Essay by Wandile Sihlobo and Sifiso Skenjana[i]
Now that the elections are behind us, the broader economic discussions are likely to remain focused on two crucial subjects – growth and jobs. In this, agriculture has a role to play and President Cyril Ramaphosa made this point clear in his 2019 state of the nation address.
One of the key reasons for increased emphasis on the role of agriculture is its potential to boost rural economic growth, and absorb unskilled and semi-skilled labour with a relatively high multiplier -the number of jobs created for every rand invested in the sector.
Unemployment in SA rose to 27.6% in the first quarter of 2019, with youth unemployment at a staggering 55.2%. Agriculture can make a substantial contribution to job creation in rural areas.
We have been punting potential agricultural employment for a while, with some pushback from a couple of analysts who view this sector as a non-starter when it comes to job creation. In their arguments, they typically raise the issue of the fourth industrial revolution, and the basic development theory view, which states that as nations develop, the relative role of agriculture, at least from a jobs perspective, diminishes as people move to manufacturing and services sectors.
Employment in agriculture in SA has fallen over time, from 1.6-million in the 1960s to the current 837,000 people, as shown in Figure 1 below. This decline in employment is due to farm consolidation and the adoption of advanced technology.
In our view, the key levers available to the president are a clear and articulate policy on land reform and water rights, a strategic and targeted subsector investment boost, agricultural finance and support for emerging farmers.
Clear and articulate policy frameworks on land reform and water rights not only encourage investment, but bring restorative justice while ensuring that underutilised land in the former homelands, and some land-reform farms, are brought into full production to boost growth and jobs.
From the land reform perspective, there is work underway through the Presidential Advisory Panel on Land Reform and Agriculture that should provide some ideas on striking a balance between economic growth and restorative justice.
In terms of water rights, there is a need to clarify the policy framework to deal with the issuance and security of water-use rights, incentives for the private sector to invest in water infrastructure and measures to improve water quality.
The state owns about 70% of the dam capacity in SA. Investment cannot come from the state alone but a clear policy framework will be required to incentivise private investments.
WWF SA expects water demand to increase by 32% by 2030 due to population growth and industrial development. The agriculture sector will thus face more competition for water allocations so the focus must be on improving the efficiency and security of supply.
It is increasingly important for robust policy frameworks to be in place with respect to water rights.
The unemployed are typically low skilled and some reside in provinces that have underutilised arable land – KwaZulu-Natal, the Eastern Cape and parts of Limpopo, where there are more than a million hectares of such land. The immediate focus should be on a policy environment that boosts the agricultural economy and provides jobs.
The decline in agricultural employment over the past couple of decades has not been evenly spread.
For example, the field crop and horticultural subsectors have seen an uptick in employment due to an expansion in the area planted. About two-thirds of SA’s agricultural jobs are now in these subsectors – which will have to be a priority for our next president.
A large number of agricultural enterprises are both under-insured and under-financed. Data from the South African Insurance Association suggests that penetration ratios for multi-crop insurance are as low as 17% of the planted area.
Limitations to deeper agricultural finance include lack of collateral in communal land, high transaction costs due to the remote nature of agricultural enterprises, and inadequate tools to price for and manage agricultural sector risks and often fragmented value chains, particularly among smallholder farmers.
Agrifinance support is important for food security and driving competition to ensure continued investment in the sector. It also creates growth opportunities for emerging farmers and industrialists, giving them tools and resources that will enable them to effectively participate in mainstream commercial value and supply chains.
All the proposals above need effective private- and public-sector participation for improving skills and making investments through joint-venture approaches to farming, as well as blended finance methods, among other programmes.
We cannot emphasise enough how the agricultural economy continues to have significant potential in SA and, as such, the new administration would do well to make it a critical aspect of its strategy for sustainable economic growth and much-needed employment creation.
*Written for and first published on Business Times on 19 May 2019.
[i] Sihlobo is chief economist of the Agricultural Business Chamber of SA (Agbiz). Skenjana is a financial economist and founder of Afra Consultants