Financial analysis of the Recapitalisation and Development Programme in South Africa

Abstract

The Recapitalisation and Development Programme (RECAP) is the government’s agricultural support programme administered by the Department of Rural Development and Land Reform (DRDLR). The programme uses about 25% of the department’s budget. The programme is administered as an agricultural support programme with the following objectives: employment creation, food security, increased farm production, market access and establishing rural monitors. RECAP is one of the government’s most prioritised agricultural support programmes and the investment made in the programme is enormous compared to other government agricultural support programmes. The programme began in 2009/10 and in 2014 government investment in the programme amounted to R3.32 billion; government continues to invest in the programme. The purpose of this study was to carry out a financial analysis of RECAP by evaluating the relationship between budgeting and spending of the programme to determine if the investment made by the government in the programme can be justified in the light of the programme’s objectives. Financial analysis informs decision making on an investment to either approve or disapprove continuing investment in the programme. To do the assessment, the study examined the budget and expenditure of the programme using two data sets. Primary data is from impact assessments done on 98 RECAP projects in six provinces of South Africa. Secondary data is the budget estimates for various provinces from the DRDLR. Qualitative, comparative and quantitative methods were used and the results are presented, using descriptive statistics, to achieve the objective of the study. Two quantitative methods were used; the multiple linear regression and the logistic analysis were applied to determine the relationship between spending and the achievement of the programme’s objectives. The study assessed the relationship between budgeting, spending and the achievement of RECAP objectives, which are employment, food security, farm production and market access. The study results show that there is a sound budgeting method at the DRDLR and farmers are spending their grants to acquire farming assets, equipment and other farming inputs. The expenditure on the programme has facilitated the achievement of some of the programme objectives at the farm level, but there is an inverse relationship between the level of investment and achievement of the programme objectives. Better progress of the programme is seen in employment and market access and there is slow progress in area of farm production and food security. Provinces which have received the highest average grant per farm, namely, North West and Free State, are not better performing provinces in terms of programme objectives, while provinces with a low average grant invested per farm, namely, Limpopo and KwaZulu-Natal, have performed better in terms of achieving programme objectives. The sluggish progress of the programme is attributed to the spending at provincial and farm level. Farmers and their respective provinces are underspending their grants and at farm level more money is being spent on activities designated as requiring less spending, and less spending on activities listed as requiring more money.