INTEGRATED PROGRAMME OF LAND REDISTRIBUTION AND AGRICULTURAL DEVELOPMENT IN SA Grant, Financing and Legislation Working Group

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Progress Report - 26 July 2000 INTEGRATED PROGRAMME OF LAND REDISTRIBUTION AND AGRICULTURAL DEVELOPMENT IN SA Grant, Financing and Legislation Working Group 1. Introduction and Background

The working group comprising of officials from the DLA, NDA and the Land Bank was established following a meeting between the DLA and NDA held on 12 July 2000. The task allocated to the working group included:

a) Grants & Services document
· Amend document in line with new programme.
b) Provision of Land and Assistance Act, 126 of 1993
· Assess whether the Act will allow for the release of the grant under the new programme.
· Assess whether the Act will allow for delegations to the Provincial Grant Approval Committee.
· Make recommendations on amendments to the Act (if any).
c) Agricultural Credit Act, 28 of 1966
· Assess whether the Act can be of use under the new Programme with respect to flow of funds and / or assistance to emerging farmers.
d) Own Contribution
· Compile discussion document and make recommendations especially where own contribution is in kind.
e) Transaction Costs
· Compile list of transaction costs and make recommendations on where this will be funded from.
f) Flow of Funds
· Investigate transfer payments in terms of the Public Finance Management Act and Treasury Regulations.
· Work toward developing the systems and procedures that will allow for funds to flow in the manner as outlined in the document or make alternative recommendation.
g) Accessing the Grant via another financial institution
· Draft policy document on: 'Accessing the Grant via the Land Bank' has already been compiled by the DLA in the course of last year - discuss the relevance of the draft policy document and make amendments in accordance with the new programme.
h) Role of Financial Institutions
· Banking Council and other DFIs will need to be consulted in relation to additional loan financing and their broader role in the new programme.
i) Gender
· Recommendation on how budget can be targeted or constructed to target women in particular.
j) Individuals / households accessing the grant
k) Environmental Issues

2. Report on Progress on Tasks
For some of the tasks, short documents have been compiled and are appended to this document. What follows is a summary of the work undertaken thus far, identification of issues arising from the tasks as well as an indication of what remains to be finalised.

2.1 G & S document
The G & S document, currently in its sixth version, outlines the grants and services offered by the DLA. This document is the detailed framework within which capital expenditure occurs and is approved by the Department of State Expenditure.
In broad terms, the G & S document must be amended to reflect the new grant, eligible applicants, disbursement procedures, the planning grant and any other matter that will be identified in the sifting process. However, finalisation of the G & S document will only occur once policy and implementation items such as own contribution, transaction costs, individual or household, etc are finalised. The person allocated this task, Ms S Govender will keep a watching brief on progress of all the task teams and make recommendations for amendments.
In the sifting process items already requiring consideration include: criteria as to age (18 to 60) has contractual and constitutional implications; eligibility criteria includes permanent residents - new programme speaks of SA citizens; means test of R1 500 is not included; include agricultural support services; de-linking from the housing subsidy; project approvals processes must be outlined.

2.2 Provision of Land and Assistance Act, 126 of 1993 (as amended)
Section 10 of the Act makes provision for: Financial assistance for acquisition, development and improvement of land or to secure tenure rights. The Act as it currently is, is broad enough and can accommodate release of the grant under the new programme. However, the following amendments are recommended:
a) where land is donated, Section 10(b) which details what the grant can be used for must be made applicable;
b) where land is leased, Section 10(b) must also be made applicable;
c) Section 10(1)(b)(v) must be amended to reflect any agricultural enterprise.

Section 15 makes provision for delegations. The Minister may, on such conditions as she may determine, delegate any power conferred upon the Minister by the Act except the power under section 14 to make regulations. The Minister can delegate to any officer in the DLA, Premier of a province, or with the concurrence of the Premier, to a member of the Executive Council of that province who may, in turn, subject to conditions as determined by the Minister delegate to the DG of the province of any officer of the provincial administration. The Minister can also delegate any powers conferred upon her except the power under section 14 to any officer of a Municipal Council. Delegations are important because of the institutional arrangements proposed under the new programme. It would appear from the wording S15 that the Minister may only delegate powers in terms of the Act to natural persons.
However, Section 10(1)(e) makes provision for the Minister, from money appropriated by Parliament:
in writing, for the purposes of acquiring, planning or developing designated land or any other land, contemplated in this subsection, and on such conditions as she may determine, authorise the transfer of funds to -
(a) a provincial government
(b) a Municipal Council
(c) any other organ of state; or
(d) any other body recognised by the Minister for such purposes.
On first reading, it would appear that this section is wide enough to be the legal framework that will allow the Provincial Grants Approval Committee to exercise the functions as outlined in the final draft document (version 1). This, however, must be confirmed by DLA's Legal Services. A legal opinion on this matter must still be obtained.

