IIIII I IIIII IIIII IIIII Ill II IIIII Ill IIIII/I Ill Ill II IIIII ~' AriliiYei 429821 Othertf.: 30200834 Land Redistribution Options - Options of Land Reform and Rural Restructuring in South Africa- Conference- October 12- 13, 1993- Johannesburg- South Africa 77991 ·- c .~ ·-_ ::J t; ::J a ..... curu oA::u va ;a &a-. C::J ..... .. :c ·- 0 ·p a:: '5 t:l. ~ ::J oco n:scn § ~ OJ ~ ~ c !3 ..... t, ,, "' ""' OPTIONS FOR LAND REFORM AND RURAL RESTRUCTURING IN SOUTH AFRICA NOVEMBER1993 'Ibis is a revised version of the paper that was presented at the Land Redistribution Options Conference on October 12 - 15, 1993, Johannesburg, South Africa , TABLE OF CONTENTS EXECUJTVESU~Y. ······ ··············· ·······. ········ .i PART 1: LEGAL FRAMEWORK ................•.•.•..••.••••• & 1 • Constitutional Constraints • • . • . . . . . • • . . . • • . . . . . . . . . . • . . . . • • • . '. 1 Land Legislation and Rural Restructuring • • • . . • . . ·. . . . . . . . • . . . . . • • • • 4 PART ll: A RURAL RESTRUCTURING PRQGRAM . • . • • . • • . • . • . . • • • • • • 7 AGRICULTURAL PRICING AND MARKETING POUCY ••.••••••••• .'. 7 Recent Changes in the Policy Environment . . . • . • • • • . . . . • • • • • • • • • • 9 Impacts, of Policy Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Goals for Agricultural Marketing Arrangements in the Future . • • . • • • • . • 11 Key Issues for Agricultural Marketing Policy • . • • • . • • . • • . • • . • • . • • 11 LAND REFORM: LESSONS FROM EXPERIENCE . • • . . . • . . . . • • . . • • 25 International Experience . . • . . . • . . . . . . . . . . • • • • . . . . . . . . . . . • • 25 LAND REFORM: RESTORATION AND REDISTRIBUTION . . . . . . . . . . • 27 Invasion . . • . . . . . • • . • • • • . • . . • . . . . . . . . . . . . . • . . . . . . . . • . 27 Restoration . . . . . . . . • . • . . • . • . . . . . . . . . . • . . . . . . . . . • . . . . • 28 Redistribution • . . . • . . • . • . . • • • . . . . . . . . . . . . . . . . . . . . • . . . • 31 LAND REFORM: OUTSTANDING ISSUES . . . . . . . . . . . . . . . . . . . . . • 40 Should Current Landowners be Compensated? . . . . . . . . . . . . . . . . . . . . 40 Rural Poverty . . . . . . . • . . . . . • . . . . . . . . . . • . . . . • . . . . • . . . . • 42 PART ill: OPTIONS FOR ADMINISTERING A RURAL RESTRUCTURING PROGRAM . . . . . • . • . . • . • . . . . . . . . . • 47 The Policy Framework . . • . . . . . . . . . . . . . . . • . . • . • . . • . . . . . . . . 47 Administrative Boundaries and Responsibilities . . . . • . . . . . · . . • . . . • . • 48 Institutional Restructuring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Autonomy and Accountability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Flexibility and Responsiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Access to and Control of Resources • • • • • • . . . . . . . . • . . . . • . . : . . . 50 SUPPORT SERVICES . • . . . • . . . . . . . . • . . . . . . . . . . . . . . . . . . . . • . 52 Overview and Background . • . • • • • • . • • • . . • • • . • . • • . • : . . • . . • • 52 Community Led Agricultural and Rural Development . . . . . . • . . . . . . . • 54 Research, Extension, Education, and Training . . . . . . . . . • . . • . • . . . . . 55 Retraining and Reorientation of Existing Services . . . . . . . . . . . . . . . . . . 59 Financial Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Other Support Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 PART IV: AGRICULTURAL LAND USE ACTMTIES AND RURAL LIVELIHOODS . • . • . . • . . . . . . . . . . • . . . . . • . . . . . ... 65 General Principles and Assumptions • . . • . • . . . . . • • . . . . . . . . . . .•. 66 Potential Beneficiaries, Property Relations, and Farming Options . • . • . •. • 68 Major Assumptions and Results of Analyzed Models . . • . . • . . . • . . . ... 70 Aggregation • . . • • . . . . . . . . . . . . . . . . . . • . . . . . . . . . • . . . . . •. 71 THE ESTIMATED COST OF A RURAL RESTRUCTURING PROGRAM . ••. 75 Options for Reducing and Deferring the FIScal Burden • . • . • . . • • . • . ••• 79 TEXT BOXES Gender Issues and Customary Law in South Africa • . . . . • • • • • • • • • • • • • • • • • • 3 The New Mexican Lanci Law .••.•••..•.•..•...••••...•.••.•.••.'. S wIter' Rigb.ts • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 6 Fe:r'tilizel' Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Lanci Reform in. Ken.ya • • • • • • • • • • .• • • • • • • • • • • • • • • • • • • • • • • • • • • • • • 24 Should Victims of Apartheid Pay for Land? • • . • • • • • • • • • • • • . • • • • • • • • • • 29 Laud Markets: 'What About Land Prices? . • • • • . • • • • • • • • . • • • • • • • • • • • • • 42 Rural Development Administration in. India • • • • • • • • • • • • • • • • • • • • • • • • • ·• • 47 The Reclirection of Researcl:l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Growth and Small Farmers: Some International Experience • • • • • • • • • • • • • • • • 60 Rural Credit: Experience with Group Lending • • • • • • • • • • • • • • • • • • • • • • • • • 62 Small-scale Agriculture and the Environment • . • • . • . • • • • • • • . . • . • . • • . • • • 65 Property Relations in Rural Restructuring • • • . • . • . . • . • • • • • . • • • • • • • . • • • 68 Compensation for the Costs of Apartheid . • . • • . . • • . • • • • • • • • . • • • • • • • • • 73 FIGURES 1: Models of Land Redistribution • • . . . . . . . . • . . . . . . . . • . . • . . . . . • . • . 33 2: A Grant Function Based on Land Value • . . . . . • • • • • • • • • • • • • • • • • • • • 35 3: A Grant Function Based on Points Criteria . . . . . • • • • • • . • • . • • • . • • • • • . 35 4: Laud Reform or Restitution Process . • . . . . . . . • . . . . • • . • . • • . . • . • . . • 39 5: Government-Funded Poverty Alleviation Programs . . . . . • . . • • • . • . • . • • • • 43 TABLES 1: Main Characteristics of the Four Indicative Farm Models • • . . . • • • • • . • • . . 71 2: Rural Livelihoods Gained and Associated Farm Capital Costs • • • • • • • . • • • • • 74 3: The Cost of an RRP Program for the Case Study Regions • . • . • • . • • . • • • • . 76 4: Savings on Fiscal Costs . . . • • . . . . . . . . . . . . . • . • . • • . . • • • • • • . . • • • 80 ACRONYMS AMC Agricultural Marketing Council ARC Agricultural Research Council CBOs Community Based Organizations DOA Department of Agriculture DBSA Development Bank of Southern Africa FAF Financial Aid Fund GATr General Agreement on Tariffs and Trade JSBs Joint Services Boards MCP Miller Cum Planter NAMPO National Association of Maize Producers Organization NFPMs National Fresh Produce Markets NGOs Non-GovenimentaJ Organization NNSDP National Nutrition and Social Development Program PRA Participatory Rural Appraisal PTO Permission to Occupy PWP Public Works Program RSCs Regional Services Councils SAAU South African Agricultural Union SASA South African Sugar Association SGDT Small Growers Development Trust T&V Training and Visit Extension System UNDP United Nations Development Program BACKGROUND PAPERS Administrative Requirements for Rural Restructuring, by Susan Lund and Peter Wakelin with Paul Forsyth and Tessa Marcus. Agricultural Marketim:: Red Meat, by Mohammed Karaan, Willie Lubbe, Andreas Nkosi and Johan ~~ ' '· Amcu)tural Marketin&: Sugar, by P. Jackson, J. Wixley, G. Christie and J. van Zyl. Al!ricultural Marketin&: Vegetables, by D.S. Langley, B. Maloa and Johan van Zyl. A&ricultural Marketing: Water, by M. Uys, G.R. Backeberg, C.C. McKenzie and J. van Zyl. A&ricultura1 Pricin& and Marketin&, by Johan ~ Zyl. A&ricultgral Syp_porting Services for Land Reform, by Martin Adams, Vincent Ashworth and Philip Raikes. Assessment of Existing Agricultural Supj)Ort Services, by T.J. Bembridge. Criteria for Participation, by Bongiwe Njobe with Peter Mayende, Cornelius Botha, Bahle Sibisi and Bill Kinsey. Develloyed by the owner or legal occupier of such land. There are several questions raised as to the nature of the property rights to be given to such labor tenants and what compensation if any that should be paid to the existing owner for the loss of part or all of their land. iv. Despite the questions, it is essential to recognize the birth right of longstanding land occupiers in the restoration process. Labor tenants and squatters who have suffered eviction will have a claim to restoration. However given the difficulties of determilling the extent of such claims and the relationship between tenancy under Roman-Dutch law and birth right under indigenous conceptions of the land ethic, a number of remedies must be available to this group. First, if claimants wish to continue farming and are still resident or recently evicted, a portion of the farm may be awarded to them collectively. Second, if there is concern that restoration will lead to unresolvable conflict with the owners, claimants may obtain alternative land or monetary compensation. Finally, in cases where the evidence is inadequate to demonstrate a birth right to a particular portion of an existing farm, but the claimantc want access to land, such claimants should be directed to the redistributive process, where they should be given priority. v. Betterment Plannin&. ·The policy ofbetterment planning, whereby many Black rural areas were completely restructured in a misguided attempt to promote agricultural production, was first introduced in 1939. In order to give effect to the policy, hundreds of thousands of people in the homelands were relocated from their dwellings to closer settlements, whlle arable land and commonage were arranged into larger, contiguous units. Very little compensation was paid. However, due to the extent of the claims and the potential for intra-community conflict, it would be advisable to direct claimants away from the restoration process to the redistribution process. -30- Options for Ltmd Rdorm tmd Rural RestriiCtrlriJig in South AUica Novnnbu 1993 82. From the choice of particular apartheid rules and the intention to provide restitution for past discrimination, a valid limitation emerges. This is the exclusion of claims from landowners who may have been expropriated by this policy, but who are not members of communities who suffered legal discrimination under apartheid. Justification for this approach is based on the fact that White property owners were adequately compensated and furthermore had· access to the political process denied the victims of apartheid. Land Claims Forums and Process 83. A land claims body may act as an administrative tribunal, or as a court. Which it will be in South Africa will depend on how the constitution deals with the separation of powers. Since experience elsewhere emphasizes the need for a speedy process, one option would be to establish a commission which would decide in which category a claim falls. If the land concerned is owned by the state, the commission could make its own decision quickly (the fast-track approach), subject only to review by a land claims court. If the land concerned is privately owned, the commission could make a recommendation to a land claims court for its decision. The land claims court could thus focus on difficult cases on appeal, and speed up the whole process. 84. Because the majority of the claims are likely to be by groups or communities, it is necessary that a suitable form of class action be recognized. The existence of multiple claimants requires the establishment of clear notice requirements. Further given the nature of some of the claims, there will be the need to relax certain formal evidentiary rules, to enable the land claims court to obtain the information necessary to make its decisions. This may require some form of sliding scale of evidentiary burden, i.e., the older the case the greater the burden, so as to balance the uncertainty and lack of living witnesses, while for more recent cases there would be a lesser evidentiary burden. Closely related to this is the possible cut-off date of 1913. However, to avoid discrediting the process, it is important for the land claims court to have the power to relax this barrier, as a matter of equity, in cases of clear demonstrated injustice. Redistribution 85. It is important at the outset that the reader understand what this section is intended to accomplish. The options and ideas put forward here should not be seen as prescriptions or a blueprint. Instead, they should be regarded as a starting point and a set of tools that can be useful in designing a program for redistributing land in South Africa. Although these options cover many aspects of land redistribution, they do not address all the questions that will need to be answered. For example, while it is recognized that in an environment of rising land prices speculators may try to enter the program, the report does not offer solutions to this problem. 86. The salient points that emerge from the options put forward in this section are that: a. market-assisted land redistribution programs tend to perform better than those administered and operated by the public sector; b. the role of the public sector in a land redistribution program centers on ensuring adequate -31- Ncwmabu 1993 supplies of land in the market and monitoring the overall operation of the program; c. criteria for participation are necessary and must be discussed and agreed in advanced; d. welfare objectives can be met by including a grant component in the program; e. a matching grant scheme that forces participants to use some of their own resources in order to gain access to land will help to assist in self-selection of participants and · encourage the productive use of land; f. the grant elements of the program are essential in order to accomplish a redistribution of assets and to ensure that beneficiaries emerge from the program with a net increase in their asset position and low debt/asset ratio as a means of ensuring viabllity and sustainabDity of their enterprises; · g. in addition to addressin& the fundamental jssue of social justice, these options are likely to significantly increase ~ rural employment and ensure that the cost of the program is very reasonable; h. a redistribution program will not be able to provide land for everyone and the program will need to be complemented by a rural safety net and by programs for urban groups, and i. although the discussion concentrates on agriculture and small farmers these are not the limits of the program. It is envisioned that the program wDl be a vehicle for supporting a wide range of land use activities, including trading activities, and small-scale enterprises. 