Communal Property Associations Amendment Bill Socio-Economic Impact Assessment: Draft

Communal Property Associations amendment Bill Socio-Economic Impact Assessment: Draft

Document Information

Document title: / Communal Property Association Amendment Bill: Economic Impact Study
Prepared by: / Ben van der Merwe
Contact details: / 1088 Pretorius Street
Hatfield
Pretoria
0083
Republic of South Africa
Tel: (012) 342 8686
e-mail:
Contact Person: / Mr Ben vd Merwe
Prepared for: / Policy Research and Development Directorate, Department of Rural Development and Land Reform
Contact details: / 184 Jeff Masemola Street
Pretoria
0001
Tel: (+27) (0) 71394 9020
Contact Person: / Mr Hilton Toolo

EXECUTIVE SUMMARY

This report forms part of a series of reports commissioned by the DRDLR for the conducting, a Socio-Economic Impact Assessment (SEIA) on the Communal Property Associations Amendment Bill. The SEIA process is designed to allow a critical analysis of all available and relevant data; whether quantitative or qualitative, to ensure that proposed policy interventions have as good a chance as possible of meeting overall objective with minimal costs.

The proposed Bill was developed by the DRDLR to address the shortcomings of the Communal Property Association Act (No. 28 of 1996) and therefore to Improve the application and implementation of the Act. The main risk identified in the current Act is lack of clarity in relation to governance in areas where Traditional Authorities and Community Property Association co-exist and tenure insecurity issues experienced by both Community Property Association members and non-members.

In South Africa, the SEIAs must help ensure that government policies do more to support the core national policies. It therefore requires that new impacts speaks to the following:

Social cohesion
Economic inclusion
Economic growth
Environmental sustainability

Socio-Economic Environment

South Africa still faces many developmental challenges, including the twin challenges of poverty and inequality that remain at exceptionally high levels despite governments continued interventions through both social and fiscal policy, encompassed in initiatives and interventions such as social assistance and the Expanded Public Works Programme (EPWP).

The high rate of unemployment (25,5%) also poses significant challenges because it’s an indication that the economy is operating at less than capacity and, if persistent, can lead to poverty and social instability.

The service sector has grown in contrast with the manufacturing sector, despite the government’s industrialisation plans to combat unemployment. Skills shortages continue to act as a constraint on growth. The National Development Plan, which aims to eliminate poverty and reduce inequality by 2030, focuses on creating jobs and improving education. The plan is committed to creating a country wherein all citizens have the capabilities to grasp the ever-broadening opportunities available.

The population dynamics in South Africa have changed over the last 20 years since democracy. In the late 1900s, the rural population was significantly greater than the urban population because the majority of the Bantu people in South Africa livelihood was based on occupations such as agriculture which was predominately based in rural areas.

However, early in the 20th centuries, a distinctive form of racially segregated urban development took place, reflecting the needs of the economy for cheap migrant labour to support rapid industrialisation. This creates pressure on government in terms of service delivery. To rectify this as well as the past apartheid legacy, according to the NDP the government aims to increase rural absorption from 29% to 40% by 2030. The proposed Bill if properly implemented can assist government to achieve this goal and to reduce the pressure on the resources in urban areas.

The proposed Bill will stimulate the economy in rural areas and as a result assist in poverty alleviation. New employment opportunities created through the Bill will also contribute to the reduction of higher employment rates in these areas. The rural areas have an immense skill gap in the supply of specialist’s skills and the proposed Wagon Wheel Development Model could potentially help cater for this skill gap.

Role of Agriculture in Rural Development

Sustainable agriculture and rural development are integral and necessary components of sustainable development. Sustainable agriculture involves all three pillars of development - economic, social and environmental. Furthermore, it is the sector that offers the greatest potential for poverty and inequality reduction, through direct impacts on farm incomes and employment, and indirect impacts through the growth linkages and declining food prices.

Historically agriculture accounted for approximately 15,2% of GDP in the 1950s and 10% in the 1960s before decelerating to less than 3% during 2001 and 2009. Although the relative size of the agricultural sector has been declining, the value added by agriculture showed an upward trend.

This can be linked to investments by the government and stakeholders and also the development strategies. Agricultural employment has declined by 12% between 2000 and 2009. This could be due to technological progress within the industry. Even though agriculture industry contributes less than 3% to the South African economy, it remains the net exporter of agricultural products and the gross value added to exporting market is higher than that of most African countries.

Model Conceptualisation

This section highlights the parameters used to construct CPAAB SEIA and the variables that will be used to formulate an economic model that will demonstrate the economic impact of the CPAAB Bill on the South African economy. The model will assist in quantifying the various economic spin-offs that originate as a result of the implementation of the Bill.

