Bad expropriation execution will turn off funding taps, says Land Bank

Commercial banks can cut back on their lending to the agricultural sector if they believe there is too much risk — but the Land Bank does not have that option.

Other than an ill-fated diversification into golf courses, which it is now writing off, its entire focus has been on land and agriculture. It is not a conventional bank — it is not a member of the Banking Association, for example, but a development institution, owned by the government. It has a higher risk tolerance. Its target for nonperforming loans is below 10% (to its credit this is falling from 7.1% to 6.7% in 2018). Emerging farmers will certainly turn to the Land Bank before commercial banks, and they will expect a more sympathetic hearing.

But the bank has a dual mandate: to support both the commercial sector and emerging farmers. Commercial loans, usually to established "white" farmers, account for 80% of the loan book. With total loans of R43.4bn, the Land Bank claims a 29% share of all agricultural loans extended.

Land Bank chair Arthur Moloto is a former chair of the Government Employees Pension Fund. He does not deny that the introduction of expropriation without compensation will affect the agricultural sector and the bank significantly. "It is important to recognise the emotions involved in the unfolding process, as people are rightfully responding to centuries of inequitable land ownership that has resulted in economic hardship and psychological trauma."

He says expropriation, if well executed, can have economic and social benefits, especially if more land is brought into production. But reform should be combined with increased agricultural production, secure tenure, employment creation and food security. Moloto says reform should be conducted in conjunction with the provision of comprehensive support to the beneficiaries.

He warns of grim consequences from poor execution. This includes:

• Productive land being taken out of production;

• Poor and undefined processes for selecting beneficiaries;

• Corruption; and

• Lack of comprehensive support for beneficiaries.

Funding for the Land Bank could dry up. The bank will be the lightning rod when it comes to the expropriation issue — the first institution to suffer if it is badly handled.