News Please Tito, we need more: Denel and Land Bank...

Please Tito, we need more: Denel and Land Bank want billions in further support

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The struggling state-owned Land Bank has asked the government for an extra R10-billion in state support over the next few years.

The Land Bank, which already received a R3-billion cash injection in the 2020/21 fiscal year, has been in talks with creditors since it defaulted on its debt in April.

The Bank funds more than 30% of SA’s farming sector with money it borrows on the open market at commercial rates. 

Its credit rating was already in junk territory when it was downgraded to junk by Moody’s in January, so it has had to pay more for these loans, making them less affordable to the farmers who depend on them to pay their production costs.

“We have proposed R7-billion in 2021/22, and R1-billion a year for the following three financial years for development,” the Bank told Reuters.

Food security and social stability

In June, the Land Bank sent an SOS to the Treasury for a R22 billion bailout.

AgriSA’s Omri van Zyl said at the time that without “drastic interventions,” South Africa’s food security will be compromised along with the commercial agriculture sector and associated value chains.

“We’re talking 850,000 jobs in primary agriculture, in other words farmworkers. Add secondary agriculture — the processing guys like Tiger Brands, the mills, the guys who process the feed lots, the abattoirs etcetera — added to that and you’re looking at 1.5million jobs.”

Van Zyl accused the government of not being “serious enough” about food security, because, he added “our agriculture system works very well and our food system works very well, people have been taking it for granted.”

Firing blanks

State-owned defence company Denel meanwhile, has asked for R3.8 billion in State financial support over the next three fiscal years, the National Treasury told Reuters Friday.

Denel, which manufactures defence equipment for South Africa’s armed forces and for export, has struggled to pay salaries this year amid a liquidity crisis aggravated by the coronavirus pandemic.

“Denel has requested a R3.8-billion bid over the 2021/22 to 2023/24 MTEF (Medium Term Expenditure Framework) period.”

In August, the Department of Public Enterprises (DPE) reported that Denel made a R1.7 billion loss in the 2019/20 financial year.

Denel said it needed to find funds soon to honour a court ruling that it must pay outstanding salaries and meet statutory obligations, such as paying into its employee pension fund.

Its former chief executive told Reuters that Denel may not “survive the next few months” unless the government lets it use some promised bailout funds to generate revenue rather than repay debt.

But the finance ministry said it could not amend Denel’s bailout terms before the October mid-term budget.

Team ‘Save Denel’

Alarmed by financial difficulties at Denel and their impact on SA National Defence Force (SANDF) projects, the Department of Defence (DoD) this week announced the appointment of a Save Denel technical team.

“The problems of Denel are giving us sleepless nights and that is why we have appointed the Save Denel technical team.”

Sonto Kudjoe – Secretary for Defence

The team comprises the chief executives of Denel and Armscor, Armscor non-executive director Dr Moses Khanyile, South African Aerospace Maritime & Defence Industries Association executive director Sandile Ndlovu, as well as representatives from the departments of Public Enterprises and Defence.

SA’s stumbling SOEs

In the past few years, SOEs have become synonymous with the corrupt phenomenon of ‘state capture.’

Their administrative and financial troubles are symptomatic of the endemic corruption that has taken hold in the public sector, with actors in the private sector willing participants.

State-owned enterprises (SOEs) have also been a long-term drain on the finances of South Africa’s economy, requiring bailouts at a time of weak economic growth which have helped to tip its sovereign credit rating into “junk” status.

South Africa’s National Treasury said last month that the SA Post Office (SAPO), public broadcaster SABC and the Airports Company of South Africa (ACSA) were seeking a combined R10-billion in bailouts.

The South African Post Office had requested R4.9 billion in support, SABC was seeking R1.5 billion and ACSA had applied for an equity injection of R3.5 billion because of the impact of Covid-19, according to the presentation by National Treasury officials.

South African Airways (SAA) meanwhile, is under a form of bankruptcy protection and and embattled power utility Eskom is mired in corruption scandals and is R480 billion in debt.

All eyes will be on finance minister Tito Mboweni when he delivers his mid-term budget statement later this month.

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