According to (DAFF, 2011), the former ‘homelands’ or communal areas cover some 17,2 million hectares, including provinces in the Western part of South Africa (i.e. Northern Cape and Western Cape). The total population living in communal areas was estimated at 14,7 million, excluding the Western Cape, Northern Cape and Free State, the area of communal land relative to the area of the province is extremely small in the Free State and the Northern Cape, for instance. Similarly, rural households were estimated at 3 million households living in communal areas.

Key Assumptions

12 ha of land per labour tenant
Total number of labour tenants equals 45,000
Transfer costs are assumed to be free because the provision of this service is a government function and can be provided for free below a certain cost
Average value of land per ha is R11148,83
All labour tenants get a general plan
50% of all the labour tenants will get complete plans for 500ha
It is assumed that the operation of the CPA Office will cost government R9,9 million for the first year and thereafter R5,0million per annum

Scenarios and Results

The costs associated with implementation of the CPAAB are included in the tables below, which show the total cost for labour tenants of R859720000.00(R860 million) and CPA community members of R3230000000.00 (R3.23 billion).

Table 01: Cost Summary: Labour Tenants

Bill Item / Total estimated cost indication / Comment
Cost to Government for the validation of LT rights / R450 000000.00 /

Validation period of 10 years
Cost of validation per household of R10000
Validation of 100% of claims
Total number of households at 45 000

Registration of land to LT's / R73102000.00 /

Transferable land of 540000 ha
Transfer period of 10 years
R0 land transfer cost for erf below R750k

Cost of General Plans / R291398000.00 /

Begin 2 years after validation of rights process
Survey cost of 12ha plot at R12951
Survey period of 10 years

Cost of appointment and employment of a Registrar over a minimum period of 5 years / R4649000.00 /

Annual administration budget of R25 000

Cost of the establishment of a CPA-Office / R40571000.00 /

Start 1 year after validation of rights
Period of 10 years

Total (2016-2022) / R859720000.00

Table 02: Cost Summary: CPA Community Members

Province / Number of CPA Members / Ave cost of CPA per Member (*) / Total Estimated Cost of the CPA Amendment Bill (**)
Free State / 910 / R19105.00 / R17 000000.00
Eastern Cape / 12 124 / R19105.00 / R232 000000.00
Gauteng / 4 912 / R19105.00 / R94 000000.00
KZN / 17 862 / R19105.00 / R341 000000.00
Limpopo / 49 744 / R19105.00 / R950 000000.00
Mpumalanga / 23 395 / R19105.00 / R447 000000.00
North West / 54 094 / R19105.00 / R1 033 000000.00
Northern Cape / 6 079 / R19105.00 / R116 000000.00
Western Cape / - / - / -
Total / 169 120 / R19105.00 / R3 230 000000.00

A social accounting matrix for South Africa, updated to 2016 values, was used to estimate the economic impacts of the CPAAB Bill that are expected to occur as a result of expenditure on different components related to implementation of the Bill. The total estimated economic impact across different indicators over the period 2016-2027 is included in the table below.

Table 03: Macro-Economic Impact: Economic Impacts of Total Expenditure on CPAAB Bill, 2016-2025, Rand Millions, 2016 Prices

Impact on: / Direct / Indirect / Induced / Total
Production/Output (Rm) / R 4 089,7 / R 4 964,3 / R 9 846,6 / R 18 900,7
GDP (Rm) / R 2 312,7 / R 1 271,5 / R 2 253,7 / R 5 837,9
Employment (No. of jobs) / 6 816 / 2 939 / 5 335 / 15 090
Income (Rm) / R 2 058,6 / R 1 158,9 / R 1 806,1 / R 5 023,6

Total expenditure amounting to R4.1billion on the implementation of the CPAAB Bill is expected to stimulate production in the South African national economy by a total of R18.9billion over the 10-year period. In addition, GDP is expected to increase further by a total of R5.84billion. In terms of job opportunities and income, both are expected to increase by a total of 15, 090and R5.02billion over the 10-year period.

The annual economic impacts for the expected to emanate from implementation of the CPAABare included Table 0-4 below.

Table 04: Macro-Economic Impact: Economic Impacts of Total Expenditure on CPAAB Bill, per annum, Rand Millions, 2016 Prices

Impact on: / Direct / Indirect / Induced / Total
Production/Output (Rm) / R 409,0 / R 496,4 / R 984,7 / R 1 890,1
GDP (Rm) / R 231,3 / R 127,2 / R 225,4 / R 583,8
Employment (No. of jobs) / 682 / 294 / 534 / 1 509
Income (Rm) / R 205,9 / R 115,9 / R 180,6 / R 502,4

Annual expenditure related to implementation of the CPAAB Bill is estimated to total R409 million, and will result in production in the South African economy increasing by a total of R1.89 billion per annum. GDP at the national level will also increase by R584 million per annum, while employment is seen to increase by roughly 1, 509. Income will increase by a further R502.4 million per annum over the 10-year period.

