Expropriation could cause widespread bankruptcy – banker

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Johannesburg – Expropriation of land without compensation
could create a systemic risk for the entire South African banking and financing
industry, warned Ian Matthews, head of business development at investment banking firm Bravura.

If a loan or bond agreement is defaulted upon as a result of
expropriation, it is unclear what the recourse for the lender will be and how an institution will recoup its money.

According to Wandile Sihlobo, head of agribusiness
research at the Agricultural Business Chamber (Agbiz), total farm debt
stands at R160bn. Two thirds of this is owed to commercial
banks, one third to the Land Bank and a small percentage was borrowed from
other private institutions and agricultural cooperatives.

FirstRand and Barclays Africa Group have the largest
proportion of agricultural loans, at 3.6% and 3.4% of their total lending
book respectively. Standard Bank’s portion is 2% and Nedbank has 1%, according to
data from Bravura.

‘Systemic risk in the banking and
agriculture’

The investment firm cautions that expropriations and the
subsequent debt defaults could cause widespread bankruptcy and “an ensuing
economic crisis which could result in a systemic risk in the banking and
agricultural sectors”.

“Government may well have to step in to prop up the banks
and other financial market role players under those circumstances.”

This week, the National Assembly agreed to the principle of
land expropriation without compensation. Parliament’s constitutional review committee will report on proposed changes to section 25 of the Constitution,
guaranteeing property rights, by the end of August.

This follows the ANC’s adoption of the expropriation policy at
its December 2017 conference with the caveat that it shouldn’t affect food
security or other sectors of the economy, including the financial sector.

Sihlobo questioned how the ruling party could achieve this, given
the high levels of debt owed to commercial banks.

“You can’t achieve both of them at the same time.”

Not just a farming issue

Sihlobo expressed concerned that if the expropriation policy
is adopted, it will be viewed as a general undermining of investment, which
will lead to a decline in agricultural output.

He pointed to the Agribusiness Confidence Index compiled by
Agbiz, which went over the 50 point mark in mid- 2017 as the country started
to recover from the drought.

Sihlobo said they received negative responses from
agricultural businesses after the ANC conference in December, on the sub-index
related to policy uncertainty.

The 2017 fourth-quarter Agribusiness Confidence Index is
scheduled to be published next week.

“There’s a good correlation between growth in the sector and
confidence,” Sihlobo said.

He also warned against seeing the expropriation policy as a
farming issue, saying it could affect all sectors, including urban
land.  

Nearly 24 years into democracy, the majority of agricultural
land remains in white hands and government faces increased pressure to act on
this. 

According to the government’s  land audit results released
in February, 72% of agricultural land is owned by white South Africans, 15% by coloured people, 5% by Indians, and 4% by black Africans.

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