Kruger’s millions – fair game?

Wednesday, 7 August 2013

Over the weekend, a Sunday Times report said government has agreed to pay out more than R1-billion to settle a land claim against the five-star Mala Mala reserve in Mpumalanga.

The report said the deal involves 15 000 people who live in several villages about 5km from the Kruger National Park.

This report was, as is the norm for that newspaper, high on adjectives and low on specifics. I quote:

"The Sunday Times understands that (Mala Mala owner Michael) Rattray and (Land Reform Minister Gugile) Nkwinti have already agreed on the terms of the deal about to be signed.

“Rattray's lawyer, Patrick Falconer, confirmed that 'the owners and the Minister are indeed in the same ballpark on the value of the land and improvements', but declined to specify an amount.”

I don't exactly trust the Sunday Times’ record with regard to the way they report issues of government generally. It was not so long ago that the paper reported (incorrectly) that Transnet had sold the land under the sea at Table Bay between Cape Town and Robben Island to investors from London and Dubai. I've been sceptical ever since.

So let us put aside the question of the accuracy of the report for now and ask the more crucial questions – what is the value of Mala Mala and how much should we taxpayers pay for it?

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Business Day reported in April that the current landowners value the land, which covers about 13 000 hectares, at just over R900m, or R70 000 per hectare. The report also said the Minister's department was prepared to pay R480 million.

The 13 000 hectares are to be shared among 15 000 people which works out to 8 500 square metres per person. This all sounds reasonable.

But here's my problem with these supposedly reasonable propositions: the land at Mala Mala is pretty worthless.

Think about it: I sell you 8 500 square metres of land in the Kruger Park for R59 000. What can you do with it?

You can't farm it because it has been allocated to the reserve. If you could farm it, there is unlikely to be a water source sufficient for agricultural needs. There is no electricity, no road infrastructure, no ready supply of labour…

So really, one needs to pool the land with all the others and continue operating Mala Mala as the internationally renowned business it is.

Which then begs the question: how much is that business worth?

There are 18 rooms, 7 suites, and 8 khayas at Mala Mala according to their website. Rooms at Mala Mala go for between R6 000 and R14 000 per night, according to the Sunday Times article.

Working on 33 total units at an average price of R10 000 per night assuming 50% occupancy throughout the year, I expect Mala Mala would earn R60 million for the year.

But wait! We have not yet paid for staff, electricity bill, water bill, wear and tear, maintenance, marketing, absenteeism, legal fees, transport – say, R20 million for that.

Plus, government wants to keep the current owners on in a management capacity. I expect their salaries to eat up a further R5 million per year.

So, my extremely optimistic projection for earnings before interest, taxes, depreciation, and amortization would be around R35 million per year.

Assuming I took 1 billion rand and lent it out at prime rate, I would earn 8,5% interest or R85 million per year. If I took only R411 million and lent it out at the same rate, I would earn my R35 million without the headache of needing to manage the business.

Either way, if I take R35 million per year and divide it among 15 000 owners, they each end up with R194 per month in income.

Really? We are busting a gut to undo the injustices of apartheid so that we can pay R194 per month to victims?

Even if Mala Mala generated R70 million a year, the amount per claimant is still less than R500 per month. Is it worth the effort?

There are two things in the world that smell like fish (says the old jungle saying). One of them is fish.