EWC would aggravate unprecedented economic crisis created by Covid-19
Dave Steward |
08 September 2021
Dave Steward says SA’s failure to attract direct investment is evident when compared with other mineral-rich countries
Speech to the Paarl Rotarians – Expropriation without Compensation
8 September 2021
Land reform and the proposed policy of expropriation without compensation (EWC) within the bigger framework of the ANC's National Democratic Revolution (NDR) and Radical Economic Transformation (RET) remains a pivotal concern for all South Africans. The Foundation's Chairman, Mr Dave Steward, recently delivered a speech touching on these and other issues on 7 September 2021 during an occasion at the Paarl Rotarians.
I would like to speak to you today about the threat that expropriation without compensation would pose to the future well-being of everyone in South Africa.
Firstly, it is important to understand why the ANC is so intent on amending the Constitution to make expropriation without compensation possible.
Its determination to do so flows directly from its National Democratic Revolution (NDR) ideology and its latest iteration - Radical Economic Transformation (RET).
The ANC has long believed that “a critical element of the programme for national emancipation” should be “the elimination of” what it calls “apartheid property relations”. In the ANC’s view this is a continuing struggle “which, as a matter of historical necessity, will loom ever larger as we proceed along the path of fundamental change.”
In March 2012 the ANC announced that the time had come for it to take this process to the “second phase” of the national transition. In June 2012, President Zuma told the ANC Policy Conference that the balance of forces had shifted sufficiently in South Africa and internationally for the ANC to abandon the compromises it made during the first - or “political” - transition. “We had to make certain compromises in the national interest... For example, we had to be cautious about restructuring the economy, in order to maintain economic stability and confidence at the time.”
The latest iteration of the second phase is “Radical Economic Transformation” (RET) - which President Zuma defined as a “fundamental change in the structure, systems, institutions and patterns of ownership, management and control of the economy in favour of all South Africans, especially the poor, the majority of whom are African and female…”
It is impossible to consider the EWC outside the context of the clear intentions that have regularly been expressed by the ruling Alliance - and more explicitly in its programme for RET.
The property guarantees in section 25 of the 1996 constitution remained a significant obstacle to the implementation of radical economic transformation - although they presented no obstacle to a comprehensive land reform programme.
To overcome this obstacle, the ANC adopted a resolution at its 54th National Conference at NASREC in December 2017 that it should “as a matter of policy, pursue expropriation of land without compensation.” At the insistence of more moderate elements, it added that “this should be pursued without destabilising the agricultural sector, without endangering food security in our country and without undermining economic growth and job creation.”
On 27 February 2018, the NASREC decision was endorsed in a parliamentary motion to amend section 25 of the Constitution to make provision for expropriation without compensation “in a manner that increases agricultural production and improves food security”.
On 25 July 2019 Parliament appointed an Ad-hoc Committee on Legislation to Amend Section 25 of the Constitution “to initiate and introduce legislation amending section 25 of the Constitution”.
This week the Ad-Hoc Committee decided to adopt proposals for a draft amendment to the constitution that would include the following provisions:
Where land and any improvements thereon are expropriated for purposes of land reform … the amount of compensation may be nil.
For the furtherance of land reform, national legislation must … set out circumstances where the amount of compensation is nil.
The land is the common heritage of all citizens that the state must safeguard for future generations.
The state must take reasonable legislative and other measures, within its available resources, to foster conditions which enable state custodianship of certain land in order for citizens to gain access to land on an equitable basis.
Because the ANC refused to accept the EFF’s demand that the state should be given custodianship of all the land in South Africa - which would amount to the nationalization of all land - it has made it clear that it will not support the Amendment Bill when it comes before parliament sometime after 1 November when it reconvenes after the municipal elections.
This means that - as matters now stand - the ANC will not be able to muster the two thirds majority that it will require to adopt the constitutional amendment.
However, there is no room for complacency - firstly, because it is still possible that the ANC and the EFF might resolve their differences; and secondly because there is no indication that the ANC intends to abandon its goal of redistributing property in accordance with Radical Economic Transformation’.
Indeed, ANC leaders evidently believe that the current COVID crisis has created an opportunity to restructure the economy in accordance with RET. On 25 April 2020 Minister Nkosozana Dlamini-Zuma said the Covid-19 crisis presented “an opportunity for South Africa to accelerate the implementation of some long agreed upon structural changes to enable reconstruction and growth". Ten days later, on 5 May 2020, President Ramaphosa echoed her views. He said that the COVID crisis has created “an opportunity to relook at our economic side of life to see how we South Africans reconstruct our economy after coronavirus…” and added that “Radical economic transformation must underpin the economic future…”
We should accordingly give careful consideration to the implications of EWC.
EWC would seriously aggravate the unprecedented economic crisis created by COVID.