87. h is anticipated that in South Africa, the majority of land reform activities will occur under the heading of land redistribution rather than restoration. Models of land redistribution can be thought of as consisting of two stages-acquisition and distribution of land. The central issue in the way these two stages are implemented is the role of the public sector. Although there are numerous variations in the role that the public sector plays in these stages, it is possible to think of each stage as being either market- assisted or publicly administered. Figure 1 depicts the four general models of redistribution that emerge from this classification and some examples. -32- OptioM for LmvJ Rd'orm and Rural ReS1TilCIUring in South Afiica November 1993 FigUJ:C 1: Models of Land Redistribution .. Marb:t-Auistcd Admiailtrativc Acquiail:ioD Acquisition Mubt-Aailted WJtb botb *&a haDdJal by mukct In this cue the 1tatc acquira the laDd Diltributioa JDeManiam•, 1ucb u a willing-buyer, (through expropriation or direct purcbuc) and williDg-ICDcr model. Tbc xo~ of the I t * re1iea on a mukct device for distribution, illimifed to monitoriDg and facilitating the e.g., a bidding proceu. proceu. Administrative In this cue, the 1tatc acquira laud in the An cumpJc of an admmiltral:ively bandied Distribution mukct and tbca administ.en the ICUJanem land JCdistribution is the proceu of clircctcd program, e.g., homeland CODIOJidation resca:lcment on 1tatc owned or expropriated and beltermcut ICbcmel. land. 88. International and South African experience clearly indicates that the performance (as measured by pace and extent of land reform as well as the performance of settlers) of models that are dominated by the public sector-through various administrative devices such as centralized decision making-is typically unsatisfactory. In contrast, reliance on market forces improves the performance of the model, but requires government intervention or guidance to ensure that certain social objectives are achieved. The redistribution options described in this report (for both the acquisition and distribution stages) rely on market mechanisms, combined with a recognition of the need for government to ensure that the broader social objectives of the land redistribution program are achieved. Qptions for Re4istnDution 89. Apart from the role of the public sector in land reform, one of the central tensions in designing a land redistribution model is that between the desire to acldress welfare and asset transfer objectives through the redistribution of land (essentially transferring an asset) and the desire to promote the productive use of land. Some individuals who qualify for land or assistance under welfare objectives of a program, may have little experience in agriculture. In contrast, the most experienced and well-qualified farmers are unlikely to qualify to receive land under welfare objectives. Some redistribution models have taken the view that those individuals qualifying under welfare guidelines will acquire the necessary farming skills, but because of the time required for such skill acquisition, this approach is more cosdy. This difficulty should mt, however, be cause for sacrificing welfare and asset redistribution objectives in a land redistribution program. 90. To the extent that a South African land redistribution program wishes to address welfare objectives, one option is for the land redistribution program to include a basic grant. The basic grant would be available to all individuals who meet the requirements for participation in the redistribution program. The size of the individual grants would be determined largely by budgetary considerations and the needs of the participants, but would likely be sufficient to pay for a rural housing site. In the context of rural restructuring, a basic grant scheme would provide the new South African government with a very flexible tool. If the new government opts for a large welfare (grant) component to the land redistribution program, the size of the basic grant could be increased-subject to budget constraints-thereby allowing -33- · Optiolu tkr Limd Retkrm and RIITal RutriiCtllring in South Africa Nollmzbn' 1993 grant recipients access to more land. For such a basic grant scheme to operate effectively, the government will need to ensure that the land market provides opportunities for beneficiJI!es to gain access to land. Options for the government to fulfill this responsibility are described below. 91. In order to support increased access to land by individuals or groups· that will use land for production a matcbing grant option can be added to the program. Under this option the individual or group that wishes to gain access to land (through purchase or lease arrangements) would provide a portion of the purchase price as would the redistnoution program. Therefore, the resources for the purchase (or lease) price of the land would consist of a matching grant from the government-which can be separated or combined with the pure grant component discussed above-and the beneficiaries' co-payment. The size of the matching grant could be designed in several ways; however, it is assumed that the bigher the value of land the smaller the matcbing grant ahar.c. (In terms of Figure 1, this option corresponds to relying on market-assisted devices for both acquisition and distribution.) 92. An example of how the matcbing grant option would work is provided in Figure 2. Any purchase of land up to the value ofpointA.would be entirely paid for by a grant (i.e., 100~ grant financing). In designing the program. the value of point A would be determined largely by budgetary considerations. Referring to line 1-which provides a SO" subsidy above the basic grant-in Figure 2, any purchase of land between points A and B would receive the basic grant (point A) plus SO~ of the additional land value. For example, if A = RS,OOO and B = R20,000 and an individual or group wanted to purchase a piece of land valued at R.17,000, the total grant available to the individual would be R.ll,OOO {RS,OOO + (.S)R.12,000). An alternative formulation of the grant function (line ll) provides a decreasing subsidy as the value of land to be purchased increases. For example, referring to linen, if an individual wishes to purchase a piece of land valued at R.16,000 (point C), the total grant available to the individual would be R9,400 {RSOOO + (.4)R.ll,OOO). 93. Apart from budgetary considerations, there are other advantages and disadvantages associated with a matching grant or co-payment requirement. Among the advantages are the following: (i) co-payment acts as a self-selection or rationing device and reduces frivolous requests for land from people who are not really interested in living in rural areas or operating a farm; (Ji) co-payment increases the incentives for using land in a produ~ve and sustainable manner; (iii) co-payment may encourage prudent thrift and capital accumulation among the beneficiaries, and familiarity with financial instrUments; and (iv) co- payment makes it less attractive for the wealthy to claim land, especially if the co-payment requirements increase progressively with the amount of land claimed. Therefore the program will have much fewer built in incentives for arbitrary allocations of the land or corruption. -34- Options (or Land Rdorm twfRural R~struc:turing in South Africa Novembq1993 Figure 2: A Grant function Based on Land Va}ue 100 f\ Share of Purchase \ Price in Grant Form \~Jt: \ '\ 50 I \. "'O ~----~------ ~ I 1\ I \ t 1 \ A c. Land Value Figure 3: A Grant Function Based on Points Criteria IOO Share of Purchase Price in Grant Form so c: Points -35- Optimu for Land Rdimn and RUTal RestrMClll1ing in Soutb Africa No•embu 1993 94. At the same time, however, a matching grant scheme has disadvantages. First, such a requirement may be inconsistent with the prevailing ideology that the right to land for purposes of Shelter and food production should be free, especially in view of past abuses in South Africa. Second, if a co-payment is required, low income individuals and households are likely to be excluded from the program, thereby subjecting the program to charges of elitism. Clearly these disadvantages center on the tension between the welfare objectives and the desire to have land used productively. It is for this reason that the optioDS presented in this report are based on two components-basic grants and co-payments. 1bis approach allows some land to be available (through the grant component) for housing (or other uses) even if the beneficiary is unable to participate to the co-payment component of the program. Any additional access to land through the redistribution program would require a co-payment. Within this context, government would have the option to mate the program more equitable, and to reduce the incentives for corruption, by placing a ceiling on the size of the government's co-payment. In order to further reduce the burden of co-payment requirements of the program, poor beneficiaries might also be allowed to pay for their co-payment portion in kind, i.e., in the form of labor or materials for the consttuction of the basic infrastructure which would be part of the program. 95. Another question that needs to be coDSidered is who will receive the matching grants and how much land (or grant value) will they receive? International experience clearly indicates that the characteristics of those who participate in a land redistribution program is an important factor in determining the success or failure of the program. In the context of a land redistribution program, there are two broad methods for determining who will participate in the program: (i) self-selection; and (ii) criteria based on certain characteristics of the beneficiaries. These two methods can operate individually or they can be combined in a variety of ways. The basic self-selection model is one in which any individual or group could participate in the program. (Even in this option some simple criteria would likely be applied, e.g., participants need to be historically disadvantaged and South African citizens.) In terms of the matching grant model discussed above, an individual or group would have their contribution to the purchase price of the land automatically matched in accordance with the particular copayment or grant function selected for the program. For example, an individual (or group) wishing to purchase a piece of land would compute the value of the matching grant they were eligible for (typically based on the value of land) and their required payment. Once their required payment was deposited in an escrow account and their application to the program was validated, the matching component would be deposited in the same escrow account. The account could then only be used for a land purchase. 96. The application of criteria to the program simply means that individuals or groups need to be certified as having the necessary qualifying characteristics before being allowed to participate in the program. For example, points could be assigned for various characteristics that are judged to be desirable, e.g., relevant experience, social circumstances, and/or gender. On the basis of total points, an individual (or group) would qualify for a particular level of grant financing. In Figure 3, an individual or group receiving more points (reflecting the characteristics valued by the program) would be eligible for a higher share of grant up to some limit, say 50% (or 100% if a full grant component was judged necessary for the program). The example shown in Figure 3 would have the characteristics that individuals with points less than level D would receive the land on a grant basis, while individuals with more points would obtain a grant, but with a copayment requirement. No additional grant would be provided to individuals with a very large number of points above point E. -36- Opfitm.s for Land Rd'orm cnu:I Rural RestrriCtllring in South Afrifa NOllember1993 97. A variation of the points system could involve qualifying individuals with certain characteristics, e.g., tenants, landless people, or victims of betterment planning, for immediate p3l!icipation in the program. Alternatively, criteria could be based in large measure on means testing. In such an option, it needs to be stressed that decisions regarding who participates in a land redistribution program lJWi1 be accepted by society in order for the program as a whole to have credibility. Ensuring the Availability of Land 98. As stated earlier, a central theme of the land redistribution options described in this report is a reliance on market forces for facilitating both the acquisition and redistribution of land (Figure 1). At the same time, it is recognized ~ the government must accept ultimate responsibility for ensuring the success of the redistribution program. A critical requirement for a market assisted redistribution program is the assurance that sufficient land will come on the market and that land prices will not be driven up beyond levels that correspond to the productivity and profit potential of the land. Among the options for achieving these objectives are the following: a. Elimination of policies and programs that favor large scale agriculture will reduce the land price which is simply a capitalization of these privileges into the land price. Much of this has already happened over the last few years and has contributed to the decline in real land prices. b. State land can be either sold or directly provided to particularly needy beneficiary groups such as former labor tenants or victims of dislocation associated with betterment schemes. Sale of state land will increase the supply of land, while direct distribution will reduce demand for land by beneficiaries. Since low quality land is unsuitable for direct settlement, only the unoccupied, high quality, sta~wned land should be used for direct distribution. The remaining land can be sold, with the profit going to purchase more appropriate land. Of the total amount of state owned land, it is estimated that only about 600,000 hectares is suitable for crop production of which only about 320,000 hectares is Unoccupied. c. If land supply is still a problem, another option would be to encourage-through a variety of means-land owners to sell their land. For example, what amounts to a pension scheme (based on the net worth of the farm) could be designed that would provide current owners with a secure income stream based on the net worth of their farms. If the current owners perceive the pensions as providing a secure income stream, rather than risky farm profits, they are likely to be willing to sell the land for a present value of pension benefits which is lower than the market price of the land. The pension scheme has the additional advantage that it allows for the deferral of the fiscal cost of the land purchase over time. To reduce the perceived risk of the pensions, a portion could be guaranteed by the South African state, while another portion of the pensions could be guaranteed by an international donor consortium against political risk. A time limit on the pension offers would encourage additional land supply for the critical first few years in which much land needs to change hands to satisfy the land hunger. -37- Optiens fur Land Rttkrm and Rural ReSI71ICIUTing in South AN Noynnber 1993 d. Another option for increasing the supply of land would be to encourage the Credit Board and other financial intermediaries to accelerate the foreclosure .. on farms with non-performing loans. For a certain number of years the banks would berecapitalized for · a certain percentage of their loan losses, say 30~, on farms which change hands from current owners to any of the beneficiary groups, either in a direct sale, or as a consequence of foreclosure. Finally the state could pay brokers a fee for bringing additional land on the market. e. On the demand side, the credit system is likely to place limits on the mortgage loans that beneficiaries could apply to their land purchase. Even today, for example, the Land Bank's mortgage finance is capped with an upper limit defined by the productive value of the land. Thus, by limiting the price which beneficiaries are able to bid, such a lending policy will help to avoid price wars between competing beneficiary groups. 99. If all the above measures fall to stimulate an adequate supply of land in a given district, an institution such as a district land committee could be empowered to recommend expropriation of specific farms to a national land committee under the constitutional provision for expropriation in the public interest. In order for the benefits of a market-assisted system to be realized this option needs to be used only rarely, if at all. Such action should, therefore, be triggered by a clearly specified set of indicators, such as an excessive rise in the real land price or an excessively low level of transactions relative to beneficiary demand. A recommendation to activate this option would have to be reviewed by the national or regional land committee to ensure that common policies with respect to the trigger indicators are satisfied before the district land committee could expropriate with compensation. If an expropriation order is issued, the land committee would then be able to distribute the land via the normal market-assisted mechanisms to program participants. Summaa 100. The operation of the land reform (or land restitution) program is summarized by the flow diagram in Figure 4. Beginning at the top of the diagram, individuals (or groups) that wish to gain access to land have three choices: (i) seek land through the restoration process; (rl) acquire land through the redistribution channel; or (ill) purchase land without assistance from the program. The criteria for participation in the restoration process will be well-known, and any individuals (or groups) that qualify would submit an application to the appropriate institution (e.g., a land claims court, a land commission, or a land committee). Having entered the claims process, there are four possible outcomes: (i) a land award; (ii) a cash award; (iii) the denial of the claim; or (iv) conversion of the claim to the redistribution process. The latter outcome would be an option for a claimant who felt that the claims process would be too time consuming and was willing to accept compensation through automatic participation in the redistribution process. In designing the program it may be decided that special consideration should be given to such individuals (or groups) in the redistribution process. Hence, claimants who relinquish their claim to restoration could be put in the front of the queue or awarded additional points if that is the relevant model. -38- Options for Land Rrform tmd Rural Restructuring in South Afiica November 1993 Figure 4: Land Reform or Restitution Process -39- Novnnbn 1993 101. The individuals or groups wishing to participate in the redistribution process (or channel) would apply to the relevant institution. If the applicants meet the criteria (which would need to be set at the national level after consultation with regions) they would be responsible for identifying aDd assessing land. The beneficiaries would be responsible for identifying a piece of land, but would be eligible for assistance in this activity. 1bis assistance could be used to find and assess land, as well as provide advice on various land use options. Once a suitable piece of land is identified, financing could be arranged from three possible sources: (i) the grant component available from the program; (u") the beneficiaries own resources; and (Jh") a bank loan. Once the sale (or lease) is completed, the beneficiaries would then be eligible for support services. LAND REFOBM: OlJTSTANDING ISSUES 102. The various options described above leave unanswered several questions about redistribution and how it will operate. The present section attempts to address two of these questions: (i) is it appropriate to compensate current landowners for assets acquired under the apartheid model; and (li) recognizing that land redistribution will not provide agricultural land for the entire rural population, what safeguards and/or alternative programs are necessary? Should Current Lan4owners be Compensated? 103. Whether or not current landowners will be compensated is of concern because these landowners have acquired land with the assistance of racially motivated apartheid policies. If they are compensated at the prevailing market price, some would argue that they have benefited from apartheid. Ultimately, a new government will take the decision on this issue, but there are several points that might inform the decision. 104. First, the current owner is likely to have acquired the land in a bona fide transaction, typically as a purchase in the market. In such cases, the previous owners were the primary beneficiaries of apartheid, since many of the privileges associated with apartheid policies would have been capitalised into the prevailing land prices. lOS. Second, in addition to the former landowners, apartheid policies benefitted much of the White population that had no direct interest in agricultural land. This includes not only the providers of agricultural input, marketing and financial services, many of whom captured rents from anti-competitive restrictions at the expense of farmers and consumers, but also the mining, manufacturing and service sectors, which benefitted from the cheap labor and restrictions on entry of Black entrepreneurs and competitors. Therefore, failure to compensate current owners of farmland for the price of land would impose the cost of a land redistribution program on only one group of those who have benefitted from apartheid, namely the current owners. 106. Third, many of the current landowners are heavily indebted, with the most severely indebted ones being most likely to leave the farm sector. Confiscation would mean that the capital loss would be shared between the net worth of the current landowner and the debt claim of the concerned lender. Consequently, a large scale program of land redistribution without compensation would not only eliminate the net worth of the current owners, but also could bankrupt many of the agricultural lending institutions. -40- Optio7Js for Land Rdorm and Rural R~structuring in South Atffca Novnnbu 1993 If, as is likely, these institutions are needed to finance the new owners in the future, the new government will find it necessary to refinance the losses of the lending institutions associated with the confiscation of the land. Thus, even if compensation is not paid, the state will probably need to pay at least for the unrecoverable farm debts of the farms it takes over. 107. Fourth, failure to pay compensation wnt be viewed as politically unacceptable, not only by· the .current owners and their lending institutions, but also by nonagricultural interests, which will see this as a first step towards Dationaliution without compensation. These interests would likely oppose the entire land reform program.· Finally, external investors and South Africans with capital invested abroad are likely to react by reducing their investment in or repatriation of capital to South Africa. 108. Even though there are many reasons to regard the past acquisition of farm land as being of doubtful legitimacy, it is the inequities and the lack of practicality associated with any confiscation or compensation at less than market prices that makes such an action ill-advised. 109. There remains the question whether the compensation to be paid should be at or close to a market price. While there are legitimate reasons to tax the current landowners for their share in the gains form apartheid, taxation in the form of a reduction in the compensation paid to them may not be advisable. Such efforts will be viewed as expropriation without full compensation and will be resisted and contested, possibly with lengthy delays. Such delays will inevitably be at the expense of the potential beneficiaries. An alternate approach would be to tax the capital gains of the current owner associated with the compensation at market prices, or to include the payment of the current owners in a broader restitution levy on all wealth. -41- Novmrbgl993 Rural Poyerty Scope of Rural Poverty 110. The most important ways of dealing with the widespread poverty in South Africa's rural areas will be increasing the incomes of poorer people through distribution of productive assets and accelerated, labor-intensive growth of the economy. The first of these includes the land redisttibution, and -42- - ...... Opfimu for Land Rdorm and Rural Re.rtrru:IJlring in South Africa Novnnber 1993 supplementary rural sector initiatives, described earlier in this report. The welfare of the poor will also be enhanced if agricultural policies help to lower food prices in real terms, as descnbed earlier. While these various initiatives will help to address rural poverty, there will continue to be people who need additional assistance. 'Ibis section examines options for addressing the needs of these people. 111. An Urban Foundation study measured the proportion of households whose incomes fell below a .minimum living level and showed that about 42" of households in the country were in poverty in 1990, the majority in rural areas. The study estimated that in rural areas 5" of White households, 8" of Asian households, 40" of colored households, and 68" of Black households had living levels below the poverty line. In rural areas of the bantustans, as many as 83" of Black households fell below the poverty line. Studies carried out between 1990 and 1992 in KwaZulu, Transkei and Bophuthatswana, showed that the poorest groups lacked access to wages, remittances, or social transfers. They accounted for about 4" of the population, and had monthly per capita incomes ofR32 (male headed households) and R23 (female headed households). For this poorest group, more than half of income came from agriculture; in no other group did more than 109h of income arise from agriculture. 112. The poorest groups descnbed above lack the wherewithal to benefit from greater access to land. The proportion of female headed households is higher for these groups than for others. It is likely that better access to employment, to activities of the informal sector, and to welfare payments will be more important for raising incomes of these groups than access to land alone. Welfare Programs Which Address Poverty 113. The main programs funded by the present South African government that seek to address poverty alleviation have an annual budget of around R8.14 billion (Figure 5). F111= S: Government-Funded Poverty Alleviation Programs Annual Budget (Rand billion) Welfare 4.40 Whltcs (R200/capita) 1.00 Colored (R2SO/capita) 0.80 Indian (R204/capita) 0.20 Black (RSS/capita) 2.40 VAT Relief on basic foods 3.00 National Nutrition & Social Development Program 0.40 Public Works Program 0.30 Protein Energy Malnutrition Scheme 0.04 TOTAL 8.14 114. Welfare. The welfare system, with a total budget ofR4.4 billion, is administered by 17 services which are fragmented, inconsistent and allot inappropriate roles to social workers. The poorer groups -43- Options fur Ltmd Rdprm qpd Rural Re.strllCtllri1lg in South Africa receive substantially less expenditure per capita than others. Expenditures for Black welfare (R2.4 billion) are divided among the provinces (R.1 billion), bantustans (R.0.8 billion) and TBVC states (R.0.6 billion). The majority of the budgets are allocated to old age pensions (68% for Whites, 40% for Coloreds, 39% for Indians, and 77fl for Blacks). The next largest category is Disability payments, followed by Family and Child Care, and finally very small amounts spent on Poor Relief. The Family and Child Care category may become very significant for Blacks in the future, since such provisions (especially for children's health) are increasingly regarded by UNICEF as vital for the welfare of children, and on the demand side, the large number of single parent households among the Black population, to whom such welfare would apply most particularly, are only beginning to become aware of the service and apply for it. 115. The old age pension is an especially important source of income for Blacks in rural areas. It provides regular payments, probably going disproportionately to women (who most need it), and the administrative structures for delivery are already in place. Serious efforts have been made by NGOs to increase the proportion of eligible persons who are actually enrolled. In 1991, it is estimated that around 71% of eligible rural Black families were receiving pensions. There remain 29% who are not, none of whom receive pensions from private funds. At the same time as more full coverage is being sought, however, there may be a need to decrease the level of tho old age pension, in order to provide funds for other programs which target poverty more directly in families which do not have family members old enough to be eligible for the pension. 