The Land Bank signed an agreement for a loan of R900 million from the German development bank, KfW. The loan will provide a much needed boost for the South African (SA) agricultural sector.
The KfW Development Bank has been supporting and funding agriculture in more than 20 African countries, including Tunisia, Zambia and Mali. This is, however, their first time to venture into the South African farming sector.
The loan has been priced in South African currency, which is favourable for the Land Bank as it protects the bank against the possibility of a weaker rand. Even though the Land Bank is wholly owned by the South African government, it does not receive any financial subsidy from the state.
The loan repayment period is 10 years. This long-term agreement will be beneficial to the Land Bank as it will increase its long-term liquidity for the benefit of the SA agricultural sector.
The loan will assist the Land Bank in extending longer-term funding to both emerging and established commercial farmers.
Bennie van Rooy, Chief Financial Officer at Land Bank, said that the long term loan will be beneficial for farmers as it will enable the bank to carry them throughout all the stages to reach maturity and sustainability.
“So, if it takes 5 years for enterprises to reach maturity, and we only fund them for 3 years, it defeats the purpose because farmers will not have enough money to repay the loan,” van Rooy said.
Dr. Thomas Duve, Director of the Southern Africa Fund at KfW, said that the German government had been observing the Land Bank for quite some time and that they recognise the importance and popularity of agriculture in South Africa.
Negotiations to conclude the deal took more than 2 years, during which KfW developed a strong sense of confidence in the bank’s ability to deliver value to all of its key stakeholders.
“As KfW Development Bank, we are very excited about our growing partnership with Land Bank. The funding by KfW will be targeted at providing financing solutions to commercial farmers and end-to-end business support for emerging farmers, specifically with a view to enabling access to long-term finance at competitive conditions. We are convinced that this agreement will contribute significantly to broadening and deepening the financing offer for small and medium-sized enterprises in the agricultural sector of SA,” said Duve.
TP Nchocho, Land Bank CEO, said that their partnership with KfW will enable the bank to continue supportingnew projects.
“We are encouraged by the confidence investors are showing in the important work we are doing to support rural development, as well as in our ability to meet all commitments to key stakeholders. With secure lines of funding such as this, Land Bank remains best positioned to drive productivity, growth and job creation as well as promote food security in the country,” said Nchocho.