were provided with such title, this would bring “dead” capital to life and immediately give households the full benefit of assets cumulatively worth many billions of rands.’
That would be a good start, but more is needed.
The Indlu proposal says what is also urgently needed is a national housing voucherprogramme under which all low-income households would receive tax-funded vouchers redeemable solely for housing-related purchases.
The vouchers would be funded by redirecting much of the current budget for housing and community amenities, giving the country far more ‘bang’ for its extensive tax ‘buck’, as every household empowered in this way would have a personal interest in ensuring the best possible use of these resources.
The voucher system – and the market it would create – would encourage the private sector to build many more terrace houses and/or apartment blocks, or to revamp many more existing structures for housing purposes.
Beneficiaries would also find it easier to gain mortgage finance, which would further stimulate new housing developments. Beneficiaries who already own their homes would be able to use their housing vouchers to extend or otherwise improve them. Some might choose to use their vouchers to build backyard flats, which they could then rent out to tenants also armed with housing vouchers and so able to afford a reasonable rental. This too would help increase the rental stock available.
Vital boost
Accelerating housing delivery in this way would also increase capital investment, generate more jobs, and give the weak economy a vital boost.
With an Indlu policy in place, instead of having to wait endlessly on the government to construct the 1.9 million houses currently required, individuals would be empowered to start meeting their own housing needs. And the quality of the houses being built would also improve.
(This is a bigger factor than many realise. Jeffery points out that bureaucratic inefficiency and often corrupt preferential tendering commonly result in poor construction and defective homes. This comes at an enormous cost. In recent years, the national department has spent more than R2bn on fixing badly-built RDP houses. But this is only a small fraction of a rectification bill put by the state at R58bn in 2011. In 2015 the government terminated the rectification programme, saying beneficiaries must in future fix their own houses as part of their maintenance obligations – even though many of the defects are beyond the capacity of beneficiaries to overcome.)
With the voucher programme in place, the government’s role in delivery would largely be reduced to the speedy identification and release of state and municipal landsuitable for new housing developments, and speeding up land re-zoning and town-planning processes. Reaching the Promised Land makes the case for outsourcing these tasks to the private sector through a transparent and cost-effective tendering system, arguing that this would help ensure that housing development is no longer held up for three years or more by incapacity within the public service.
What of informal settlements?
In-situ upgrading
Under an Indlu policy, the in-situ upgrading of these settlementswould also be given a boost.
As Jeffery points out, in practice, such upgrading is extremely difficult to implement and is unlikely to succeed unless the housing stock available to the poor is simultaneously being increased. The voucher system would address this key obstacle as it would encourage new construction as well as the refurbishment of existing structures.
‘People living in informal settlements would have a host of housing options available to them. Some would move into new housing complexes, while others would shift to renovated backyard or other flats. Informal settlements would become less crowded, making upgrading easier. Those who chose to remain in them would be able to use their housing vouchers to buy building supplies, hire electricians, plumbers, and other artisans, contribute their own labour or “sweat equity” to reduce costs, and gradually upgrade their homes.’
To help ensure good quality construction, the report envisages housing advice centres being established by private developers, non-governmental organisations, and social housing institutions. These centres would provide people with a variety of low-cost housing plans as well as advice on a diverse range of building materials and housing choices. They would also provide information on the housing voucher scheme, other funding options, and how best to achieve quality and manage debt.
In short, the Indlu policy would ‘give effect to what ordinary people have long been saying – that the state should transfer the housing subsidy directly to them, as they could use it more efficiently and make every rand stretch very much further’.
Postscript
Too often, South Africans have good reason to be depressed about all the lost opportunities to make the most of the best ideas available.
This thought comes to mind on reading the tail end of the Indlu proposal.
Here, Jeffery notes: ‘Other policy changes would also be needed for sustainability and optimum results. The new system would work best in an environment of expanding employment and rising prosperity. The state’s main emphasis should thus shift from ever more redistribution to promoting economic growth, as the IRR’s “National Growth Strategy” proposes.’
The National Growth Strategy document was published in 2016, an economic recovery plan ‘to be implemented over the period 2016 to 2019 as the basis of a long-term economic recovery targeting GDP growth levels of 7% by the end of the decade’.
No such luck. But we don’t give up.
[Picture: Gerd Altmann from Pixabay]
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