The Impact of New Regulations on SA's Forestry Contractors

1. THE IMPACT OF NEW REGULATIONS ON SA’s FORESTRY CONTRACTORS SAFCA AGM – 11 Oct 2018 By Roger Godsmark

2. Presentation Outline • Impact of Land Reform on Contractors • The New Minimum Wage Regulations • The Proposed New Diesel Tax Refund System • Conclusion

3. Section 1 Impact of Land Reform on Contractors

4. The Government’s Land Reform Initiative Hinges on three “legs” • Land Restitution (i.e. land claims) • Tenancy Reform (i.e. labour tenant claims) • Land Redistribution (i.e. “voluntary” transfers) Most impact - land restitution

5. Overall Outcomes to Date Unfortunately the objectives and that of restoring peoples’ dignity have not been realised because of….. • Inadequate budgetary provisions for the DRDLR • Lack of post-settlement support in terms of: • Financial support • Transfer of title deeds (thus, no collateral against loans) • Skills development • Corruption and maladministration As a consequence of the above factors, the speed of land reform has been slow and transferred land, a failure.

6. Land Reform in the Forestry Context • It is estimated that between 60% and 70% of forestry land is under claim (although varies considerably between Provinces) • Few land claims have been settled to date due to: • De-gazetting & legal challenges still underway • Complex claims & DRDLR budgetary constraints • The DRDLR, as a rule, only buys the land, not the trees This latter point is important as this forces the previous land- owner & new beneficiaries to work together The post-settlement support models developed by the Industry have resulted in a win-win situation through continued sustainable production

7. New Legislative Developments There are, however, a number of new legislative developments that need to be taken note of • Expropriation Without Compensation • Expropriation Amendment Bill • Restitution of Land Rights Amendment Bill • Opening up of claim period (160 000 new claims lodged) • Regulation of Agricultural Land Holdings Bill • Imposition of land ceilings (12 000 ha proposed) • Banning foreign ownership of land All of the above could substantially change the ownership of plantation forestry land in the future

8. What does this Mean for Contractors? These developments could have a significant impact on your businesses due to a possible loss in your traditional client base (i.e. corporate growers and larger commercial timber farmers) • After the next General Election, the land issue will subside. • Commercially viable timber farms will not be subject to EWC (or other destructive policies) • Due to the post settlement support models instituted by the Industry, the previous owners of land will still manage their assets But, on the positive side, the following is likely to occur

9. Section 5 The New Minimum Wage Regulations

10. Main Features of Original NMW The original NMW Bill provided for the following…. • Implementation date set as 1 May 2018 • Minimum wage set at R20 per hour with no deductions allowed as per the Sectoral Determination (for food and accommodation) • The wage for “Farm Workers”, including Forestry Workers (initially excluded) was set at 90% of this (i.e. R18 per hour) rising to 100% of the minimum wage one year later • No changes in conditions of employment from 1 May 2017 without agreement with labour • Sectoral Determinations would cease to exist • NMW Commission would be established to determine annual increases in NMW

11. General Comments on NMW 1 The objectives of the NMW are laudable & are supported BUT…. We believe that under the current socio-economic climate …they will not be achieved. Some points to note are the following: • Current Unemployment Level: • Current unemployment rate 26.7% (narrow definition) • Youth unemployment even higher • Equates to 5 880 000 people unemployed • Impact of NMW on Employment Levels:According to Govt’s own impact assessments: • between 205 000 and 897 000 jobs could be lost • This would raise no. unemployed by between 3.5% and 15.3% • If dependents added, highly alarming & cause for concern. Recommendation made to Portfolio Committee:Postpone implementation of NMW until the economic environment improves to an extent whereby job losses will be minimised.

