Emerging farmers get shot in the arm from unclaimed Old Mutual shares
- Author: Andile Ntingi
- Published: Tuesday, 02 August 2016 02:47
Seventeen years ago, Old Mutual, South Africa’s oldest financial services company, demutualised and moved its primary listing to London from Johannesburg, setting off on an ambitious journey of extending its reach across the globe on the back of raising cheap offshore investment capital.
Until this momentous event in 1999, the insurance and banking conglomerate was owned by its customers, primarily insurance policyholders, since its establishment in Cape Town by British entrepreneur John Fairbairn in 1845.
Through the demutualisation process, Old Mutual’s ownership structure, which had been in existence for over 150 years, changed overnight, as policyholders were converted into shareholders of the company.
Eventually 271 000 potential shareholders of Old Mutual never claimed shares worth R1.3 billion, despite being given a six-year deadline that ended in 2006.
In March this year, Old Mutual announced that it was moving its headquarters back to SA after a 17-year London sojourn following a review that recommended that the company unbundle its four underlying businesses into standalone companies to unlock shareholder value.
The “managed separation”, as the company calls it, of Old Mutual Emerging Markets (OMEM), Nedbank Group, Old Mutual Wealth, and Old Mutual Asset Management is expected to be completed by 2018.
SHARE PROCEEDS PUT TO GOOD USE
Now that Old Mutual is coming back to its country of birth (where it still generates 65% of its earnings) after it demutualised to pursue its global ambitions, it is worth asking what happened to the proceeds of the shares that were never claimed by the 271 000 policyholders.
Following consultation between Old Mutual and the National Treasury, the shares were placed in an Unclaimed Share Schemes Trust, which was closed in 2006 after potential claimants never came forward to claim their shares.
A year later, Old Mutual used the proceeds to establish and capitalise the Masisizane Fund, a development finance institution that provides loan financing to entrepreneurs and small businesses operating in sectors such as agriculture, manufacturing, franchising and supply chain development (SCD). SCD essentially involves granting funding to companies that have been awarded contracts by corporate or government clients.
“Since its establishment, Masisizane has facilitated the creation of over 2 000 jobs by SMMEs and has supported micro-finance institutions that in turn have facilitated the creation of 40 000 jobs”
As a spin-off from the demutualisation process, Masisizane is taken so seriously that retired Old Mutual veteran executive Marshall Rapiya was appointed to chair the board of the development funder.
Masisizane’s outgoing CEO Simpiwe Somdyala says the organisation’s strategy has evolved since its inception in 2007 from being a corporate social investment-orientated organisation into a development funder that seeks to exist in perpetuity.
“Masisizane recognises the need to ensure a stronger balance between its strong development mandate and the ability to generate enough returns to invest in its core business,” says Somdyala, who has joined the executive management of OMEM, but will still contribute to Masisizane’s growth.
“Since its establishment, Masisizane has facilitated the creation of over 2 000 jobs by SMMEs and has supported micro-finance institutions that in turn have facilitated the creation of 40 000 jobs.”
Roughly R500 million from the proceeds of the R1.3 billion unclaimed Old Mutual shares was used to capitalise Masisizane. The rest of the proceeds were used for various initiatives including donations, payment of tax liabilities and future claims. The R500 million, which is wrapped in the Masisizane Endowment Fund, has since grown to about R1 billion.
BOOST TO RURAL AGRICULTURE
About R300 million of Masisizane’s initial investment capital has been invested in SMMEs and micro-enterprise institutions, of which 70% of the funding has been ploughed into businesses owned by women and youth. These businesses are mainly based in rural areas, small towns, and townships.
Last year, Masisizane invested R100 million to open up the capital-intensive commercial farming industry to small-scale black farmers in the district municipalities of Alfred Nzo in the Eastern Cape (EC) and Harry Gwala in KwaZulu-Natal (KZN).
The provincial agriculture departments of the EC and KZN have pitched in with an additional R100 million to complement Masisizane’s initial investment in the project, which the Old Mutual development finance institution regards as its flagship.
At national level, the department of rural development and land reform contributed R17 million in grants to the flagship to assist farmers in Matatiele in the Alfred Nzo district to buy modern agricultural machinery.
The flagship project is driven by Sifiso Myeni, head of the Agribusiness Development Unit, which funds agro-processing ventures and helps small farmers commercialise their operations. The project aims to place 10 000 hectares of land under commercial production where the primary attention is on growing soya beans, dry beans and maize.
“With the investment that we have made in partnership with the department of agriculture, we are hoping to create jobs and fight poverty in this area. We have gone into a 50:50 partnership with the department of agriculture, where it matches what Masisizane spends on mechanisation and production inputs (seeds, fertilisers, and chemicals) that we buy for the farmers,” says Myeni.
“We are happy to see people putting food on the table. We want the project to be sustainable and there is a lot that still needs to be done to develop infrastructure, particularly building storage facilities for the grain and diesel"
The unemployment rate in Alfred Nzo stands at 43.5%, well above the national rate of 26.7%, while Harry Gwala – which includes the towns of Kokstad, Umzimkhulu, Ingwe and KwaSani – has an unemployment rate of 36%.
Alfred Nzo – which constitutes the towns of Matatiele, Mbizana, Ntabankulu and Umzimvubu – has a population of 801 344, of which 90.2% of the people living there receive between R1 000 and R1 600 per month, according to Stats SA.
In the neighbouring Harry Gwala, where 461 419 people live, nearly 80% of workers earn R1 600 per month or less. In stark contrast, just less than 2% of Harry Gwala’s workers earn R122 800 per month or more.
The widening income gap in the district over the last decade has seen the Gini coefficient climb from 0.58 to 0.62, implying there is a need for bold wealth creation and redistribution strategies to boost the incomes of the poor.
This is where Masisizane comes in. Over the next five years, the institution plans to empower 10 000 people through the agricultural flagship project by creating jobs, raising incomes, reducing poverty, attracting skills and investment in Alfred Nzo and Harry Gwala district municipalities.
Masisizane and the provincial departments of agriculture in the EC and KZN have provided financial and technical support to small-scale farmers and nine farming co-operatives, many of whom employ women.
Each co-operative has received three tractors, two planters, two boom sprayers, two ploughs, one trailer to move fertilisers and share a few harvesters amongst them.
The co-operatives take 20% of the revenue generated from selling the produce to the market and the rest of the revenue goes towards paying their debt and paying for production inputs.
So far, 3 399 hectares of land was planted this year, 54% lower than the targeted 6 323 hectares due to late arrival rains and the severe drought gripping the country. About 1 200 jobs have been created, where each worker supports a family of four people.
There are plans to procure more agricultural machinery to boost production and scale up the flagship project.
“The intention is to beef up mechanisation. Each farm co-operative needs about four tractors and one harvester to work on more land,” explains Myeni.
The department of agriculture in KZN is satisfied with the progress that has been made so far in rolling out the flagship programme.
“We are happy to see people putting food on the table. We want the project to be sustainable and there is a lot that still needs to be done to develop infrastructure, particularly building storage facilities for the grain and diesel. We also need to inject new
skills and fresh blood in the co-operatives that we support as many of the members of these co-operatives are no longer young,” says Lesabe Mokgwamme, a KZN government agricultural adviser.
The beneficiaries of the project are also happy with the change in their fortunes. Nozabo Dlomo, secretary of the Vusikuba Co-operative in Umzimkhulu, says they have created 40 jobs for people in her village.
“I used to sell leather bags and hand-craft artefacts in town, but now as a committee member in my co-operative I earn a salary,” says Dlomo.