116. National Nutrition and Social Deyelqpmem Program. The NNSDP, which began in 1990, is funded by government, administered by the Department of National Health and Population Development, and implemented by NGOs. The program had difficulty developing appropriate working relationships between government and the NGOs, and the arrangements for this vary greatly among the regions. The program relied initially on food parcels, whose contents were inappropriately formulated to address undernutrition. There have been concerns about corruption in the commercial arrangements for assembling the parcels, as well as with the competition the parcel system provides for trading stores, especially in remote areas. 117. In the absence of an effective nutrition surveillance system, allocation of food parcels has not been effective, and the program has developed a marked urban bias. There have also been problems of coordination between the NNSDP, run by the Department's Welfare Division with a poverty focus, and the Protein Energy Malnutrition scheme, run by the Department's Nutrition Division with a focus on malnourishment. Ideally, there should be close collaboration between such schemes, in order that when a child receives treatment for malnourishment, the family can also receive assistance on grounds of poverty. While a start has been made during 1993 on addressing the various problems of these food programs, much more work needs to be done to increase their effectiveness. The establishment of a nutrition surveillance system, in particular, has yet to be started. 118. The country's welfare system will need to be widened over the next few years, to increase access by households without employable adults, where adults cannot wort away from the home without reducing necessary care to others, and for households in temporary distress. This may need some reduction in levels of old age benefits as their reach is extended towards universal coverage. No reduction in levels should be countenanced, however, until other programs are in place. Such other programs would include -44- Options for Land Rdorm and Rural Re.strHCtllring in South Africa November 1993 more direct efforts to provide employment, for example through public works programs. When the latter have been established, it may be possible to phase out the NNSDP. There is a need, however, for regional experimentation over the next few years, including food vouchers and other (eeding schemes, to develop a mix of initiatives to address rural poverty and food security problems more effectively. Emptosmem Programs 119. The main way of dealing with the country's massive unemployment will be economic growth which is employment-intensive (m contrast to that of the past decade, which has generated, in the formal sector, additional jobs for as few as 6% of additions to the economically active population). In support of such an employment-intensive growth path, maintaining low food prices in real terms will be crucial. The key factors for that are continuing improvements in agricultural technology, and increasing substantially the efficiency of food processing and marketing. But food security in rural areas will also need to be assisted by income generating programs outside agriculture, and special employment creation schemes will be an important part of this. The enormous disparities in regional economic activity, welfare; and infrastructure provide the setting for such special employment schemes to have a valuable impact on economic growth while creating jobs. 120. A rural Public Wor1cs Program (PWP) is proposed, which would create productive economic infrastructure and build human capacity, thus addressing simultaneously two central needs of the rural areas. The proposed PWP would be developed around the following principles: a. the program would be national in scope, and would require a consensus among government, trade unions and local communities about employment conditions, political and financial commitment; b. while careful engineering design would be needed, local communities would be closely involved in project identification and planning, in order to ensure that they would •own•, manage, and maintain the assets constructed under the program; local management and maintenance would be critical to success; c. pilot projects would help accelerate decisions about the nature and design of infrastructure; d. among others, projects undertaken would include roads and tracks, water supply, rural electrification, sanitation, schools, clinics, training facilities, housing, irrigation, and tree planting; e. labor-based construction methods would be employed, which have been found to be compatible with acceptable engineering quality of assets in most cases; f. specific training to increase the skills of participants would be undertaken; g. a national fund is proposed, underpinned by a long term (at least ten years) commitment by government, with clear, efficient guidelines for access, and mechanisms to ensure that -45- Optig71S for Land Rdorm and Rural Restn~elrlring in Solllh Attica Novnnber 1993 benefits would not be captured only by the better organized and informed; h. the proposed national fund would be formed by consolidating in one place many of the budget allocations for •employment creation•, •emergency relier, •training• and so on, which are scattered throughout the government; the total of such programs in the 1992/93 budget is estimated to be around R6.2 billion, or S ~ of the total budget; such a consolidated fund, it is argued, would be likely to have more impact than the many individual fragmented programs; i. financing would be from the national budget iDitially, with the consolidation proposed above, but a variety of other funding mechanisms would be explored, including from the private sector, international aid, and contributioos from the beneficiary communities, possibly in kind in some instances (although the emphasis would be on remunerative employment for poorer persons); some models for joint private and p~lic sector initiatives are already available in the National Housing Forum and the Independent Development Trust (the latter's Relief Development Program in 1992/93 expended about R49 million to generate 4.7 million days of work, a cost per equivalent full-time job of about R2,600), to construct roads, dams, water supply systems, clinics, classrooms and creches). -46- OptioM for 'Land Rdorm tmd Rural Restnu:turing in South AtHctz Novembu 199.3 PART m: OPTIQNS FOR ADMINISTERING A RURAL RESTRUCTURING PROGRAM 121. Successful rural restructuring needs efficient administration, good governance, development of infrastructure, delivery of goods and services (both agricultural and nonagricultural), the redistribution of land, and the general development of community life in rural areas. 122. The systems which administered apartheid have been complex and wasteful. A highly centralized white bureaucracy is parallelled by a series of highly centralized black bantustan bureaucracies. Within the bantustans, tribal and regional authorities claim to represent traditional social groupings. · In reality, services are focussed on urban and peri-urban areas with limited outreach to rural areas. Other bureaucratic complexities and duplication exists in the Regional Services Councils, Joint Services Boards and numerous parastatals. Rural restructuring will need to develop new methods of administering and delivering services to rural areas. Such methods need to be developed from a thorough understanding of the low education levels, scattered famDies, and severe poverty which are characteristic of rural areas at present. 123. Recently in South Africa, a great deal of attention has been given to national and regional levels of administration. Only now, however, are issues relating to lower levels of government starting to be addressed. International and South African experience provide clear lessons, one of which is that highly centralized approaches-whether at the national or regional level-are not effective in promoting effective rural development. It is also clear that directly elected and responsible local governments are critical for rural development to have any chance of success. The Policyr Framework 124. There is an urgent need to give rural issues a central place on the national agenda. This requires clearly articulating a national rural development policy. Such a policy needs to provide for: (i) clear administrative boundaries; (n") accountable local government with a secure financial base, and powers to -47- Options tkr Ltmd Rdorm and Rlll'al R1strJICI1lring in South Africa Novrmb~r 1993 take action in response to both national policy and local need; (rll") investments in infrastructure and services; (iv) access to land, and tenure security; and (v) measures to build the political and social capacity of economically weaker roral groups, so they can speak and act concerning tll..eir needs. 125. While a clear statement of national roral development policy is crucial, it is not sufficient. The policy framework established at the national level needs to be adapted and reformulated, at every level, by the affected people as well as those involved in the process of implementation. Because unresponsive or uncooperative public institutions can paralyze the best designed reforms, this reformulation needs to tab place within communities and the institutions created to serve them. Mministrative Boundaries and Remonsibflities 126. The current political negotiations envisage four tiers of government: central, regional, district, and locality. For successful rural restructuring, a public administration at district level, such as a District Council, is necessary. Such a District Council should be elected by district residents and be represented at the regional level. The boundaries for districts need to be set with regard to integration of existing racial administrations, integration of urban and rural areas, social cohesion, the potential economic base, and natural resource endowments and limitations. In order to facilitate this process, one option is to appoint a Boundaries Commission to investigate and recommend district boundaries. 127. The following allocation of responsibilities can. be considered: a. District Councils could be responsible for primary health care, primary and secondary education, water supply, district roads, land allocation, land use planning and zoning, economic development promotion, welfare, waste and pollution management, recreation, tax collection, and capacity-building for economically weaker groups. b. Regions could be responsible for functions and services at the regional level, including transport networks, health care, tertiary education, economic planning, land use planning and zoning, and natural resource management. c. the Central state would then be responsible for policies on health, education, agriculture, defense, law and order, foreign affairs, internal affairs, fiscal and monetary matters, justice, land, rural development, regional and local government, devolution of appropriate line functions to regions and districts as suggested above, fiscal allocations to regions and districts in line with policy, and promotion of democratic and sound workings of regions and districts. d. Localities would take various administrative forms (for example, municipalities, tribal authorities, returnee groups) all of which would be represented at district level; such arrangements would need to be negotiated within districts, and be flexible enough to be changed over time. -48- ....... Opfio71s for Ltmtl Rdorm tmd Rural Restnletllring in South Afu Novembu 1993 Institutional Restructuring 128. There are two options for creating an institutional structure to implement rural restructuring. The first would be to disband all the institutions which have hitherto been ineffective and to begin with a clean slate. The alternative is to reform existing institutions on the assumption that they would either reform from within or would willingly allow themselves to be reformed from the outside. 129. The clean slate approach is UDlikely to wort as a general method because administrative upheaval on such a scale would leave a vacuum in important development arenas for too long. It is best used only in essential areas and on a limited basis. The problem with the reformist alternative is that the decision to reform does not automatically eadow institutions with: a collective will to operate in a different manner, the technical abilities to grapple with issues they have never addressed before, or the financial resources to follow through on the decision. 130. Creating an institutional environment to support rural restructuring wnt therefore involve some elements of both radical· reconstruction (m which institutional structures are simplified and technical expertise strengthened) and of reform {through which institutional goals are transformed and development cultures created). Reform is a far more demanding matter and involves difficult judgments about institutional politics as well as capacity. It is important to recognize that many of the existing structures are unsuited for anything but a contimJation of the discredited top-down approach, even if current negotiations mean that the •top• will soon be at the regional rather than the national level. 