2.3 Agricultural Credit Act, 28 of 1966
The view obtained indicates that 'there are no section that can be used for transfer or assistance to emerging farmers. With the repeal of sections 10 and 12 of this Act the emerging farmer can only apply to Land Bank.'

2.4 Own Contribution
Discussion document - summary of content
A discussion document: 'Note on the Own Contribution Requirement of the New Land Redistribution Programme' has been compiled. The document outlines the rationale for the own contribution requirement; implications of including sweat equity as an own contribution; what other forms of in-kind contributions should be recognised; overall conclusions and recommendations.
Some useful work has also been done from Stats SA's October Household Survey 1998 and Rural Survey 1997. Inferences are made in relation to what extent households will be able to rely on assets and cash as a means of making an own contribution to qualify for a grant. The conclusions reached is that few households will be able to raise enough cash to make even a meaningful fraction of the minimum own contribution requirement of R5000. Likewise, the ownership of agricultural machinery and equipment is so meagre as to make virtually no contribution to the own contribution, except for a tiny minority of prospective applicants. Livestock ownership is the only asset (other than sweat equity) which may make a meaningful contribution.

Overall conclusions and recommendations
The main form of own contribution that rural black households will be able to muster in order to qualify for a land redistribution grant will be in terms of their own sweat equity. Valued according to the average agricultural wage, a hh committing itself to working full time on its project will be able to promise a sweat equity contribution of R6 600 for the year. This would qualify the hh for a grant of R22 000. If sweat equity of more that one household member is counted, a household with three adults could technically qualify for a grant of R33 000.
Issues
· Enforcement of commitments made by beneficiaries as to their sweat equity contribution.
· Government may wish to consider imposing some sort of limit as to how much own contribution can be made up in the form of sweat equity. One possibility is to limit a hh's sweat equity contribution to R5000, meaning that virtually every hh would qualify for the R20 000.
· The manner in which own equity is calculated has major implications for the number and size of grants that will be disbursed. A laissez faire approach to sweat equity, in particular, will mean that most hhs will be able to qualify for well in excess of the minimum R20 000 grant. It could be argued that projects that are fundamentally of a food safety net character would be over-capitalised, at the overall expense of the redistribution programme. On the other hand, if sweat equity is tightly limited, for eg R5000 per hh, it may be that many hhs qualify for R20 000 but few for more than that.

Recommendations
a) Government will establish an upper limit of sweat equity that can be counted per household of R5000.
b) Government will not attempt to enforce sweat equity contributions, though it will monitor projects in a general way to evaluate the degree of labour commitment among beneficiaries.
c) Short, medium and long-term loan capital will be counted as own contribution.
d) Each provincial department of agriculture will establish criteria for evaluating the contributory value of livestock, and of agricultural machinery and equipment.
e) Other means of promoting beneficiary commitment should be investigated.

2.5 Land Transaction Costs
Transaction costs refer to the additional costs incurred when purchasing (or selling) land, i.e. in addition to the price of land itself. These include: survey costs, conveyancing, transfer duty or VAT, stamp duty, deeds registry fees, estate/land agent and design agent's fee, valuation.

2.5.1 Transfer and Stamp Duty, VAT
In terms of section 9(8) of the Provision of Land and Assistance Act, transfer and stamp duty is not payable on land transferred under the land reform programme. Stamp duty is however payable in respect of any bond registration on that land.
As a rule, VAT is payable on those transactions where the property is purchased from someone registered as a VAT vendor. A ruling has been obtained that VAT should be zero-rated on services procured with government grants where the seller is a VAT vendor. In practice this means that where the seller of land is a VAT vendor the beneficiaries buying the land pay 0% VAT.