A study conducted in 2018 by Prof Roelof Botha of the Gordon Institute of Business Science and Prof Ilse Botha of the University of Johannesburg warned that South Africa would experience an “imminent socio-economic disaster” if EWC is implemented. The study predicted that that GDP would decrease by R454,8 billion if capital formation in South Africa were to decline by 10%. This would result in a drop of R261 billion in fiscal revenues and the loss of more than 2 million jobs.
Although the economy is expected to rebound by more than 3% during 2021, this will be lower than expected global growth - and will be accompanied by mounting concern over unsustainable government debt. National debt is expected to reach R4,6 trillion (86% of GDP) this financial year - and 88,9% by 2025/26. Increasingly mired in a debt trap, South Africa’s credit ratings will slide deeper into junk status.
Sustained and inclusive economic growth is the only way out of this trap. President Ramaphosa emphasized this goal in his 2021 SONA address - and the former finance Minister Tito Mboweni spelled out his proposals for recovery in the national budget on 24 February. However, plans for economic recovery and for enhanced investment are irreconcilable with EWC.
This is because of the impact EWC will inevitably have on critically needed foreign investment.
South Africa’s failure to attract sufficient foreign direct investment is glaringly evident when compared with other mineral-rich economies: between 2015 and 2019 South Africa received only US$ 16 billion in foreign investment - compared with $58 billion for Chile and $ 238 billion for Australia. This is despite the fact that that South Africa possesses the world’s greatest mineral reserves - valued at US$ 2,5 trillion.
According to the government’s assessment, the Banking Association of South Africa (BASA) supports the Expropriation Bill - including presumably its provision for zero compensation. However, in its submission to parliament on 30 January 2020 regarding the amendment of Section 25 of the Constitution, BASA warned that land reform should take place in an orderly manner that does not dilute property rights.
BASA added that its exposure to land-based property was R1,613 trillion - and cautioned that “many banking crises around the world have their starting point in the decline in land-based property and the impact that this has on market confidence.”
EWC could also harm South Africa’s trade relations. In particular, it might be in conflict with the requirements of the United States African Growth and Opportunity Act (AGOA) in terms of which most South African exports to the US currently enjoy tariff-free status. It might also create legal difficulties in South Africa’s relations with foreign investor countries.
When the ANC adopted its EWC decision at NASREC in December 2017 it added that this goal should be pursued “without destabilising the agricultural sector, without endangering food security in our country and without undermining economic growth and job creation.”
However, EWC would, in fact, pose a deadly threat to both agriculture and the economy.
South Africa is not a rich agricultural country - with only 13% of its territory being suitable for arable production. The sector is changing rapidly: the average age of commercial farmers in 2017 was 62; the number of commercial farmers dropped from 57 357 to 35 250 in just three years between 2013 and 2106 - and was expected by government to fall to fewer than 25 000 after 2020. The number of farms for sale increased from 13 254 in February 2015 to 19 280 in May 2016.
Despite the smaller number of farms, income produced by the sector increased to R 332,8 billion - 2,6% of GDP - in 2017. Most of this was produced by large farms. 100 very large farms produced 25% of agricultural production. Some 2 200+ large farms (including the top 100 farms) - with a turnover of over R22,5 million - contributed 64,5% of the sector’s income in 2017. Medium-size farms contributed 7,7% and small and micro farms contributed 27,8%.
Collectively, commercial farmers produce 95% of South Africa’s locally grown food. According to a 2015 WWF Report “although accurate data is slim, this suggests that the remaining 5% of food is produced by 220 000 emerging farmers and the 2 million subsistence farmers in the country”
South Africa’s commercial farmers - aging and rapidly diminishing in number - are widely regarded as among the best in the world. The imposition of demographic representivity on the agricultural sector would, over time, force them from the land. They would, in all likelihood, be replaced by hundreds of thousands of emerging tenant farmers on 10 - 20-hectare plots.
The government’s land reform model flies in the face of all current experience. Absence of property rights has been one of the main obstacles to the revival of agriculture in Zimbabwe. According to Patrick Imam of the IMF, the fundamental problem was that “the title system is broken.” Accordingly, land in Zimbabwe was “dead capital, as it cannot be collateralised”. “The first best solution to revive the sector would be to tackle the most binding constraint, which is property rights”.
Successful agriculture requires capital, expertise, entrepreneurial skills, increasingly large-scale farming, a great deal of luck - and above all, secure property rights. There is no reason to suppose that the government’s new tenant-based land reform approach would be any more successful than its previous schemes - at least 70% of which have failed.
The expropriation of the first farms with compensation paid at levels substantially below market value would inevitably have a negative impact on land values. Many farmers might soon find that the value of their farms would be little more - or even less - than their outstanding mortgages. This could spell personal ruin for them and raise deep concerns among commercial banks over the viability of their R125 billion exposure to the sector.
