ULWANDLE FISHING
Prepared by: Xola Mdabula
07 May 2007
LONG TERM FISHING RIGHTS - ADVANCING
TRANSFORMATION IN THE HAKE LONG-LINE, HAKE HAND-LINE AND SQUID SECTORS
INTRODUCTION
Under
the medium term rights dispensation, the Department did an excellent job of
establishing a rational, equitable and legally sustainable framework for the
allocation of rights. The Department
also achieved what most people thought was impossible, viz. both a transforming
and stable industry. This was confirmed
by the March 2004 judgment of the
In
developing a policy for the long term rights dispensation, the Department was
no doubt looking at ways to expand the successes that it had achieved with
regard to the transformation of the industry during the medium term rights
period. In his supplementary judgment in
the above-mentioned case, Justice Ngcobo found that “a foundational principle
of the Act is the transformation of the fishing industry”. He went on to say that this commitment to the
transformation of the industry was affirmed and reinforced in the Act.
In
its policy guidelines with respect to the granting of medium term rights, the
Department emphasised that the hake line sector (long-line and hand-line) had
been identified as a suitable sector for promoting small and medium sized
enterprises (SMMEs) owned and managed by people from historically disadvantaged
backgrounds. It is widely accepted that
the squid sector is an equally suitable sector for promoting SMMEs that are
owned and managed by historically disadvantaged individuals (HDIs). The hake long-line and hand-line sector and
the squid sector present the Department with significant opportunities for
consolidating and advancing the transformation of the fishing industry.
The
Hake Long-Line and Hand-Line and Squid Sectors
As
indicated above, the Department earmarked the hake long-line and hand-line
sectors as key areas for transformation in the hake fishing industry. These sectors were identified as key areas
for transformation because their relatively simple technologies avoid the need
for high levels of investment.
Firstly,
the quality of black economic empowerment that started to develop as a result
of the medium term quota process was dealt a fatal blow in 2006. Of the 9800 tons of hake long-line allocated,
no more than 2200 tons are controlled by black entities. Of the 19 processing and marketing clusters
that exist, no more than 3 are black controlled. The principal reason for this loss of control
is because the quotas that have been allocated lack any significant commercial
value. Consequently, processing and
marketing clusters have developed which have forced small black right holders
into long-term beholden relationships.
Two right holders have recently decided to object to this feudal
relationship and are defending court cases which seek to enforce the feudal
relationship.
Secondly,
the allocation of quotas which are predominantly between 40 tons and 70 tons,
is fatal to the policy objectives that seek to encourage compliance, long term
investments and economic and environmental sustainability. An entity allocated 40 tons has no future in
the fishery. It is impossible to plan
for the next 5, 10 or 15 years if regard is had to inflationary pressures
coupled with estimated annualised 10% annual TAC cuts. By 2010, a 40 ton allocation would have been
reduced to less than 27 tons. By 2020
(at the expiry of right), a 40 ton quota would have been reduced to less than
11 tons! At current rates, the net value
of a 40 ton quota is approximately R340,000.
On average, a hake long line vessel will cost R2,8 million. It should therefore be apparent that there is
no possibility of running a hake long-line business on the average quota
allocated.
It
is for this reason that the majority of black hake long-line right holders have
either sold their quotas to third parties or are beholden in feudal relationships
for the next 14 years. The consequence
of allocating the long term rights in the hake long-line fishery has undermined
almost every policy objective set out in the hake long-line policy. It is a sad reality but the allocation of
long-term fishing rights in the hake long-line fishery has undone the gains of
the medium term allocation and placed the fishery back in the era of the late
1990s.
If
it is used as a poverty relief instrument, there cannot be black
empowerment. The allocation of small
bundles of access rights simply results in a transfer of income from
established white interests to poor black people. The income transfers are insufficient to
encourage savings, particularly to the extent of accumulating sufficient
capital to enter a commercial fishery (in the region of R3,5 million in the
hake long-line fishery). Thus black
empowerment does not occur and economic power is entrenched with white owners
of capital.
Another
important aspect to consider is that for every one individual who receives
poverty relief by being awarded access rights, there are many others who don’t
but feel that they are more deserving.
Thus, using fishing rights as a poverty alleviation mechanism can have a
double edged political outcome.
In
a commercial fishery, it makes more sense to ensure the economic empowerment of
a few black individuals than to attempt to use access rights to alleviate
poverty. There are, however, many
barriers to entry for black entrepreneurs.
The
combination of small allocations (so-called unviable quotas) and the policy of
encouraging joint ventures between black-owned companies and boat owners has
enabled large and medium sized companies to extend their control of the
industry to the SMME sector. By and
large, joint ventures are asymmetrical commercial arrangements and black-owned
SMMEs are forced to pay inflated prices for the catching and processing of
their fish, while at the same time receiving very low prices for the sale of
their fish. A similar type of
exploitative pattern is evident with regard to the purchase by blacks of
vessels or shares in vessels.
Black-owned SMMEs are frequently forced to pay grossly inflated prices
for ageing and uneconomical local vessels under what are usually very onerous
financing agreements.
A
generally accepted minimum viable quota of 500 tons is required to profitably
operate a hake long-line fishing boat. A
number of options are available:
§
A consortium of 10 people who
together have sufficient savings to purchase a boat - a capital outlay of
about R150,000 each - must be formed.
This seems to be the option singled out for blacks.
§
The allocation is used to subsidise,
or top up profits, for established interests operating in a different
fishery. This seems to be the targeted
option for whites.
§
The final option is that
capital-poor blacks can lease their allocations to white interests. This option forces black interests to become
“paper permit” holders.
This
system of allocation directly favours the subsidisation of established white
fishing interests and discourages, or makes very difficult, participation by
blacks. This is obviously not the
intention of the Government, the Marine Living Resources Act nor MCM.
Can
the barriers to entry be overcome? Yes
The
most common barriers to entry by black entrepreneurs into any fishery in
§
Access to finance - physical
capital.
§
The acquisition of appropriate
skills - human capital.
§
Sub-economic bundles of access rights.
These
barriers to entry can be overcome with no additional expense to the State as
will be demonstrated below.
While
the Department correctly requires black-owned SMMEs to purchase their own
vessels, it has erected barriers to the purchase of vessels from abroad. Local vessels are old, outdated and expensive
and dangerous to operate. A large number
of virtually new fishing vessels are available on the international
market. These vessels are more
cost-effective to operate and easier to finance. In order to empower black-owned SMMEs to
purchase their own vessels, the Department should remove the barriers to the
entry of foreign-sourced fishing vessels and allow black-owned SMMEs to
purchase fishing vessels from abroad to replace the ageing fleet.
Is
there any additional cost to the State?
No
The
cost to the State using the hake long-line fishery as a catalyst to black
economic empowerment, is minimal. This
is because:
§
Long term preferentially
transferable rights have collateral value.
Thus, alternative development finance need not be established at a cost
to the State.
§
Skills development through a
mentorship program is financed out of levies imposed on black fishing
entrepreneurs in the hake long-line fishery.
Would
black empowerment in hake long-line create black empowerment in other
fisheries? Yes
With
a group of profitable black fishing enterprises the opportunity exists for
these companies, or individuals, to expand their operations into the other
fisheries using the surplus profits gained from the long-line fishery. Surplus profits are realised due to a
slightly larger quota allocation than is minimally viable.
CONCLUSION
The
hake long-line and squid fishery presents the best possible case to establish a
black economic power base in fisheries in