2.5.2 Transfer fees
Transfer fees include conveyancing fees, VAT on those fees and deeds office fee. The SA Law Society publishes a recommended tariff guideline for conveyancing fees, although in most major centres conveyancing fees are now negotiable.

2.5.3 Bond fees
Bond fees include bond registration fees, VAT on those fees, deeds office fee and stamp duty. The bond registration is conducted by a conveyancer appointed by the financial institution granting the loan. The deeds office fee is from R145 to a maximum of R500. Stamp duty is levied at a flat rate of 0.2% of the bond amount.

2.5.4 Surveying fees
To ensure legal certainty with regard to the physical boundaries of a piece of land, no land is registered in a deeds office unless it has been surveyed and the diagram has been approved by the Surveyor-General in terms of The Survey Act, Act 9 of 1927. The Federation of Institutes of Professional Land Surveyors of South Africa publishes a tariff of fees in accordance with the Land Survey Act of 1997. Again these fees are negotiable with the individual surveyor concerned. The cost of surveying is dependant on the number of pieces to be created and the sizes of those pieces. These costs can be increased should any abnormal circumstances exist such as difficult topography or access, etc.

2.5.5 Estate Agent and Design Agent Commission
Where estate agents are used to facilitate land transfer it is anticipated that their fee will be capitalised into the land value but should not exceed 5% of the grant. The design agent will also require a fee and this amount should not exceed 10% of the grant.

Recommendation
· It is recommended that a separate Planning Grant be established that will specifically cover the land transaction costs outlined above and that it should be up to a maximum of 15% of the grant with a discretion to increase where necessary.
· Where the applicants do not use a design agent but are required to undertake a scoping exercise or EIA in terms of environmental laws, it is recommended that planner fees be paid from the Planning Grant.
· It is further recommended that formal valuations be undertaken unless the local agricultural officer is satisfied that the valuation is fair and reasonable. However, a strong motivation will be required from the local agricultural officer as to the reasons for no formal valuation being undertaken. The provincial grants approval committee still has the discretion to order a formal valuation if not satisfied with the motivation. Alternatively, DLA and NDA will need to develop a system for valuations and will need to budget accordingly.

2.6 Flow of Funds
A note has been prepared by DLA's Financial Management Directorate. It briefly outlines the regulatory framework and specifically refers to sections that are relevant to transfer payments. A comment is made in the document that a decision will have to be taken on what portion of the grant the Department wants to exercise control over and what portion of the grant the Department is willing to transfer to the beneficiaries to be used for discretionary purposes (eg - settling in costs). This will impact on the recommendations to be made on once-off payments to individuals and payments which for all intents and purposes need to be monitored through the office of the AG and adequate checks and balances as they relate to the regulatory framework. The note makes references to good financial practices.
Work on developing the systems and procedures for the flow of funds is at a very early stage and will be dependent on what institutional arrangements are finally put in place. Further work will be required on tendering processes. Choice of payments i.e. once-off payment to beneficiaries' account or flowing funds through an agent will have an effect on tender/procurement processes. If funds are transferred directly to individuals, there is no need to comply with tender procedures. However, if an agent is used, compliance with ensuring that open and transparent procurement procedures are followed will need to be agreed to. DLA would prefer to use an agent that is audited by the office of the Auditor-General. Alternatively, risks would have to be assessed and managed. Questions that have arisen include whether it will be risky to pay large once-off amounts into beneficiaries' bank accounts. Suggestions have been made that public private partnerships with financial institutions who are prepared to administer and disburse the grant must be explored further. DLA will have a strong monitoring function in relation to the flow of funds whatever the choice.

2.7 Accessing the grant via the Land Bank
In the course of last year, a draft policy document focusing on accessing the grant via the Land Bank was compiled. Due to the review and the development of the new programme, this work was put on hold. Given the progress made and developments, it is now opportune to revisit this document.
It is the opinion of the task team that the document is still very relevant but will need to be adapted to take into account changes in the new programme. The main objective is to target beneficiaries who will be requiring loan financing. It is argued that it makes good business sense for the beneficiaries to access the grant and the loan from one source i.e. the financial institution.
Work on adapting that document is currently underway and the draft will be circulated for comment.

2.8 Individuals / Households accessing the grant
See document compiled.

2.9 Environmental Issues
A meeting has been scheduled for 2 August with NDA to discuss the integration of the work that has been done under the DANCED project with the new programme.
End of Report
26 July 2000