The Banking Council South Africa BANKING COUNCIL SUBMISSION TO THE PORTFOLIO COMMITTEE ON AGRICULTURE AND LAND AFFAIRS (NATIONAL ASSEMBLY) PUBLIC HEARINGS ON ROLE OF THE PRIVATE SECTOR IN AGRICULTURE 10 JUNE 2003

PRESENTATION u This presentation has six parts to it: 1. The Banking Council 2. The contribution of banks to agricultural development 3. The activities of banks in agricultural development 4. The relationship with the Department of Agriculture 5. The future involvement of banks 6. Other comments banks are bring to the attention of the portfolio committee

BANKING COUNCIL MEMBERSHIP u 35 BANKS “Big 5 ABSA FIRST NATIONAL BANK NEDCOR INVESTEC STANDARD BANK u INDEPEDENT BANKS Independent bankers forum u FOREIGN BANKS Foreign bankers’ association

BOARD OF DIRECTOR’S u One member from any bank whose liabilities to public exceeds 3% of industry total u TWO MEMBERS OF FBA u TWO MEMBERS OF IBF

ROLE, MISSION AND APPROACH u To establish and maintain the best possible platform on which bank groups can do competitive, profitable and responsible banking u REPRESENTING INDUSTRY u PARTNERSHIP u POSITION PAPERS

STRUCTURE GENERAL MANAGER Support Services GENERAL MANAGER Financial Markets GENERAL MANAGER Communications GENERAL MANAGER Banking Operations GENERAL MANAGER Transformation GENERAL MANAGER Market Conduct SUPPORT STAFF

BANKING INDUSTRY u The Banking Industry in South Africa employs an estimated people on a fulltime basis and procures services on an annual basis for over R10 billion which provides work for many thousands more people. u The Banking Sector is an important asset in many ways including job creation, economic institutional infrastructure and the capacity to become a financial servicing point for many countries in Africa.

THE CONTRIBUTION OF BANKS TO AGRICULTURAL DEVELOPMENT u Banks involvement in agricultural development is demand driven, no specific budget allocated. u National Department of Agriculture (NDA) figures on total farming debt as at Dec 2002 R28.3 billion. About 33% of this amount sourced from the Land Bank and the erstwhile Agricultural Credit Boards. The remainder of 67% of the funding drawn from commercial banks, cooperatives and private investment.

u Between June 1995 and June 2002 average indebtedness to banks 36% with the percentage of debt to the banks increasing from 33% in 1995 to 42% of total farm debts in u NDA figures not specified as indebtedness for agricultural production, could include indebtedness for acquisition of land, equipment, production costs, distribution costs and processing costs. u Similar difficulty will pertain to data obtained from banks and their exposure in this sector. Total exposure of the commercial banks in agricultural sector was close to R11 billion as at December Banks currently have difficulty giving a breakdown by race of their exposure in the agricultural sector. THE CONTRIBUTION OF BANKS TO AGRICULTURAL DEVELOPMENT (cont.)

N E P A D u The Comprehensive Africa Agriculture Development Programme (CAADP) prepared by the Food and Agriculture Organisation for the NEPAD discussions states: Between 2002 and 2015 an estimated annual investment of US $17 billion will be required for agriculture in Africa Investment in agriculture in South Africa in 2002 was about US$3.5 billion With over US$251 billion of ivestment required in the continent over the next 13 years South Africa’s banking infrastructure could play a significant role

ACTIVITIES OF BANKS IN AGRICULTURAL DEVELOPMENT u Banks have been engaged in a wide range of activities in support of agricultural development. These are recorded in the submission under the headings of: Farmers support and development Land reform Training Publications Sponsorships

RELATIONS WITH DOA RELATIONSHIP WITH THE DEPARTMENT OF AGRICULTURE u The Banking Council has and continues to enjoy a positive relationship with the National Department of Agriculture. u The larger member banks of the Banking Council are participating in the technical task teams that have been established by the Department of Agriculture. u Member banks are also engaged with Provincial Departments of Agriculture. u Still under discussion with the Department of Land Affairs is the agency agreement on accessing LRAD funds. u The Banking Council appreciates and acknowledges the challenging and significant role that the Department of Agriculture has to play for agricultural development and transformation at both the national and provincial levels of government.

FUTURE INVOLVEMENT u Banks are investigating the possibilities of partnerships with other interested parties which can add value and assist in risk mitigation. Banks will also consider the mobilisation of donor funds that can be channelled into agricultural development. The most significant work being done within the banks is around the BEE Financial Sector Charter. This document is in the process of being finalised as a draft for discussion with government. One of the areas of special attention will be agricultural development. At this point it will be inappropriate to discuss the details of this Charter.

OTHER ISSUES LAND BANK ACT AMENDMENTS THE LAND BANK ACT u The banks have had differences over certain provisions of the Land Bank Act, -unlevel playing field u The Land Bank is persistent in its preferent attitude and gone to the High Court u This legal action by the Land Bank in securing its preference confirms the worst concerns of the commercial banks u We believe that this matter will require legislative intervention in making amendments to the Land Bank Act that will allow the commercial banks to be role players in agricultural lending rather than forcing them out of lending for agricultural development.

OTHER ISSUES Farmer Support and Development FARMER SUPPORT AND DEVELOPMENT u Need for a range of support services u Financial literacy and numeracy poses a communication problem between the Bank and prospective borrowers. u Advisory and technical support services are some of the necessary ingredients of financing developing farmers. u A public-private partnership approach is necessary for the success of developing farmers. u The importance of a management team, particularly in group projects cannot be overemphasised. u Mentoring is essential at the early stages of the transfer of ownership (at least 2 years). u Post transfer support (working capital, training in hard and soft skills, mentorships)

OTHER ISSUES Markets, Monitoring and LRAD MARKETS u Off-take agreements (market) are necessary to ensure that projects have secure markets. MONITORING u Monitoring and progress reports are important for the success of projects. u Development projects should form part of the key performance areas of bank's staff. u Verification of business plans LRAD u LRAD has become a numbers game. There are needs e.g. equity fund to supplement LRADand to reduce the numbers u Availability of LRAD grants

OTHER ISSUES The Role of Government THE ROLE OF GOVERNMENT u Strengthen the present agricultural insurance services u Initiate and develop guarantee schemes specifically designed to meet agricultural needs of the emerging and black commercial farmer. u Find ways in which to securitise communal land rights. u Strengthen the co-operative movement in terms of membership, training and management.

u Consider linking water usage rights to land title/rights u Government should consider obtaining certification to potential markets (countries) for exporters of agricultural products especially if we are to achieve transformation. At present this cost is borne by the exporters. u The Department of Trade and Industry should be positioned in such a manner that it can respond to the need for tariff changes faster and efficiently. u The National Department of Agriculture needs to position itself to serve as agriculture’s voice to government and the public in general. OTHER ISSUES The Role of Government (cont.)

CONCLUSION The Banking Council is committed to playing its part in the transformation of agribusiness in South Africa and would like to be party to the implementation of the Strategic Plan for South African Agriculture. In order to compete in the agricultural development market in a way that will create shareholder value in the medium to long-term, the banks are amending their strategies to finance and support transformation of agriculture. The banks are committed to increasing the number and quality of developing agriculture clients who have commercial farming as their main objective.