131. While South Africa must devise its own specific solutions to its problems, international experience suggests four key objectives: {i) autonomy and accountability; (li) flexibility and responsiveness; (iii) access to and control of resour~; and {iv) simplification. Autonomy and Accountability 132. Empowering the communities directly affected by rural restructuring to negotiate their own development can happen only through direct election of local bodies with the authority to guide development activities in their areas and with assigned resources and fiscal measures to match their responsibilities. Clarity in assignment of responsibilities across different administrative levels is essential. No state agency would be able to undertake development projects or programs in a specific area without the concurrence of the elected local district council. 133. Weaker constituent groups within districts, particularly women and the very poor, will require special attention-such as affirmative action programs-to ensure participation in and appropriate benefits from district-level decisions. Ensuring an adequate response on the part of local institutions to these special needs may be where special forms of community based organizations {CBOs) could play a pivotal role. Flexibility and Responsiveness 134. Local public bodies at the level of the district councils and below would have the powers to adapt and apply the objectives set out in the national and regional rural development policies. They would also hold the authority and command the resources to carry out development functions. -49- ....... Nowmbql993 135. There is much that is currently dynamic in South Africa's rural areas. In particular, certain CBOs and NGOs have displayed their ability to identify gaps where needs are not being met and/or services not provided. The typically small scale operation of these organizations, coupled with .a high degree of flexibility, has enabled some of them to address and remedy local failures in service delivery very well. 136. Much can be learned from the operations of these organizations. The issue is the appropriate role for each. CBOs range across a wide spectrum including agriculture, church groups and neighborhood associations, and there is great potential for them to function in very positive ways. Well-organized CBOs, such as the Farmers' Cooperative, can play an important national role as well as enhancing purely local capacities and undertaking other development functions for their constituencies. NGOs, on the other hand, appear to be especially effective in mobilizing analytical, legal, organizational and managerial resources. By concentrating such resources on the problems of deprived and victimized groups, they have been particularly good at influencing policy and government actions. In some cases, NGOs have also been instrumental in providing assistance to emerging CBOs. 137. Because both CBOs and NGOs will in the future be claimants for public sector and donor resources to operate in rural areas, a systematic assessment of national CBOINGO experience in order to identify precisely the comparative advantage of each type of organization in supporting rural development initiatives may be in order. Such an assessment could also identify those areas where public systems have chronically failed in the past and where CBOs/NGOs have filled administrative vacuums, as well as where interim operations of these CBOs/NGOs is essential to achieve a smooth transition. Access to and Control of Resources 138. Fiscal decentralization is needed if the scale, scope and timing of rural restructuring and development activities is to match local needs. The community development councils should thus participate in the budgetary processes. 139. Local and district councils need to have the power to generate revenues and to control the expenditure of funds collected. It is envisaged that the new councils would have the power to set rates and collect levies, fees and license charges, and possibly real estate taxes, ~m their constituents. Only by having such access to local resources would the councils have the ability to coordinate development activities and to request additional external resources without losing their autonomy. 140. In parallel with the redistribution of land, a low, flat-rate land tax might be introduced for all agricultural land with rates set locally. The local development council would retain a large share of the revenues collected under the tax and would pass on a small proportion of the revenues to the regional level. In addition, improvement levies could be charged on nonagricultural land. 141. The ability of councils to generate revenues will depend on their local tax base. There will thus be a need for a flow of resources from national and/or regional programs to the local level in the form of revenue sharing and unrestricted grants. Typically such grants would be negotiated between regional and local or district administrations. They may also be structured so as to reward administrations where notable efforts have been made to generate revenue from own resources. These grants should include provision for an equalization element, which would take account of the needs of the community and spatial inequalities in access to services. The needs of the community would be calculated ·by reference to the -so- Optiozu tpr lAIIIl Rdprm tmd Rrual RUITIICtJiring in South Atjice Novmrbu 1993 population base and the economic base, as well as the ability of the council to generate its own tax revenues. ' 142. Even with revenues from local resources and unrestricted transfers from higlier levels, local administrations are likely to spend insufficient amounts on such things as agricultural extension, nutrition programs, pollution control, clean water and sanitation, and resources to prepare projects to assist poor communities. 143. In these circumstances, the regional and/or national governments will find it necessary to encourage localities to invest in these areas, which are of obvious importance in a restructuring program. A system of conditional matching grants would need to be devised to encourage local governments to follow guidelines set at regional and national levels if they wished to participate in the programs. In this. way, the efforts of communities in mobilizing resources could be used to attract additional resources into local areas for activities with positive spillover effects for the community at large or for identified segments of the community. 144. Regional services levies, such as those administered by the present Regional Service Councils (RSCs) and Joint Services Boards QSBs) should be suspended. These levies are a specific tax on the employment of labor and are charged to employers. Although the revenues collected are small, their application is ad hoc and any disincentive to employment in rural areas needs to be eliminated, 145. With the decentraliZation of controls over revenue generation and expenditure, there will be understandable concern over accountability. Normal accounting and audit procedures would be strengthened at all levels. International experience shows that decentralization, coupled with electoral responsibility, greatly expands the opportunities for transparency of administration. This in turn leads to possibilities for more frequent and timely audits, in which the scrutiny of the community plays an important role in corroborating reported revenue and expenditure. Such accountability at the local level has been shown by experience to be a more powerful way of reducing leakages and corruption than centrally administered audits of resource flows. It should be noted however that a considerable amount of capacity building may be required to enable communities to assume these kindS of roles. Land Redistribution 146. The emphasis of land redistribution must be on providing access to land, under various forms of tenure and for various purposes. There is need for new administrative arrangements to deal with land transfers, even though some land redistribution will operate through judicial land claims procedures. 147. The establishment of a new institution-the District Land Committee-is an option for specifically dealing with land issues. The land committee would be fundamentally a fact-finding body, repres~g specified interest groups in the community. These groups would include, but not be limited to, the commercial farmers, representatives ofbeneficiaries, traditional authorities, labor unions, church and civic groups, and women. Membership would have to be carefully balanced after an appropriate consultative process at national and regional levels. · 148. A District Land Committee would serve three main functions. First, through a process of fact finding, it would document land claims and compile details on land records. h is envisaged that on the -51- Novtmb" 1993 basis of its investigations focusing on issues of restitution, the Land Committee would make the initial recommendations to the Land Court, which would in turn convert these recommendations into judicial findings. These judicial findings would then be open to appeal. 149. Second, the Land Committee would administer the application procedures for land redistribution unrelated to prior land claims. In doing so, it would receive applications aDd process them in accordance with the criteria established at the national level. It would then allocate land and grant resources at the local level. It would also maitttain local records of the land transactions which it administered and transmit records of transactions to national level. 150. Finally, an adequately representative Land Committee would be well positioned to provide an arbitration function. Even the best land redistribution programs need mechanisms for informally resolving disputes. Experience elsewhere shows that a large proportion of such disputes can be resolved locally without recourse to external political or judicial systems. 151. It is important that the role of the District Land Committee be confined to land administration and that it have no development functions. To establish the committees with development functions would undermine the capacity to deal with land. 152. It should be recognized that the committees would be long-standing bodies and would require permanent capacities in the form of a secretariat and office facilities. Even though it is envisaged that the members of the committee would serve on a part-time basis, some minimum cadre would be needed to provide support and to service the committee. Resources would need to be made available for these purposes, perhaps from the suggested land tax. SUPPORT SERVICES Overview and Backmumd 153. With the exception of the bantustans, most state-funded agricultural support services in South Africa have focussed on the needs of the large-scale commercial farming sector. Even in the bantustans, where extension services lack credibility, agricultural services have, until recently, been primarily directed towards the commercially oriented farmers who comprise about 13% of homeland rural families and generally have larger land and livestock holdings. The small part-time farmers and resource poor non-land holders, who together comprise nearly 90% of rural families and the overwhelming majority of the rural poor, have been virtually ignored. 154. The exceptions are a number of rural based NGOs (mcluding Community Based Organizations) and commodity organizations (sugar for example), which have promoted development among the neglected majority. The DBSA Farmer Support Program is also focussing on smallholders. Due, in part, to limited resources and to a lack of coordination with both the state and other NGOs, their impact has been small. In those few cases where support services have been extended to small scale farmers, the service paradigm has been mainly a top-down, paternalistic one with little attempt being made to seek the views and -S2- Novnnbu 1993 participation of the recipient communities1 and individuals. Moreover, in agriculture, the emphasis has been on target income levels for white farmers, and the promotion of comparatively high cost, high input, capital intensive, modern technology. 155. A large proportion of the disadvantaged population do not rely on agriculture as a primary source of income, notwithstanding that subsistence production is a critical part of many household economies. In comparison with off-farm employment incomes, the low return to labor from farming serves to make it an unattractive occupation. The erratic rainfall patterns of many agro-ecological zones combined with comparatively poor financial resources, have eXacerbated the risky, low-income status of farming. The consequence is that many· communities have a very low level of agricultural skills. 156. The low returns to farming are due primarily to the barriers and distortions designed to favor the large-scale sector at the expense of small farmers. This has been exacerbated by inequities in the proviSion of and access to services. ID general, a lack of skills, a lack of appropriate support services, a lack of appropriate technology, and a lack of financial and land resources have exacerbated these distortions and barriers. Despite this situation, however, deprived rural families have frequently shown considerable farming skills and entrepreneurship in circumventing the system. 157. The challenge for rural support services in a new South Africa is unprecedented in its complexity and magnitude. This situation calls for a serious re-examination of the types of· support services needed and the methods of delivering them. There is no prescription or system for promoting and supporting change and development. No one system will suit all of South Africa with its diverse agro-ecological zones and farming systems. Moreover, the need is so great that the public sector (which is itself facing major changes) cannot possibly deliver all of the support services. 158. The support needed to successfully implement rural restructuring will differ according to the needs of local communities. These will vary according to agro-ecological zone, the existing and potential land- use patterns, the available infrastructure and services, the type of community (and its individuals) and its resources, history, culture and social organization. Moreover, the type and degree of support needed will vary over time as priorities change. Furthermore, wide international experience has demonstrated that in any program of land re-distribution and rural restructuring, the degree and pace of success is largely dependent on the early provision of a range of appropriate supporting services. 159. This section discusses a number of maiD themes and principles that need to be considered in meeting the challenge of establishing the effective support services for promoting the realization of these opportunities. The maiD themes include: a. promoting community-led development through empowering local communities to define the priorities and to make choices as to the types of services they require and who should provide them; 1 For the purpoiCI of this report. a community is defined u a group below the District ~ goVCIIUDCDt. Commuuitica will vary in size from pcrbaps 50.100 families to over 1000 or more. The term community docs not imply some type of collcctivc app.roach. Support lcrviccs would be primarily aimed at individuals within these communities. Moreover. it is acknowledged that a nnge of farm lizea. systc:ms and producer orientation- household plots. household production only, commercial orientation with some sales. fully conuncrcial- would comprise the amaDholdcr acctor. -53- Optimu fpr Land Rdorm tmd Rrual Rutr!ICfrlring in South Am NDlltmbR 1993 b. redirecting existing research, extension and education and training services towards serving the needs of small farmers; c. rtH>rienting and re-training of existing services and staff to more adequately equip them to address the needs of an -entirely new group of beneficiaries and socio-economic environment; Community Led Apicultura] and Rural Development 160. A vital part of the development process is empowering local people fmdividuals and communities) to take charge of their own affairs, to establish their own priorities, to make choices, and deal effectively with outsiders. · Few governments display a real willingness to ttust the people to decide for themselves. But where public funds have been transferred directly to local commgnities and used by them according to their priorities, as in parts of India and in Mexico, the result has been a remarkable acceleration of rural development. Sustainable rural development is about giving people the power to make choices, to tate responsibility, and to make those who provide services and inputs accountable to the recipients. 161. The process calls for placing financial and other resources (mformation, human, natural) at the disposal of local communities. 1bis presents a cballenge for public funds, since issues of recognizable and formalized organizations, financial accountability, management capacity and so on, are very real. A prerequisite for success is the estabJishmeut of democratically elected representation within a defined community. One option is the establishment of democratically elected Community Development Councils which become the recipients of government funds to be used for community agricultural and rural development in accordance with priorities defined by the community. These funds would come directly from the central or regional government to the community account on the basis of a contract. Continual monitoring and auditing of such programs is critical. The South African Independent Development Trust administered drought relief program-which transfers funds directly to communities for various types of projects and employs an independent agency to monitor and audit the program-is a case in point. 162. Hence one option that can be considered for delivering support services would operate like an entitlement scheme~ Under this option a community would be entitled to a bundle of resources. The bundle would likely include guidelines on the use of the resources such as the share devoted to social and economic infrastructure services. A pre-requisite would be that a management and administration training program be available for the community development council. Special training is needed for some office bearers such as the secretary/book keeper. Such training might best be provided by specialized persons or agencies under contract to say the Department of Agriculture. 163. If the Community Development Council option is adopted, they would need assistance from trained· and resident community development workers whose task would be to provide guidance on identifying suitable projects, facilitating access to the services and inputs needed for implementation, and sourcing information on the range of services and programs available. Such a person might also provide some assistance with management and accounting, credit applications and so on. Under the guidance of professional extension workers and subject matter specialists, they might also be able to provide a certain amount of extension. 164. Since a fundamental objective is building self-reliance and local capacity, communities also need -54- . ' NDYnnbn' 1993 to make commitments towards projects for which community development funds would be used. This could be either cash or in kind. The total cost of any project would include the cost of community· provided labor and materials. The value of these contributions would be assessed as the.oommnnity share of the cost. Moreover, public funds need not be entirely on a grant basis. ' 165. Communities may also elect to use development funds to finance the cost of services, contracting with an NGO, CBO, or other agency (government or private) to provide a community development worker or some specialist technical advice such as irrigation development. A key requirement is that funds allocated to communities should be used at their discretion. Democratic legitimacy, improvement in management, and accounting skills are necessary pr~requisites. 166. The risk of such programs is that the funds could be mismanaged or used for the benefit of a powerful elite in the community. Losses will occur, but the potential benefits far outweigh the likely losses. Moreover, appropriate procedures and structures can be installed which safeguard the comnumity at large and the government against such abuses. Research. Extension. Esiucation and Trainin& A&ricultural Research 167. South Africa enjoys a world class agricultural research service equipped with first.class infrastructure and staffed by highly trained and competent professionals. Most research is conducted within the state service, but the private sector also includes some well-equipped research capacity.· The research service is supported by an equally well..equipped education complex. The challenge is to reorient this resource towards serving producers who are, in almost every respect, the opposite of the existing clientele. 168. The almost exclusive focus of past research has been on generating technology for the largely white, largwcale commercial sector. This sector is highly literate, well organized, and benefits from good infrastructure and a wide range of supporting services. It has also been the recipient of large and wide ranging direct and indirect state financial transfers. 169. In contrast, the environment under which almost all research is currently conducted bears no resemblance to the reality .of the smallholder sector which is characterized by a high level of illiteracy, a lack of supporting services such as marketing, input supply, and transport, poor or non-existent infrastructure, the virtual absence of organized agricultural institutions, and a low level of resources ·land (quality and quantity), capital, equipment, skills, and very often; labor. The risk factor, moreover, is of much greater significance in smallholder agricultural systems. The huge majority are primarily concerned with daily survival and the provision of basic needs. For example, many households are largely headed by women for whom agriculture is only one part of a complex system. An additional complication is the social structure and organization of rural communities. A major task confronting the existing research service, therefore, is, among other things, understanding the complexity of the socio--economic systems in the smallholder sector. 170. The re.orientation of research might be achieved through a number of mechanisms some of which are complementary. First, those parts of the research system that are likely to continue to serve interests ·55. Novrmbn- 1993 outside of the smallholder sector might be privatized completely or placed on a full cost recovery basis. The forestry sector might be a useful starting point. Research facilities and sJdlls do not need to be state owned. What is.important is for the state to have access to the system for conducting special public good programs through contractual arrangements. Under such mangements, the program (but not the facility) would then be owned by the state. Second, the re-training and re-orientation process discussed below should be reinforced with a change in the personnel reward system . to provide material incentives for smallholder relevant technology generation. 171. Third, for the state sector, government strategies are more likely to be implemented if financial resource allocation is tied to the implementation of relevant programs. Financial resources for research could be derived from a number of sources, including: government funding of core overhead and public good research; fees for specialist consulting services both within and outside of South Africa; research contracts with the private sector, other state organizations, and international clients; donor grants and loans for specific projects; royalties from the sale of new discoveries; and finally, government research and development funds obtained through a competitive bidding process. 172. The latter would involve the establishment of a central Scientific Research and Development Fund, the transfers to which from central government (and donors and others) could be contested among all -56- - ....... Options for Ltm4 Rdorm tmd Rural Re.structuri11g in South Aftica November 1993 research organizations, public, university, or otherwise. The Fund would allocate these resources in accordance with criteria developed from the direction given by the government policy and strategy framework. The process would act as an incentive for research to respond to the problems associated with small, low resource, risk aversive farming systems. In recent years the allocation of state funds for research through a competitive process has been successfully implemented in New Zealand where, as a consequence, research has become much more accountable for the utilization of its staff, infrastructure and financial resources. 173. Strong linkages between research and extension are essential if both are to be effective. The two services should also not be constrained by bureaucratic and institutional barriers, which might arise if the current structure of the Agricultural Research Councll (ARC) and Department of Agriculture (DOA) is maintained. A strong case can be made for having both state research and extension organizations (ARC and DOA) within the same institution. his not clear, however, that having both services within an independent parastatal will lead to a more efficient utilization of resources .or more effective services• Agricultural Exterision -·A New Extension Paracligm 174. Some options for the extension aystem and their delivery are discussed below. The underlying principle is to devolve responsibllity for extension to the Districts and the recipients of the services who would be empowered to make choices as to who provides extension, and what type of services are delivered. . 175. For the large-scale commercial sector, the services currently avallable from the private consultants, the cooperatives and the commodity sectors are highly sldlled, appropriate and adequate to meet the needs of the future. Commercial farmers should have the option of using state funded services (central, region, district), but only on the basis of full cost recovery. The parallel in a developed agricultural economy is the full commercialization of all state funded extension (and research) in New Zealand. Furthermore, the commodity based research and extension services-sugar. coffee, tea-should be encouraged to expand their participation with the smallholders as is being successfully practiced in the sugar sector. 176. In Colombia, extension and applied research is the responsibllity of the equivalent of a district government. In some cases the staff are employed directly by the district government. In others, where the district considers it does not have the capacity to manage the system, service delivery is contracted either to the private sector or to a consortium of districts. Funding is provided through earmarked grants from the central government, with matching funds from District resources. Both the extension and the subject matter specialists doing adaptive research and providing specialist backup to the village/community extension workers, are accountable to the district government. The advantage of the system is the devolution of management responsibllity to the district government which is better equipped to ensure that the services are responsive to the needs of the local communities. In this model, the field extension workers are employed by the district government. Specific research identified by the subject matter specialists and extension workers, is done under contract to the state-funded research service. 177. In Mexico, many communities obtain grants from the agricultural refinance facility to finance part of the cost of resident extension workers who are employed by the connmmity. The share provided by the community is supposed to increase progressively over time, but the central government always pays -57- - ....... OptioM for LlmtJ Reform tmd Rural RestriiCillTing in South 4tiicq Noytmker 1993 some proportion. The government's contribution comes as a grant directly to the community which hires the extension agent and decides how he or she should work. Subject matter specialists are employed by the district or regional level and work with the community employed field level workera. VnJcages with higher levels of research are informal, but additional research and technical training is cOnducted through contractual arrangements with the respective organizations. 1be system was developed in response to the inadequate extension provided by the government extension service. In contrast with the Colombian model, the Mexican communities are empowered financially to employ the extension agents according to established criteria. 