OUR national debt is understated.
The Brett Chulu Column
The compensation for improvements on acquired farms is yet to be quantified. In addition, as recently stated by Finance minister Patrick Chinamasa, acquired land itself in the case of Bilateral Investment Promotion and Protection Agreement farms must be compensated.
This implicit debt cannot be classified as a contingent liability since a contingent liability is a probable debt that depends on a future uncertain event such as a court ruling. That the compensation for acquired farm assets is still to be quantified is the fault of the Compensation Committee, vicariously, the government too.
The Compensation Committee is established in terms of the Land Acquisition Act. As stated in the Act, the Compensation Committee should comprise the following: Secretary of the Ministry responsible for lands (acts as the chairperson of the committee); Secretary of the Ministry responsible for justice, Secretary of the ministry responsible for finance; Director of Agricultural, Technical and Extension Services in the Ministry responsible for lands; Chief Land Officer; Chief Government Valuation Officer and not more than five other members appointed by the Minister. The Compensation Committee is in existence; in 2006 Didymus Mutasa, the then Minister of State for National Security, also in charge of Lands, Land Reform and Resettlement appointed a 11-member Compensation Committee. This committee must state the challenges it has in concluding the compensation task.
Section 29C4(a) of the Land Acquisition Acts states that compensation can be: “In cash or in bonds or other securities issued by the government.” Just like government is currently relying on Treasury Bills (TBs) to finance its operations, it can pay its compensation debt through a long-term compensation bond, 20 years for example. A mixture of short-dated TBs and long-dated paper, bonds, is desirable to encourage uptake. The challenge that is there is that the committee is yet to quantify the compensation. The longer it delays, the more arrears will accumulate.
The law, as it stands, does not allow the committee to use independent valuations as the definition of “fair compensation” is defined by the Land Acquisition Act as the one arrived at by the Compensation Committee. This has since been tested in our courts.
The Administrative Court ruled in favour of agricultural concern Interfresh’s US$27 million compensation claim for the improvements on its seven acquired farms against the committee’s US$5,2 million valuation. This suggests that the committee may need beefing up in terms of expertise.
Until our national budget sets aside a substantial amount dedicated to a national farm valuation project, the compensation debt will keep rising. The committee is in a fix in that it unlikely to have the database of non-land assets on each acquired farm. The Land Acquisition Act must be amended to allow private valuators who have the data to work with the Compensation Committee.
Section 29 of the Land Acquisition Act enumerates the following as constituting improvements: buildings, dams, dips, spray-races, fencing, canals, irrigation equipment embedded in the ground, perennial or plantation crops, tobacco curing facilities (immoveable), cost of installing mains electricity supplies and electricity connection points. In addition any movables that enhance agricultural production such as irrigation equipment not embedded in the ground, tractors, disc harrows, tractors, combined harvesters, pumps not permanently attached to the land, sprinklers, risers and moveable storage facilities can be compensated with agreement with government. This means that movables left on acquired farms and subsequently used by new farmers are eligible for compensation. A Compensation Committee that took shape six years after land acquisitions began may not have the data on farm improvements.
Farm evaluation experts have placed the value of acquired land plus compensation at US$10 billion. What is also known is that in Matabeleland about 10% of the total farm value constitutes improvements. Working with that conservative figure as the lower bound, compensation nationally for improvements is at least US$1 billion. Given that the Land Acquisition Act makes a provision for paying interest, the current value of the compensation lower bound is much higher than US$1 billion. With regard to interest calculation, the Land Acquisition Act states: “Interest shall be paid by an acquiring authority at a rate, being not less than the current rate of interest prescribed in terms of the Prescribed Rate of Interest Act (Chapter 8:09) on compensation awarded to a claimant in terms of this Part or Part VA for the period extending from the date on which the land was acquired in terms of this Act to the date the money is paid to the claimant or paid to the Master of the High Court in terms of sub-section (1) of section twenty-eight.”
Given that the Reserve Bank of Zimbabwe since 2009 has been unable to prescribe lending rates due to its inability to control money supply, calculating interest due on compensation is a poser. In addition, the interest rates at the time the Zimbabwe dollar was in circulation are practically too unrealistic to be applied in retrospect. That leaves us with a not-so-neat but realistic option of applying bond rates applicable to our economically stable neighbours, South Africa and Botswana.
This comparison may be considered absurd by critics; it’s a better evil in view of the distortions in our economy — we neither can adopt concessionary rates nor use the lending rates that reflect our national creditworthiness. A Bank of Botswana 15-year bond maturing on September 31 2031 has a yield of 5,16%, suggesting a coupon rate of 5%. This seems a reasonable rate to apply retrospectively to the compensation which has been outstanding for 16 years now. We can reasonably argue that the lower bound of the compensation for improvement due as of today is about US$2,2 billion. However, the actual compensation for improvements due with arrears included is much higher than this lower bound figure.
Section 29B of the Land Act requires the Compensation Committee to make a preliminary estimate of the compensation payable and give a written notification to affected parties, inviting them to challenge the compensation estimate if need be. The Act enjoins the committee to do this within an undefined time period called “as soon as possible”. It is now 16 years since land acquisitions began and to the public knowledge the committee has not made any preliminary assessments of compensation estimates. If it has done so, there is no public record that evicted farmers have been invited to make their submissions as required by the law.
It’s not in the national interest for the committee to further delay quantifying compensation for farm improvements as bidden by Section 29B of the Land Acquisition Act. By acting now, we can then establish Land Compensation Bond and Land Compensation Bills since we will know the quantum of the compensation. Is it fair that future generations will have to pay for legitimately inflated land compensation because today’s generation was not serious enough to make necessary compensation valuations as stated in our law? Let’s get this monkey off our back.
Chulu is a management consultant and classic grounded theory researcher. He has published research in an international peer reviewed academic journal.