NEWS24 /30 JULY 2018 - 10.14 / DAVID MOUTON
The on-going land reform debates are having serious consequences in the economic sectors – effects that are backfiring on the government’s goals to re-develop any potential land for commercial use, particularly in the primary agriculture industry.
Our government has created a mess – a catch 22: So, a community now owns land and you want to re-develop commercial farm land that is lying fallow and work with the community. You will be creating jobs, contribute to the economy and industries, assist in skills development and mentorship and everything that is good in your project. You have a solid viable and workable business plan, projections, letter of intent and more. The problem is, you need a loan and the title deeds for the property are deemed risky (“reputational risk”) and unusable as security for the loan – according to commercial banks. So, you have no security to offer any more.
So, where do you get funding? You try the various institutions that give loans and assist in development funding, but none of them give loans for primary agriculture. Even banks specialising in agricultural products say they will assist, but not 100%. There’s always a catch – you need to put down a large amount of the capital needed before they will assist to “show your commitment”. If one was not committed, why would one apply for funding in the first place!
How does one start any project, when you approach a bank or institution for assistance, but they expect you to have the money anyway? It doesn’t make sense – if one had the money, one would not approach the bank in the first place.
It has become impossible to get a development loan for farming commercially by using title deeds as security – simply because the banks no longer want to associate themselves with what they deem “reputational risk”. If a project goes south, the banks don’t want to take over any title deeds that would put them in a political debate or damage their reputation. These are also big “Ifs” since projects are first screened and analysed accordingly for their viability, repayment ability and many other factors.
Thus, even if a project passes all aspects with flying colours, the “big IF” of a failure seems to scare the corporate banks of a political issue where they would be seen as hostile for “taking back the land”. Thus, to save their reputation, “reputational risk” is the new buzz word in declining an application.
It is now clear that the announcements made by politicians are not thought through clearly and have consequences throughout the various industries. No one can borrow money using title deeds as security, since the banks won’t touch the title deeds – it’s simply too risky for their reputation.
Unsecured loans have high interest rates and do not offer the amounts that might be needed, repayment is also only on a short term basis and cannot fit into a commercial farming seasonal cycle.
No Agri-project in today’s political and economic climate can get funding using title deeds or without having their own substantial amount of money to start off with, thus a private investor is needed – an individual or company that would assist with the funding. Government is failing it’s people with its decisions - the rich get richer because of governments approach, as the private investors get their return on investment and a chunk of the business, and government is back to square 1 in the struggle to uplift communities, who have no option but to look to private funding and share the bulk of the profits with them.
A frustrating cycle as the people of SA remain caught between a rock and a hard place, while government and politicians alike push their own agenda’s in a political power battle.
LINK : https://www.news24.com/MyNews24/land-reform-failing-as-title-deeds-become-worthless-20180730
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER