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Cyril’s economic fix off to very slow start as demotivated farmers impact GDP

By Alec Hogg

Here’s the best description I’ve yet heard of South Africa’s economic performance under the Zuma Administration. It was like a car whose two front wheels had gone over the edge of a cliff. Fortunately, the teetering vehicle was a four wheel drive – allowing new president Cyril Ramaphosa to reverse from a Zimbabwe-type implosion.

With the economy now safely away from the precipice, Ramaphosa needs to get it back onto the road to growth. That’s sure to be a bumpy ride, as we witnessed last week when we heard the SA economy contracted at an annualised rate of 2.2% in the first quarter of 2018.

Worst of the data’s distress flares was the unexpected 24% slump in the contribution from agriculture. On reflection, this is logical. Farming in rain-deprived SA is tough at the best of times, with the return on assets rarely edging higher than a few percent.

When you overlay a well publicised threat of farmland expropriation without compensation, the impact should be obvious. Cyril has a very hot potato to deal with here, something sure to define the early stage of his presidency. As the details within the GDP numbers show, he’s off to a very slow start.

Comment from Biznews community member Philip Scher:

Hi,

Technically, the massive increase in agricultural output a year ago caused the recent number to look much lower than normal. It in no way invalidates your comment with regards to agriculture and its inherent risks though.

I owned a company that sold dairy management hardware and software and was the dominant supplier in the market when I acted as the dealer.(I resigned as the dealer when, in my view, we had saturated the market for dairy farmers milking over 1 000 cows per day as because I only sold management systems it was not sustainable to keep a business going if there were no longer capital sales)

I am from the Western Cape and sold to my fellow local farmers first. Then we sold in the Eastern Cape and only then attacked the Natal market and this is where I hit a brick wall.

I was selling a system that would cost in excess of a million rand-in 2005 numbers-and almost every Natal farmer made the same point to me then already:”why should I invest on farm when my farm advisor advises me to invest off farm and look at the land claims that keep coming up” were the constant refrain.

I resorted to putting in demo systems and agreeing to discuss payment in a years’ time to get my product into the market. I have seen many of my Natal clients build up farms in Africa-especially the DRC while continuing to run their local operations and I have lost 3 Natal farmers to “targeted” farm killings either of the farmer himself or the power behind the throne-the wives -and all this only in Natal. I interact with many dairy farmers/clients country wide on a regular monthly basis and now all are investing off farm or off shore or both.

Comment from Biznews community member Willem:

I went to Angola in the early 2000s got appointment  for 5 star hotel/casino, luxury housing on golf estate and services and luxury housing on south of Luanda “Sandton City” development. They all required financing. Angola was returning from communism to capitalism. Their first step was to return land ownership from state to individuals. They returned land ownership to title holders as of 1967 title holders. I spoke to the 5 banks and for the first time I understood the difference between capitalism and communism. Communism is a cash based system.

The cow that you have you can trade for 6 goats but you cannot trade the calves that the cow will have in future. In capitalism you can get a bond for a house with 20 years repayment if you provide the title deed for the property  as security. The bank has no way of knowing that you will be employed for the next 20 years, the property is the security.

Spoke to my new middle class neighbour. He is under the impression that you can separate the property from the buildings (improvements) and the ANC is only going to take the property. God help us. You cannot separate the improvements from the land.

In the book “Jock of the Bushveld” I quote “the sense of possession turns sand into gold” The repossession ie robbery of land in my opinion is going to send SA into an abyss of distrust. Who is going to invest into a system where ownership belongs to no-one? Come on ANC you can’t have it both ways. Communism does not work, the concept sounds good but impossible to implement. Goodbye South Africa.

Property is the same as shares. If you trust the entity will grow in value and return dividends then you may invest. All the state owned enterprises are a disgrace, except for Sasol and Telkom. They have enough private equity and management to grow.

No for state owned land!

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