Cost-Benefit Analysis

The Cost-Benefit Analysis (CBA) estimated the flow of resources related to implementation of the CPAAB Bill, in terms of the expected costs of implementation and the anticipated benefits to flow from implementation. The results of the CBA are included in the table below.

Table 06: Summary of the CBA of the Baseline CPAAB Scenario, R Million 2016 Values

Discount Rate / NPV (Rands) / BCR
1% / R -3 774 651 468,13 / 0,03
2% / R -3 589 112 246,26 / 0,03
3% / R -3 416 198 954,68 / 0,03
4% / R -3 254 949 125,19 / 0,03
5% / R -3 104 471 142,42 / 0,03
6% / R -2 963 940 983,23 / 0,03
7% / R -2 832 598 488,14 / 0,03
8% / R -2 709 743 393,74 / 0,03
9% / R -2 594 731 289,04 / 0,03
10% / R -2 486 969 610,06 / 0,03

The results of the CBA on the Baseline scenario indicate that the NPV of the scenario is negative acrossall the discount rates. This means that alternative projects that have a positive NPV across the discount rates are considered, from a financial perspective at least, to be more desirable. The BCR ratio at the 8% level shows that for every R1 spent on implementation of the CPAAB Bill, total benefits of R0,03 are created.

Conclusions

The intention of the Bill isis to secure individual tenure to each household, be it a farm-dweller or labour tenant, where it would have accumulated rights, in terms of relevant law. The Bill will seek to overcome these issues related to the protection of rights of communities, and thereby assist in supporting adequate socio-economic redress and transformation of the majority of South African society. The baseline profile of the country reveals that issues relating to poverty, inequality and unemployment continue to deprive millions of a decent standard of living, while slowing economic growth and macro-economic headwinds means that these issues are likely to be exacerbated in the future.

The aim of this report was to assign monetary values to the implementation of the Bill, to understand what the potential cost of implementation might be, and what the resultant impact on the wider economic system is given the interlinkages inherent in the economy. Based on this need, the total cost of implementation of the Bill over the period 2016-2026 was estimated to be R4.1billion, which in turn will stimulate production, GDP, job creation and income throughout the economy. The benefits of this, added to the benefits and influence of the policy in generating socio-economic transformation, means the expected socio-economic impact of the Bill is positive.

Contents

List of Tables

List of Figures

List of Acronyms

Glossary and Economic Terms

1.Introduction

1.1.Purpose of the study

1.2.Scope of work

2.Socio-Economic Context of the South Africa Economy

2.1.Background

2.2.Demographic Landscape

2.2.1.Population Dynamics

2.2.2.Household Dynamics

2.3.Economic Participation

2.3.1.Labour

2.3.2.Income

2.4.Economic Infrastructure

2.4.1.Dwelling Types

2.4.2.Access to Basic Services

2.4.3.Access to Electricity

2.4.4.Access to Sanitation

2.5.Synopsis

3.Agricultural Sector and Rural Development

3.1.Gross Value Added

3.2.Employment Contribution

3.3.Synopsis

4.Project Dimensions

4.1.Input data

4.1.1.Communal Property Office

5.Macro-Economic Impact

5.1.Quantifying the Economic Impact

6.Economic Cost Benefit Analysis

6.1.Methodology

6.2.Input data

6.3.Findings

7.Conclusion

8.References

Annexure A

List of Tables

Table 01: Cost Summary: Labour Tenants

Table 02: Cost Summary: CPA Community Members

Table 03: Macro-Economic Impact: Economic Impacts of Total Expenditure on CPAAB Bill, 2016-2025, Rand Millions, 2016 Prices

Table 04: Macro-Economic Impact: Economic Impacts of Total Expenditure on CPAAB Bill, per annum, Rand Millions, 2016 Prices

Table 06: Summary of the CBA of the Baseline CPAAB Scenario, R Million 2016 Values

Table 21: Total Urban and Rural Population

Table 22: Household Statistics, 2015*

Table 23: Average Household Size, Total and Rural, 2015*

Table 24: Household Disposable Income

Table 41: Baseline Variables

Table 42: Cost Summary: Labour Tenants

Table 43: Cost Summary: CPA Community Members

Table 44: Cost Summary: Total Cost to Deliver the CPA Amendment Bill to Labour Tenants and CPA Members over a Period of 10 Years