178. In a number of developing countries (mcluding several in Latin America and Africa), the local cnnmnmity is provided with a direct grant towards the cost of employing community extension workers. The coJDJmmity is required to provide an in-kind contribution to the extension service cost. This usually comprises a house, plot of land, perhaps an office and maybe a bicycle. The wealmess of this system is the absence of formal linkages with state funded subject matter specialists and demonstration activities. 179. Another option is the Training and Visit (T&V) extension system which is widely practiced in many developing countries where smallholders predominate. The T&V system involves close linkages with research and extension and a two-way flow of information from research to farmer and vice versa. h relies on a strong management system from the top exteusion director to the field level workers. The operational program requires regular programmed visits by field workers to farmers (mdividuals or groups), regular supervision of field staff, regular training of both field staff and subject matter specialists. T&V is an intensive, programmed system which has succeeded in reforming and upgrading many poorly managed existing services. h effectively brings extension services to smallholders, improves the effectiveness of research, and gives beneficiaries the opportunity to bring local technical problems to the attention of high level managers and researchers. T&V is essentially a management philosophy which can be applied to all types of services. A considerable body of evidence attests to its effectiveness in raising output among smallholders in many countries. 180. T&V management and operational principles can be useful in making any extension model more effective. For example, in the Mexican and Colombian models cited above, programming of subject matter specialist field visits and the operations of the community employed extension workers along T &V management lines, would be a useful addition to these systems. In South Africa, decentralized system development through financially autonomous communities and district organizations is likely to be the fastest approach to meeting the urgent needs. 181. A farm system research/extension and participatory rural appraisal (PRA) process offers the best prospect for building credibility with communities and ensuring services are responsive to the community- defined priorities in a new South Africa. The PRA process involves frequent consultation with the community to first understand the systemS with which extension JDUSt work; to diagnose the problems and bottlenecks; to examine the feasibility of possible solutions; and to design effective interventions. In many cases, the priorities are not technical or even directly agricultural. The provision of infrastructure and basic needs satisfaction may emerge as a higher priority. NGOs and CBOs have a role to. play in expanding the participatory approach to extension and to community development. In South Africa, the Farmet Support Group program of the University of Natal is currently successfully practicing the PRA technique among smallholders in Natal. -58- Oetitms for Land Refimn tDid Rural Rutrlleturing in South Africa November 1993 182. The number of females employed in the official extension services is disproportionately low. Since the small-farm sector is largely in the bands of women, it follows that affirmative action is needed to greatly expand extension contact with women farmers. It is critical, for example, that multi- disciplinary teams conducting participatory rural appraisals and system diagnosis have female representation. Improving access to the training and education establishments is an integral part of any affirmative action program to increase the number of trained female professionals in agriculture. Some NGOs in South Africa report considerable success with female extension agents or community based facilitators. Comparatively slow progress has been made on this issue in most African countries, although the position has improved markedly in Zimbabwe, Tanzania and Ethiopia Ret:rainin& and Reorientation of Existin& Services 183. Political and social history, and the past almost exclusive orientation of education, training, research, extension and most other support services towards large-scale agriculture, calls for a radical reorientation and retraining program to more adequately equip individuals and institutions to face the chailenge of the future. The needs of the new clientele, and the·means of effectively servicing them, are different to those of the existing beneficiaries of state-funded services. Through a retraining and reorientation program, the past paradigm needs to become participatory and development oriented. Reorientation and retraining includes several dimensions. The first relates to attitude and all that implies in the South African context. The second dimension is the acceptance of the productive role of small, mostly part-time producers: that they can make a significant contribution to agricultural output; that redistributing land to small, part-time producers will not result in a massive reduction in food production; that the technology used in the large commercial sector has little relevance in the small farm sector; that low input, low-cost technology (ox plough, local varieties, hand cultivation, little or no fertilizer) is not a step backwards and can be economically efficient; that the first priority of smallholders is not necessarily agriculture. 184. The third is the potential of partnerships between the large-scale sector and the emerging smallholders. Much capital exists in the commercial sector -human skills, infrastructure, services -which can be utilized to the mutual benefit of all. Many individuals are ready and able to become part of cooperative partnerships to promote development among the rural poor. The synergy between the large- scale commercial sector and the smallholders in the sugar industry is an example of what can be achieved. Moreover, a resurgence of black smallholder agriculture will have effects on the entire rural economy and present opportunities for agri-business and service development for which the skills and capital exist in large-scale commercial areas. 185. The retraining program will need to continue for .an extended period. Follow-up and evaluation will be needed. A new reward system should ensure recognition for successful re-orientation. 186. While no official reorientation program was involved, the comparatively rapid refocussing of the Zimbabwe research and extension services (and other state rural services including education) towards the smallholder sector was a consequence of strong political direction and a simultaneous reallocation of resources towards services and programs for the previously deprived smallholder sector. That this reorientation has not been as complete as it might be, has been due, to the questionable belief that core production of strategic crops can only be sustained through a strong large-scale sector where the benefits of scale economies can be captured. The remarkable increase in output from the Zimbabwe small farm sector attests to a successful redirection of rural support services. -59- Optimq fpr Ltmd Rrform alld RID"al RutniCtllring in South 4tijcq NovtmJw: 1993 Financial Syp,port Services 187. The provision of formal financial support services to rural households in South Africa needs to be seen against the bactgrmmd of state intervention in the economy. The result of this intervention has been distorted financial policies and an extremely dualistic financial sector. On the one hand: there is a modem and sophisticated financial system which serves the needs of a small proportion of the rural population, and on the other, a micro-lending sector which attempts to service the majority of the population in both urban and rural areas. 188. The distorted policies, such as subsidized credit, are a major reason for the poor performance of the South African rural financial markets. They have seriously distorted the way lenders allocate loans and borrowers use them. For example, low, negative real interest rate policies have induced the commercial farming comlD1Jllity to misallocate financial resources to capital intensive agricultural production systems. 189. For the micro-lenders, the distorted policies have not created an enabling legal, financial and tax .environment for sustainability. Legislation such as the Banking Act prohibits micro-lending institutions from mobilizing funding, while the Usury Act places a ceiling on the interest rates charged by a micro-lender -60- No'llember 1993 without consideration of the high transaction costs associated with these institutions. As a result, even though micro-lenders have historically attempted to fill the void left by the inability of normal institutions to cater for marginalized rural households, they lack the capacity to reach the majority of the rural ~~~ . 190. The institutional impact of these policies has been a lack of appropriate formal financial services in rural areas. The consequence is that the majority .of rural people have limited (or no) access to a complete range of financial services from the formal financial sector. The paradox is that the formal sector institutions have the systems, the capital resources and the expertise to operate broadly in financial markets, while the informal sector lacks resources, operates in segmented. markets, but has the information needed to make immediate investment decisions. 191. Experience in South Africa and elsewhere has demonsuated that the poor can rapidly and cheaply create self-employment if they have access to appropriate credit. A number of clear lessons have emerged from the experience of lending to the rural poor, both in South Africa and internationally. These include: a. accessible, un-subsidized credit can enable the poor to make rapid, significant and sustainable improvements to their income; b. the rural poor require appropriate savings mechanisms such as that provided by the current stokvels and other group saving arrangements; c. eligibility for subsequent loans is a powerful loan repayment incentive; and d. women are the most reliable borrowers. 192. Moreover, these lessons and experience have shown that lending to the rural poor requires: a. comparatively expensive personal contact with borrowers by well-trained locally based loan officers; b. efficient delivery of a set of clearly defined, basic products; c. recognition of the complexity of rural financial markets which require a careful choice of the minimum necessary conditions; and d. a self-financing approach which ensures full cost recovery through appropriate interest rates, efficient delivery mechanisms and strict arrears management; 193. Rural South Africa is characterized by a thriving, dense and resilient network of informal money lending and borrowing connections. Indeed, trends indicate that the majority of low-income rural households, whether involved in enterprises or agriculture, access informal financial arrangements at some time. Informal credit systems are characterized by easy access due to flexibility of operations and loan terms to meet specific needs; a minimum of red tape; easily understood rules; rapid processing and delivery; and a willingness to handle very small amounts which correspond to the requirements and the capacity of clients. A wide range of borrowers mostly seek short-term financing for an equally wide -61- Op.rie1J.! for lAnd Rtform tmd Rural Re~g in S9uth Africa Novnnb" 1993 range of purposes including household consumption and productive and small business needs. The main constraints on the informal sector is its ability to sustain the credit needs of a growing population and to intermediate the rural surplus. 194. Future rural financial services need to cater for a clientele which, for the most part, see agriculture as being secondary to other needs and activities. In agriculture, the range is from full-time commercial farmers to those who practice agriculture on a small, part-time scale, essentially for household coDSUIIlption. In addition, credit demand arises from a broad spectrum of non-farm activities. Short-term credit will be the highest priority for almost all types of purposes. Both medium and longer term lending will also be needed- especially for business establishment, agricultural investments such as equipment and livestock, housing, and land purchases. 195. In meeting the needs of rural restructuring it is clear that the current constraints on savings mobilization and lending operations of both ·the public and commercial financial sectors need to be removed. Moreover, since rural lending will continue to be largely unattractive to the present commercial financial sector, the public sector can play a role in alleviating risk constraints for the commercial sector through such mechanisms as guarantees, information services and some subsidy systems which would serve to lower transaction costs. Experience suggests that government should refrain from applying targeting and portfolio measures thus restricting the activities and the decision- -62- Oetions for Land Rrform and Rural Restructllrillg in South .Aztica Novnnber 1993 making of commercial banks. These measures have failed dismally in countries where they have been · applied. However, the state has a responsibility to correct the underlying causes of private sector unwillingness to provide rural financial services, and to improve the credit worthiness of rural people through a favorable policy enabling environment. .. 196. The enabling environment for financial services needs to ensure that micro-finance schemes such as those employed by a number of NGOs are encouraged to expand. These institutions are best structured to replicate, at least in pan, the type of services offered by the informal sector. Their sustainability would be improved with removals of interest rate ceilings and the restrictions on their ability to mobilize savings. 