Overcoming Backward Capitalism in Rural South Africa? The Example of the Eastern Cape

Policy Failures and Constraints on Productive Forces

Technological dynamism and rapid capitalist development in the agricultural (as in other) sectors could not conceivably be achieved in the context of the fiscal, monetary and exchange rate policies pursued in South Africa over the past two decades. The rapid removal of protection for labour-intensive sectors, combined with an overvalued exchange rate, high real interest rates and insufficient public sector investment to boost sluggish domestic demand all help to account for the low levels of investment in agribusiness. In addition, and more importantly, the relaxation of exchange control regulations and a series of other deregulatory initiatives and amnesties gave major impetus to capital flight – a key feature of the South African economy well before 1994, but equivalent to 20% or more of GDP by 2007 (Ashman et al., 2011OTHER BOOKLET AND ISAACS??).

Individuals and corporate entities keen on shifting their assets to offshore tax havens were allowed to do so by the Reserve Bank – on the pretext that exporting capital would help reduce external vulnerability and therefore was in the national interest. This came at huge costs to investment in the domestic productive sector. It has been suggested that one of the reasons for the massive increase in the land area devoted to game farming and hunting is that tourist dollars can be hoarded abroad (Bonner, 2013:163).

The Minister of Agriculture and the Department of Foreign Affairs followed the ideological lead provided by the Reserve Bank: they now actively facilitate South African farmers’ acquisition of assets in other countries while (as shown in Figure 13) farms in South Africa are starved of investment (Hall, 2012:831).³²

Apart from more appropriate macroeconomic policy, there are some forms of state intervention that are particularly important for speeding up technological change in agriculture. The South African state has a very poor record in supporting the research and development (R&D) that can increase output in the agricultural sector. Between 1993 and 2006, real agricultural R&D decreased by 0.83% per year. By 2007, direct public investment in agricultural R&D was just 70% of the corresponding level in 1971. For more than two decades, the ratio of agricultural R&D expenditure to agricultural GDP in South Africa has been much lower than in Australia, for example. In addition, there has been a dramatic fall in the number of scientists employed as agricultural researchers in all the relevant South African institutions over the same period (Liebenberg et al., 2011).³³ Estimates of R&D output and expenditure in biotechnology in South Africa are also low compared with Asian, Latin American, Australian and other international comparators (Gastrow, 2010). The most recent available data show that total R&D expenditure as a percentage of GDP in South Africa continued to fall between 2007 and 2010 (HSRC, 2013).

The proportion of farmland under irrigation has a profound influence on the level of labour use per hectare, as well on the intensity with which other inputs, such as agro-chemicals and machinery are used. Irrigation and water control therefore are regarded as the ‘leading input’ in historical accounts of technical change, output and productivity growth in the most dynamic Asian economies (Ishikawa, 1974). In those economies, much of the required investment in irrigation schemes – plus ancillary investments in transportation, storage and fertilizer production – was undertaken by the public sector (Pincus, 2006:208; Bramall, 2004:134).

In contrast, for the past two decades the South African state has not invested to increase the total area equipped for irrigation. Consequently, less than 10% of the total area cultivated is irrigated, compared with an Asian average of about 34% (FAOSTAT, 2011; Svendsen et al., 2009:19).³⁴ There has also been insufficient investment to reduce the substantial loss of potential crop area and production arising from inefficient irrigation practices and maintenance backlogs (BFAP, 2012:15; DBSA, 2012:84–85). For example, with more appropriate water management policies it would be possible to increase the acreage under citrus in Sundays River Valley by about 30%, with a huge impact on wage earning opportunities (personal communication, F. Olivier, 2013).

The irrigated area farmed by smallholders is a tiny fraction of the total irrigated area; yet the post-apartheid state has presided over the collapse of the smallholder irrigation systems previously supported by homeland parastatals (Van Averbeke et al., 2011; Van Koppen et al., 2009; Cloete, 2013). Even before this collapse, small farmers on the majority of these schemes achieved low yields, and performance on these smallholder projects was well below agronomic potential. Several recent efforts to revitalise or rehabilitate small farm irrigation schemes ‘have seen little return, or worse, have resulted in perverse development outcomes’ (Van Averbeke et al., 2011:9). Despite this record, current government policy places a great deal of rhetorical emphasis on small farmers and new entrants producing on irrigated land in the future (NPC, 2011:198).

The pattern of rural under-investment shown in the data on GFCF, R&D expenditure and the area irrigated is repeated in the data on fertiliser use and farm machinery, reflecting the steady decline in the total farmed area since 1960 (Liebenberg and Pardey, 2012:21–22). In 1981, South Africa applied a total of 872 000 metric tonnes of fertilizer, but by 2010 total fertiliser use had declined to 557 000 metric tonnes (www.fssa.org.za). Expenditure on fertiliser in constant Rand terms in 2010 was about 60% of the level three decades earlier (Liebenberg, 2010:22).

South Africa has also become increasingly dependent on imports to satisfy local fertiliser demand. In 1990, less than 20% of fertiliser needs were imported; in 2008, over 65% of South Africa’s nutritional fertiliser needs were imported (Grain SA, 2011:iv). In the upper-middle-income economies, fertiliser consumption per hectare of arable land increased substantially between 2002 and 2009 – from about 133 kg to over 160 kg. Over the same period, fertiliser consumption in South Africa was much lower and it declined – from about 57 kg to 49 kg per hectare. South African fertiliser consumption per hectare now amounts to less than 15% of the current level of fertiliser consumption per hectare in the East Asian developing economies (WDI, 2013).

The decline in investment in tractors has also been dramatic. In 1981, South Africa had about 142 tractors per 100 square km of arable land; by 2004, the number of tractors per 100 square km of arable land had fallen to 43, about one third of the tractor density in the upper-middle-income economies (WDI, 2013). There were about 70 thousand tractors in use in 2010, equivalent to less than half the number in use in the early 1970s. Estimates of real capital expenditure on farm machinery show a downward trend between the early 1980s and 2010/11 (Liebenberg, 2010:22,86).³⁵