The future role of the Land Bank is fraught with conflict and vested interests, reports Aspasia Karras
AS South African institutions face transformation under the Government of National Unity, the Land and Agricultural Bank has been singled out for major reform.
Established in 1912 to ensure preferential loans and subsidised protection to white farmers, the bank has served to reinforce the rift between white farmers and black rural communities and perpetuated the skewed rural economy envisioned by the 1913 Land Act.
By 1957, the bank had gained enough impetus to finance itself. However, it remains a traditional parastatal — the Department of Finance appoints its chairman and board of directors, and expects a report each year.
The issues surrounding the reform process are fraught with conflict and vested interest. Key to the whole issue is the need for state protection of agriculture in its present form. Is development of the black rural population equivalent to agricultural finance, and is the current understanding of transforming the Land Bank into a Rural bank going to address the larger issues of development finance?
The Rural Financial Commission could have played a critical role. Instead, in a furore of disagreement, it has withdrawn its final report, originally due in November 1995, and has published an Interim Report carrying the objections of two members who felt they could not be associated with the proposed final report.
The commission has called for public response and debate, so it appears the Land Bank’s future will be battled out in public.
On the side of the institution, managing director Freddie van Staden says: “We have played a major role in getting agriculture in South Africa where it is today. What will happen if we ignore agriculture? We cannot import everything, we will be thrown to the wolves; overseas traders will dump their rubbish on us. South Africa is not at this stage an industrial country. We are an agricultural country, and we have to help the emerging black farmers to sustain themselves.”
The commission has proposed that the bank continues to function as it has in the past, but with an additional function. “We will become involved in the financing of emerging black farmers on a wholesale basis through intermediaries, such as non-governmental organisations, co-operatives and even commercial banks, in the deep rural areas,” says Van Staden.
In light of these changes the bank is seeking a director to fulfil this new function, and has created a directorate. It has also begun to restructure itself for the sake of efficiency.
The alternative voices, coming from the Land and Agricultural Policy Centre (LAPC) and the more radical National Land Committee, are questioning these assumptions.
David Cooper of LAPC argues that the commission, after a year of deliberation and little research, has endorsed the existence of the Land Bank. “It has made certain assumptions about the role of the state and the institutions it has created in order to carry out its programmes and the things it believes in, but it has not produced a report that can stand up to scrutiny.”
He points out that while the proposal for the financing of rural farmers may in itself not be problematic, it is a question of definition. The report does not address the issue of development finance. While various institutions have been set up to finance development, such as the Development Bank of South Africa (DBSA), and the Industrial Development Corporation, the relationships between them are not clear.
The commission has renamed the bank, calling it a Rural bank, which implies that it only deals with rural finance, and the rest of the institutions are urban. Cooper is adamant: “If it is an agricultural bank only, then it will not meet the needs of the rural people, who need other services as urgently. Transmission services are crucial, as is the extension of loans for purposes other than farming.”
The argument follows two options: either privatise the bank and allow it to continue financing agriculture, and designate the DBSA or the other institutions to deal with rural development finance.
Alternatively, the bank should be substantially transformed so that it deals with all aspects of rural development. “Nobody is saying one is right and one is wrong, but the fact that the commission did not examine all the options is a problem. The recommendations are strong, but you cannot trace the arguments,” argues Cooper.
Critics of the commission argue it has confused its terms of reference. Its initial goal was to investigate what rural people’s needs were and how development finance could assist. Instead the commission looked at the development finance institutions themselves, and even then did not come up with clear recommendations.
The Land Bank has R21-million worth of farm land in its possession, although the value has reached R120-million. Under the new act, it is required to sell it immediately.
Brendan Pearce of the National Land Committee argues: “We consider that land to be state land and therefore it must be redistributed, but government is afraid and has not wanted to take a firm position.”
Cooper is less militant. “As they exist now they cannot finance land reform, which is probably a good thing as one does not want the state to own land. The question is how then do you ensure it gets into the hands of the Land Reform participants. It is not a straight choice: if you argue that Land Reform should operate through market mechanisms, you create a universal good, which is understandably a problem.”
“The debt on the land is still outstanding, but we are prepared to bargain with the Department of Land for a nominal amount,” says Van Staden.
The issue is heating up, both for land reform, and for rural development. The proposed Rural Bank is a key player, but the Land and Agricultural Bank, like most inherited institutions, still haunts the playing field.
Van Staden argues: “I do not know how the farmers would survive, the subsidy is necessary.” The strong agricultural co- operatives will back him.
Cooper counters: “New entrants need some support — not necessarily through subsidised interest. We are faced with the terrible scenario of creating another rent- seeking sector. We are already in a self- perpetuating cycle of large-scale, unviable farming. We have created an abnormal situation, and we respond abnormally to prop the thing up. We do not want enclave economies ad infinitum.”