197. A number of critical principles emerge for developing the financial services appropriate to the needs of the beneficiaries of rural restructuring. These include: a. savings mobilization is an integral pan of financial intermediation at all levels; the rural poor especially, have repeatedly demonstrated a strong propensity to save; moreover, the poor have considerable experience with financial transactions through the informal lending sector; b. subsidies, if needed, should not include interest rates but should be aimed at reducing transaction costs for the borrower and to increase client access to services; access {and its cost) is more important to the rural poor than the cost of the credit; c. the sustainability of financial institutions is the basis of successful financial intermediation in rural areas; institutions need to be able to provide a range of financial services; d. rural sector financial institutions should specialize in providing financial services rather than a range of services such as inputs and extension; e. all these principles effect the level of transaction costs and it is crucial that at the operational level, institutions should be efficient, flexible in decision-making, and have ready and rapid access to higher-level decision makers; lending operations and the interface with the clients need to be conducted by well-trained staff who are sensitive to and have an understanding of the socio-economic system of rural households; f. a range of innovative substitutes needs to be developed for lending among the rural poor and to non-specialized groups and individuals; and · g. the majority of farmers are women and they have proved to be the most reliable borrowers; any legal constraints on their ability to borrow should be removed. Other Sumx>n Services Land Apj>raisal and Feasibility Services 198. Individuals and communities seeking land will need advice and guidance in a range of specialized areas, e.g., location of available land; fair market price of such land; the possibility of subdivision; the -63- Opfioru for Land Rdorm and Rural Remucturing in South Africa Novmrher !993 legal process and aspects of purchase; feasible land use and management; income options and possibilities; the total ongoing cost of the proposal including the initial operating and subsistence costs; the means and feasibility of financing the transaction; the possible risks; and so on. 'Ibis information can be provided by a range of professionals in the private and public sector. For private services, one'option would be for the preparation of a list of persons, firms or institutions, who would be accredited to provide professional advice on the various aspects. Such lists might be prepared by the district land committee on the advice of the respective professional societies. What is critical is. for this type of advice. and service to be aviilable and for the cost of it to be included in any rural restructuring financing program. -64- Option.r (or Land Rd'orm tmd RIITtll Rut7'r1Ctrlri11g in South Africa Novmabg 1993 PART IV: AGRICULTURAL LANP USE ACTMTIES AND RURAL LIVELIHOODS 199. Thusfar, the report has examined options for land reform and principles for supplying administrative needs and support services. There remains, however, a series of critical questions concerning the land-use activities of the newly settled households. Once beneficiaries are given access to land, what are the types of land use activities that they are likely to develop? What would a typical farm look like in terms of area cultivated, area used for pastoral activities, herd size and machinery employed by the household? What would be the value of farm capital (land, livestock and machinery) of the farm? Moreover, given that farming will typically only be a part-time activity for the household, how much of the household's income would derive from farming? How would the household spend its income in the rural economy, and what would that imply for the creation of non-farm jobs in the local economy? What would be the net gain or loss of jobs, if one also takes account of the jobs lost on the large, commercial farms if some of them are replaced by smallholder farms? 200. At this time these questions can only be answered in an indicative way and further research is needed, including in the area of non-agricultural land use. However. models of land reform cannot avoid addressing these questions since the feasibility of the entire exercise hinges on the answers. In order to answer them in an indicative way, a number of models were developed of typical post- reform households. 201. Four case studies were undertaken, yielding a wide range of typical household models, but only four models were ultimately selected for quantitative analysis. The four models are derived from empirical data on land use, net farm incomes, household size, and agricultural income shares. The models refer to the four agro-ecological -65- OptioJI.s for Land Rdorm and Rural Re.structuring b& South Atiica Nowmber1993 zones for which case studies were undertaken. They are: the summer grains area of the southern Transvaal and the northern Orange Free State; the livestock-dominated areas of the ~ Cape; the fruit/vegetable/wine areas of the Western Cape; and the periurban vegetable areas around Durban, Pietermaritzburg and Cape Town. 1be case studies cover 28~ of agricultural land and 34~ of existing farm jobs (excluding the periurban areas't. 1be detailed specification of these models is given in Annex 1. 202. 1be following themes emerge from the analysis of the models: a. 1be paucity of compreheusive empirical data on small-scale agriculture in South Africa, and the limited number of agro-ecological zones studied, poses obvious limitations to the generalization of the model results. b. Nonetheless, the models tentatively predict that a redistribution of land (say 30~) from the large-scale, commercial sector to small-scale, part-time farmers would create a substantial number of rural livelihoods" at acceptable income levels. c. 1be cost per livelihood in terms of land, livestock and machinery-priced at current market values-is surprisingly small. 203. It must be stressed that the indicative models should not be taken to imply that most beneficiaries will, or should, use their land in a particular way after the reform. 1be models selected here should on no account be used as target or mandatory models driving theplanning process of rural restructuring. One of the strongest messages emerging from the case studies was that local control and beneficiary participation in the process of rural restructuring are paramount. All of the case studies placed great emphasis on gaining further insight into potential beneficiaries' views on future options for rural restructuring and the creation of rural livelihoods. General Principles and Assumptions 204. Large numbers of poor, but often potentially commercial, farm households can obtain reasonably attractive household and employment levels via fiscally affordable land redistribution. This process can 3 In view of time constraints, several important agro-ecological zones and crops were excluded. Some, like the Kuoo, arc arcu of low agricultural potcntial. Otbcn-e.g., the 1ubtropical arcu of Natal and the Eutcm Transvaal (fruit, 1ugar and timber) and the irrigated pcrimctcn-bave high agricultural potcDlial. Couscqucntly, the cue ltUdiel arc broadly UuUcativc of arcu of medium agricultural potcDiial. Some of the excluded ctOpl, notably 1ugar and IOIDC aub-tropical fruita, arc proven by South African and iDtcmatioaal cxpcricncc ID be cspccially appropriate for cflicleat amall-acaJc fmning. 0vcraD, the aggregate totala dcriwd from our four modcla probably reflect approximately average national apicultunl potcnl:ial (and coat of land acquiaition per bcctarc). 4 A rwal 1ivc]jbood il defined u a fuB.timc equivaJent worker living iD a rwal bouachold w1Ucb derivca an iDcomc • from farming aetivitiea, from aetivitiea ctirectly zelatcd ID larmiDg (c.J. fum labor, input aupply, and output proc:cuiDJ and lll&lbtinc) and from othci' aoun:ea (e.J. buaiDcaa activitica DOl zelatcd to farmina, wapa, rcmittancca, pcnaiona). Two full.. time equivalent workcn arc uaumcd per bouaehold of aix pcraona. -66- Options for Land Rrform and Rural RestnletriTir!g in South Afrit;a Nowmbn-1993 be stable, sustainable, consistent with national (rural and urban) and household food security and help to restrain the speed of rural to urban migration. 205. Beneficiary households are not required to rely wholly on farming, nor should they be expected to generate unduly high agricultural incomes. Today, the typical income of a full-time farm laborer appears to be R3,000 per year approximately. his assumed that an indicative annual income would lie between RSOOO and R12,000 for a typical range of post-reform households of six persons, including the value of own consumptionS and that between 25% and 75% of this income will be derived from the household's agricultural resources. 206. If higher income levels are set, then the number of beneficiaries will be smaller. Of course, some households will seek much higher incomes (or proportions coming from agriculture) at once, and incomes should grow. 207. In order to increase net income per hectare and restrain debt burden, post-reform smallholders should be helped to adopt processes that raise output by applying increasing levels of labor with acquired skills, rather than to select products or methods that displace labor by purchased inputs (e.g. herbicides, hired combine harvesters). For the sector as a whole this involves removing existing incentives to increase capital intensity and radical changes in support institutions. 208. StabBity of rural income will be essential if post-reform communities are to be food secure and creditworthy. Hence restructuring should encourage: a. multiple income sources; b. rotations, crop and/or livestock mixing, and other techniques to reduce farm risk; c. employment in slack seasons and years in public works to increase rural infrastructure; and d. appropriate water use (mcluding farmer or comnwnity-controlled irrigation). 209. To reduce the fiscal burden, whBe ensuring required support services, the conversion of subsidized services from usage by large to small farmer should not induce extra costs to the state. 210. A combination of ecological reality and the preferences of beneficiaries wBI probably lead to different property rights and relations. The reform process should respect this fact. h may reduce the cost of implementing particular household models, e.g., by renting grazing rights instead of purchasing the full set of land use rights. 5 The rdativc1y wide range· of incomca usumed refkcts cumat Jocal collditioos and rc1ativcly imperfect labor mobility bctweca zones. h may be argued, bowevcf, that post-reform equity objec:tivca mould attempt to equalize incomca acrou regions. More uniform indicative incomes would then be appropriate. -67- OptioM to/ I.en4 R!(prm and Rural RUITIICtUring in Solllh AfTica Novnnbu 1993 Potential Beneficiaries. PropertY Relations and Farming Qptions 211. The following broad categories of potential beneficiaries emerged from the various case studies: (i) COIDTD1mities that have traditional tribal origins, or are based on voluntary associations of people such as in the church, labor unions, neighborhoods; ('li) farm workers currently or recently employed, on commercial farms; and (ill) individuals. 212. For each of the above categories of beneficiaries, the following range of typical property relations and farming options was identified. The list is not exhaustive and models will adapt to local circumstances. Communities a. Common propeny model. Under this model (which should be distinguished from production cooperatives or collectives discussed below), one can envisage a range of arable/pastoral mixes as determined by community preferences and natural resource base. The common area can be held as freehold or leasehold with option to buy under group title. Secure usufruct or freehold rights for individual households can be established for residential and arable land within the area, and common access to pastoral land can be regulated by community rules. Farm sizes will vary considerably and there will likely occur a shift towards more labor-intensive technology. Appropriate levels and forms of support services are essential to accompany this shift. Especially in arid/semiarid areas, communities may develop more flexible grazing arrangements with other communities. This will extend the effective pastoral range over larger areas than covered by existing individual commercial farms. -68- C?ptitms for Land Rrform tmd Rural RestrllCturing in South Africa Novnnbu 1993 b. Irrigated gartien plot model. This model applies to irrigated perimeters that can be adapted to small-scale use. The irrigated perimeter can be held under group lease or freehold by the community. Individual households obtain secure usufiuct, freehold or sublease rights to their garden plots, with sizes ranging from 0.05 to 0.25 ha or smaller. Experience suggests a maximum community size of about 100 households. Farmworker Groups a. Improved conventionaJ employment model. This model assumes continued wage employment of the farmworkers on an existing commercial farm. However, farmworkers are assumed to hold secure rights to residence, arable or garden plots, and pastoral land of the farm. Increased labor participation in management decisions and improved access to social services seem prerequisites for the social sustainability of this model. The model is also known as the 'normalized' industrial relations model. b. Common PI'OJ?ertY model. Under this model, farmworkers establish common property relations as indicated in the common property model for traditional communities outlined above. c. Production cogperative model. This model is based on joint management of the commercial farm enterprise by workers, and joint ownership or lease of land and equipment. Freehold land is held by the members under a group tide, or by a corporation in which the members are shareholders. Provision of support services focussing on management skills and the promotion of a shift towards more labor-intensive production is essential. An extensive theoretical and empirical literature on production cooperatives, collectives and labor-managed farms suggests that these farms often suffer from complex incentive problems and are often converted to individual or common property models after a few years. d. Equity-sharing