Table 45: CPAO Expenditure, 2016

Table 51: Macro-Economic Impact: Economic Impacts of Total Expenditure on CPAAB Bill, 2016-2025, Rand Millions, 2016 Prices

Table 61: Summary of the CBA associated with Implementation of the CPAA Bill, 2015 Prices

List of Figures

Figure 21: National, Urban and Rural Growth Rates, 2000-2015*

Figure 22: Unemployment Rate and Labour Participation, 2013

Figure 23: Dwelling Types, National and Provincial, 2013*

Figure 24: Percentage of Households with Access to Water, National and Provincial Level, 2015*

Figure 25: Percentage of Households with Electricity Access, National and Provincial Level, 2015*

Figure 26: Percentage of Households with Sanitation Access, National and Provincial Level, 2015*

Figure 31: Reason for Agricultural Involvement per Province

Figure 32: Agricultural Household

Figure 33: Annual GVA Growth Rate, 2002-2014

Figure 34: Annual Employment and GVA Growth Rate

Figure: 01: Direct, Indirect and Induced Impacts

List of Acronyms

CPAAB / Community Property Association’s Amendment Bill
GDP / Gross Domestic Product
GDP per capita / Gross Domestic Product per Capita
GVA / Gross Value Added
GGP / Gross Geographic Product
CAGR / Compounded Average Growth Rate
E-CBA / Economic Cost Benefit Analysis
EPWP / Expanded Public Works Programme
ha / Hectare
ITB / Igonyama Trust Board
LRMF / Land Rights Management Facility
NDP / National Development Plan
NPV / Net Present Value
SAM / Social Account Matrix

Glossary and Economic Terms

Economic Model / A simplified representation of how the economy works. Economic models take various shapes and forms, and can include regression models (OLS), social accounting matrices (SAMs) and general equilibrium models (CGEs).
Economics / The social science dealing with the use of scarce resources to obtain maximum satisfaction of society’s virtually unlimited wants.
Economic Development[1] / Progress toward society’s economic goals. For example, increased per capita income, employment and productivity.
Population / Summation of all individuals who form part of the same group or species and who reside in the same geographical area.
Production / Refers to the production of intermediate goods and services not used in final consumption.
Household[2]* / A group of persons who live together and provide themselves jointly with food and/or other essentials for living, or a single person who lives alone.
Education Level
Farm Dweller / The level of formal education or training that was attained.
The population of farm dwellers is defined as people living on farms in farm areas of South Africa.
Macro-Economic / Macro-Economic examines the economy as a whole or its basic subdivisions such as the government, household, and business sectors.
Gross Domestic Product / The total market value of all final goods and services produced in a national economy over a given period, usually one year.
Gross Value Added / The total market value of all final goods and services produced in a national economy over a given period, usually one year, less subsidies and taxes.
Employment* / Those aged 15–64 years who, during the reference week, did any work for at least one hour, or had a job or business but were not at work (temporarily absent).
Unemployment* / Refer to persons aged 15–64 years, who:
a) Were not employed in the reference week;
b) Actively looked for work or tried to start a business in the four weeks preceding the survey interview;
c) Were available for work, i.e. would have been able to start work or a business in the reference week; or
d) Had not actively looked for work in the past four weeks but had a job or business to start at a definite date in the future and were available.
Consumer Goods and Services / Goods and services purchased for personal, family or household use. Consumer goods and services are purchased for direct use or consumption in contrast to industrial goods and services that are purchased by manufacturers for producing other goods and services.
Goods and Services / The products supplied by businesses to satisfy the demands of consumer and industrial markets.
Potential Economically Active (PEA) Population / The potential economically active (PEA) population includes the formally employed, the unemployed and those persons active in the informal/unregistered sector. The terms supply of labour and the labour force are used as synonyms for the potential economically active population. The PEA population falls within the age categories of 15-64 years.
Disposable Income / Another measure of the region’s welfare. It shows the average amount of income derived during a certain period. Since disposable income includes all income receipts by households and excludes all transfers, such as taxes and social contributions, it reflects the amount of money that the population has in its disposable to be spent on consumer products and services
Growth Rate / A growth rate represents a ratio of total change in a specified time reference period to value at the beginning of the period or at a specified earlier time reference. When changes over a period of more than one calendar year are studied, the annual rate of change is computed.

1.Introduction

The land issue in South Africa is undoubtedly one of the biggest challenges for the post-Apartheid government in their aim to address issues relating to historical exclusion, equitable access to land, and participation in the optimal utilisation of land; as well as to address challenges relating to food access at both household and national levels to bring about household food security and national food self-sufficiency.