All of this could have a catastrophic impact on the agricultural sector; on its contribution to the economy; on the 808 000 people (5,5% of total jobs) it employs; - and on food security.
South Africa has thus far been regarded as one of the few food secure countries in Africa and has made good progress in improving food availability. The number of people who were vulnerable to hunger declined from 29,3% in 2002 to (a still unacceptable) 11,1% in 2019. Tragically, the percentage of vulnerable people would rise rapidly in the wake of the agricultural crisis that would be generated by the Bill, EWC and the government’s RET policies.
None of this detracts from the pressing need for an equitable and effective process of land reform - which is both a constitutional imperative and a political and social necessity.
The core problem is that there is no clarity about what land reform is supposed to achieve - or of the national interest that is supposed to promote.
Land reform could enhance the property rights and freedom of millions of South Africans - or it could deprive them of their property and reduce them to the status of dependent tenants.
We must also understand where the demand for land reform is greatest. According to recent opinion surveys only 1% of black South Africans are interested in agricultural land reform. There is, however, enormous demand for urban land for housing. This should be the priority for any land reform initiative - and it should end in beneficiaries possessing title deeds to their properties.
One of our most positive economic and social realities is that almost 8 million black South African households already own their own homes. However, the vast majority do not have proper titles deeds. This means they cannot leverage their properties to raise loans to develop businesses or to pursue other economic interests. It has been calculated that the value of these properties may exceed R1,3 trillion. To put things in perspective, this is three times the value of all the agricultural land in South Africa.
There are already more than 1 million black households that own the land on which they produce food. Another 560 000 households farm land in the traditional homelands. According to AgriSA’s recent land audit, black South Africans occupy 45% of all the high potential agricultural land in the country – much of it in the traditional homelands. A central priority of land reform should be to transfer legal ownership of this land to the people who actually farm it. This could greatly increase the productivity of some of the best agricultural land in South Africa.
Land reform that results beneficiaries owning land and in the provision of title deeds to black South African home owners could dramatically, quickly, and effectively enrich and empower over 60% of South Africa’s black households. Such an approach would require:
legislation to fast-track the registration of title deeds;
a massive programme to inform property owners of the economic potential of their properties;
cooperation with the banking sector in unlocking the enormous wealth currently tied up in black property; and
close cooperation with the organized agriculture to ensure that emerging farmers are prosperous and successful.
If handled correctly land reform could be one of the most positive developments since 1994. However, if handled badly on the basis of EWC, it would be a catastrophe for all South Africans.
What can we do to counteract the threat of EWC and the other problems confronting South Africa?
Firstly, we must be informed. We must understand the ANC’s National Democratic Revolution, its origins and its goals.
Secondly, we should not underestimate the substantial power that the constitution gives to all citizens.
The Constitution gives us important powers:
We have the right to freedom of expression: we must use it to warn our fellow South Africans of the catastrophic implications of EWC;
We have the right to assemble, to demonstrate, to picket and to present petitions. We should make use of these powers to give visible and audible expression to our concerns;
We have the right to strike to defend our interests.
We have the right to free political activity. We should use it to join the political parties of our choice and to support NGOs that promote the causes that we support.
We have the right to access the courts. We should fight unconstitutional legislation in the courts at every step of the way. This task should not be left to a few dedicated NGOs. We should all become involved in supporting litigation in defence of our rights and of the constitution.
Finally, it is important for us to understand that the great majority of South Africans do not support the radical goals of the NDR.
According to a field survey conducted by the IRR in 2018 South Africans from all our communities want much the same things: 26% listed more jobs as the top priority; 14% chose the fight against corruption; 11% wanted better education; 10% saw crime and poor housing as the main problems; 9% identified the fight against drug abuse; 7% were worried about illegal immigration; 4% listed better health care and 3% wanted better service delivery. Only 2% saw racism and land reform as the main problems; and just 1% wanted to speed up affirmative action. 80% believed that people should be appointed to jobs on the basis of merit alone – or on the basis of merit – with special training for the disadvantaged. 83% believed that sports teams should be chosen on merit and not on quotas.
The survey reveals the degree to which a great majority of South Africans from all our communities support the same goals.
We should reach out to them to build a better future for all our people on the basis of the values that we all accepted in section 1 of our Constitution. These values include
The human dignity; the achievement of equality; and the advancement of human rights and freedoms; non-racialism and non-sexism; the supremacy of the Constitution and the rule of law; and a system of genuine multiparty democracy that is based on accountability, responsiveness and openness.
Our great constitutional accord did not include the NDR, Radical Economic Transformation and Expropriation Without Compensation. We did not sign on for them – and we do not accept them.
Issued by FW de Klerk Foundation, 8 September 2021