SOUTH AFRICA – The Eastern Cape provincial government has issued a call to the private sector for expressions of interest in forming a public-private partnership to rescue two failed tea estates.
Garth Voigt at IDEC Financial Services, which was charged with the business-rescue process, said on Wednesday that a definitive rescue depended on another financial injection from the provincial government.
The two estates, Magwa and Majola, had been consolidated to facilitate the rescue.
The provincial treasury said on Tuesday it had committed a further R116m to the rescue process, adding to the R20m the province’s rural development and agrarian affairs department had already spent on the effort.
In 2015, the DA’s Eastern Cape leader, Athol Trollip, reported that the estates had by then received bail-outs of more than R200m following a decline in the domestic tea industry.
“The question which kept cropping up was: where has all the money gone?” Farmer’s Weekly magazine reported Trollip as saying.
The decline began with the easing of trade barriers, including tariff-free imports from Southern African Development Community countries according to a 2015 government report on the black-tea value chain in SA.
This, as well as the collapse of the Sapekoe tea estate in Limpopo after a land claim, accelerated the deterioration of the industry.
An ad valorem tariff of 10.5% applies to black tea originating from countries such as Kenya, Sri Lanka, the United Arab Emirates, China and India.
At Magwa, falling profitability, lower production and high costs associated with antiquated equipment led to workers not being paid for months, despite the capital injection.
A strike over pay and conditions led to violent confrontations between management and staff. Workers eventually went on the rampage.
A security guard was killed and several people were seriously injured.
Before the trouble, the estates — thought to be the biggest in the southern hemisphere — produced about 1.2-million kilograms of tea a season.
In its heyday, Magwa alone employed 1,200 permanent workers and 2,300 seasonal workers a year.
Its annual turnover was about R65m.
“But margins in the tea business are narrow,” said Voigt.
He said Magwa was not viable as a tea business, but this would change with diversification.
The idea was to develop the farm by adding avocado and macadamia nut production on adjacent land.
“This is why the operation needs another R116m from the government,” he said.
Ownership of the estate has been transferred from the Eastern Cape Development Corporation to the department, which has proposed a new shareholding structure to attract private sector investors.
It proposes to award a 51% controlling share to the private investor, 26% to the community and 13% to the employees of the estate, while the government will hold 10%.
“The private equity partner will be required to fund the 51% equity share by contributing 51% of the funding required in the approved business plan.
A lease agreement with the community in lieu of the 26% shareholding may also be considered in proposals,” said Mlibo Qoboshiyane, the rural development and agrarian reform MEC.
He said the provincial government would provide support to investors to ensure production was unhindered. This included interaction with the local community.