Prepared by: Xola Mdabula
07 May 2007
LONG TERM FISHING RIGHTS - ADVANCING TRANSFORMATION IN THE HAKE LONG-LINE, HAKE HAND-LINE AND SQUID SECTORS
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
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.
hake long-line and squid fishery presents the best possible case to establish a
black economic power base in fisheries in