12. Sectoral Determination 12 for Forestry Sector Debate on the NMW needs to be seen in the context of the increase in the Sectoral Determination minimum wages • Between 2006 & 2012, increases in wages reasonable • In 2013 minimum wage increased by 56% • This caused a huge increase in operating costs (by as much as 22%) Consequences • Hours of work cut (to save jobs) • Increased mechanisation (to improve productivity) • Business failures (those who could not do the above) Result…. Job Losses

13. Minimum Hourly Forestry Wages March 2012 – May 2019 Up 30% Up 56% Up 35% R20.00 R7.32 R13.76 Increase over period R12.68 p/h – nominal - 173%, real - 88%

14. Main Features of Amended NMW The amended NMW is better that the original. The following should be noted …. • Implementation date still to be determined • Minimum wage set at R20 per hour with deductions allowed as per the Sectoral Determination (for food and accommodation) • The phasing in period for “Farm Workers” wages will be determined by the NMW Commission & could be extended • No changes in conditions of employment from 1 May 2017 without agreement with labour(same) • Sectoral Determinations to be retained • NMW Commission includes an Agri SA representative

15. Section 1 The Proposed New Diesel Fuel Tax Refund System

16. Background FSA has made 3 submissions to SARS in response to …. • Late 2015: SARS’ invitation to make comments on the current diesel fuel refund system • February 2017: SARS’ and Treasury’s invitation to comment on their “Review of the Diesel Fuel Tax Refund System” document • August 2018: SARS’ invitation to attend a specific “Forestry” workshop to discuss how the refund system could work for the Forestry Industry

17. Main Concerns & Positives FSA’s concerns focus on the following… • Onerous log book requirements • Exclusion of the following: • Transport of wattle bark & biomass • Activities carried out by labour carrier vehicles • Activities carried out by “Forest Protection” vehicles • No “off-site” activities But the following were positive developments • Refund system to be separated from VAT system • Inclusion of contractors & small-scale growers • Forestry to have its own dispensation (currently with Agric.)

18. Main Change is Basis of System The proposed basis for the system has changed dramatically which has allowed for contractors and small-scale timber farmers to also benefit from the Diesel Fuel Tax Refund System • Based on qualifying users 1. Current System 2. Proposed System • Based on qualifying primary production activities However, forestry contractors will have to comply with various regulations in order to benefit

19. The Nitty Gritty of How to Qualify 1 All applicants will have to supply SARS the following… • The type and nature of qualifying primary production activities to be conducted; • The physical site where such qualifying primary production activities will take place; • An asset register of all diesel-powered equipment and vehicles to be used in qualifying primary production with details of the serial / VIN numbers and the diesel consumption specifications thereof; • A register of all diesel storage facilities linked to the qualifying primary production activities to be conducted and the physical sites thereof; and • Examples of logbooks and other recordkeeping that will be maintained and updated to verify the abovementioned information. To be done through registering their profile on SAR’s website

20. The Nitty Gritty of How to Qualify 2 All applicants will also have to sign an annual agreement with SARS which will require the following… • A business plan (need not be too complicated according to SARS); • The details of the person who has the management of the business as per section 103 of the C&E Act; • The details of the specialist as per Rule 59A.10(2) / Rule 60.08(2)(b) of the C&E Act who has sufficient knowledge to ensure compliance; and • An obligation for registrants to update their profile information and conclude new agreements annually with SARS. It is essential that you comply with these regulations

21. Section 1 Conclusion

22. Conclusion 1 Forestry Contractors have to realise that the playing field is about to change. They need to manage their businesses in such a way that they stay on top of their game in servicing the needs of the Industry through…. • Increasing labour productivity (to reduce the impact of the NMW wage increase) • Taking advantage of the proposed diesel tax refund system which would now allow contractors to receive the benefits thereof by: • Registering their profile on the SARS database • Signing the annual agreement with SARS • Installing satellite tracking devices on their equipment It is in ALL our interests that we succeed in doing this…..

23. Conclusion 2 Otherwise, if we fail….. Eish! We’ll end up seeing this!

24. FSA Contributors Paulpietersburg Timbers  WS Treated Timbers

25. CONTACT INFORMATION Name: Roger Godsmark Tel: 082 805 7123 Email: forest@global.co.za www.forestry.co.za

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