HomeEconomyDissecting the compensation question

Dissecting the compensation question

IN 2018, I was invited by the Compensation Steering Committee (CSC), the official body tasked by affected farmers (over 90%), to spearhead negotiations with the government on compensation and to brainstorm on a win-win solution.

The Brett Chulu Column

The CSC gave me express permission to write an article where I lobbied the government to consider the ideas that emerged from the discussion. Let me state upfront that it was not a consultancy project, but an invitation that was sparked by a number of articles on the compensation issue in this column.I received no financial gain from the work. As a result of the articles, the CSC gained audience with the government, something they had been struggling with over years.
Reports of a £2,8 billion (US$3,75 billion) deal reached on the compensation issue this week naturally attracted my interest.

This article reviews the offer I first made public through this column against what seems to have been agreed. At the time I wrote the two articles, 4 676 non-Bilateral Investment Protection and Promotion Agreement (Bippa) farms were compensable, out of a total of 5 454 farms compulsorily acquired since 2000, with the global compensation figure farmers were requesting standing at US$10 billion.

The CSC indicated that the global figure granulates as follows: US$3,5 billion for land itself and US$6,5 billion for improvements and intangibles, with the intangibles constituting US$900 million.

First, the affected farmers, through the CSC, offered a compensation deal where the government would literally pay nothing.The deal the CSC was offering the government had four components.

First, the CSC would not ask the government to pay the US$3,5 billion for land compensation. This is counsel I gave the CSC in the brainstorming meeting based on what the constitution says. My argument to the CSC was that any attempt to insist on compensation for land would create a deadlock.

The CSC considered the option to engage the international community to mobilise grants for this compensation. This way, a dispute challenging the Zimbabwean constitution that clearly states that compensation for acquired non-Bippa farms shall be for improvements would be avoided.

From the report published in the media, this is exactly what has happened. Some can skin me for making that recommendation. My reasoning was that from the figures the CSC availed me, it was clear land constituted, on average, only 30% of the total farm asset valuation — clearly, it would be better to fight for the 70% value on improvement, explicitly recognised by the constitution of Zimbabwe.

Second, the initial deal leveraged on government’s thrust to make 99-year land leases tradable and financeable. Land is thus made a productive asset once more with an active lease market.

The 99-year leases could potentially be used creatively to finance the US$6,5 billion compensation government is expected to foot; it would be the use of ground leases (technical term for farm leases) as collateral to attract long-term financing to purchase the 99-year leases. In the scheme, a land bank would be set up and its seed capital coming from international and domestic financiers, with government allowed to get a paid-for stake in the bank.

In this scheme, government is encouraged to go for the unsubordinated ground leases since this ensures that government does not lose land as financiers are legally restricted to foreclose on the lease (not the property) only.

The financeable ground leases meeting international banking and financing norms, the land bank was envisaged to build a powerful case for a US$6,5 billion international bond with a 25-year tenure, at no more than 2% interest. The proceeds from this bond are what will be used to settle compensation claims from farmers.

Reports I received say the deal reached this week will create a land bank “to restore lost title deeds”. What is clear is that the land bank proposal from the initial offer has been adopted.

We await a full report to see which specific areas in the initial land bank proposal were adopted. I sense that government adopted more than half of the proposals on the structuring of the land bank. It seems to me the land bank will be the one to finance the compensation.

That was the initial deal. The US$3,75 billion is 50% of the US$6,5 billion for non-land compensation. There are two possible explanations for this. First, the CSC could have taken on board a proposal I made to negotiate for this valuation, but offer a discount and also waive any interest. Second, it is possible the government will sell its stake in the land bank to both local and international financiers to raise the US$3,75 billion.

How will the financing of the compensation for improvements be achieved? Given a land bank is part of the deal, it would appear, and a bond raised by the land bank could be the source of financing for compensation. We await fuller details.

Third, the CSC offered to incubate and mentor emerging farmers. Initial reports on the compensation deal reached this week are mum on this. We will await the full report to see if this offer was accepted.

Fourth, in view of the government’s austerity drive and the need to avoid disputes over compensation figures, the government needs to make use of the Valuation Consortium (Valcon) compensation database to validate compensation claimed.

Valcon is a group of leading private real estate firms that were contracted by the affected farmers to create a database of farm property acquired during the fast-track land reform process. It is a world-class database supported by Geographical Information Systems that have the capability to track and capture changes over time on acquired properties.

Put simply, any additions and removals from any farm since 2000 were reported with pictorial support. In other words, the database contains data that government valuators will not have because the valuation exercise by the government started fairly recently. The government worked with the Valcon database, as I had lobbied.

It is a promising development. Washington required the restoration of farm property rights as one of the pre-conditions for its support of any financial and debt treatment requests by Zimbabwe to the Bretton Woods institutions. We wait with bated breath for Washington’s response.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

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