A financial analysis of management models in land reform in South Africa

Abstract

The Land Reform Programme in South Africa has fallen behind schedule since its establishment in 1994 due to a number of trials and challenges. By 2006, twelve years after its inception, the Department of Land Affairs had managed to transfer only 4.1% of the land to black people. The Department is also only now approaching the conclusion of claims lodged by the 1998 deadline. Of the 4.1% (5.9 million ha) of land transferred, only a small percentage was productive due to a lack of financial and business management skills and institutional support from the government. In an effort to accelerate progress and ensure the productivity of transferred land, the Limpopo Provincial Department of Agriculture identified potential farm business management models to enable beneficiaries to secure capital and managerial skills. These management models include individual production, group access to land, and joint ventures with external parties through contractual arrangements.

This study aimed to determine the effect of two management models (strategic partnership model and appointed manager model) on the financial position of land reform projects. Two projects were selected from the Sustainable Restitution Support of South Africa (SRS-SA) Programme, where an operational strategy for land restitution was developed for the Land Claims Commission. The farms are located in KwaZulu-Natal (Tala Valley Citrus) and Limpopo Province (Mogotle Citrus). Tala Valley Citrus entered into an agreement with a strategic partner, while Mogotle Citrus employed a manager. Qualitative and quantitative research methods were used for data collection, while a semi-structured questionnaire was used to obtain qualitative data from the CPA and Trust members, the manager, strategic partner, co-ordinator and facilitator. The study also made use of a financial model developed by ABSA to construct financial statements for both farms to determine their financial status. These financial statements of both farms were analysed and compared.

The findings of the study reveal that at project or farm level, more focused interventions by key specialists are important for the execution of a project. Capacity-building of the CPA and Trust members and the community is essential in respect of the specific needs identified. Land use planning, especially during the pre-settlement phase, should be discussed with the relevant community and should, as far as possible, include the needs of the claiming community. The possibility of maintaining the current farming business concern must be addressed during the pre-settlement phase, and everybody involved in the settlement process should be informed. The specific training of beneficiaries in enterprise management (citrus) and business planning is essential for sustainable project implementation. The maintenance of claimed land during the transfer phase is essential and should receive the necessary attention by the key role players involved. The drafting of an interim business plan is crucial for beneficiaries to access funds, while the training of beneficiaries in this regard is important.

Over the short term, the net profit, bank balance and return on equity (ROE) of Mogotle Citrus were found to be higher than that of Tala Valley Citrus due to the fact that Tala Valley Citrus made huge capital investments by acquiring new farming equipment, while Mogotle Citrus did not invest in new farming equipment. From the financial analysis of the two business management models, it is evident that Tala Valley Citrus was performing better than Mogotle Citrus due to the management model adopted.