Gabriel Crouse writes on why the legislation is not as innocuous as many in the media claim
There has been significant coverage of the recently tabled Expropriation Bill, especially in the form of speculation as to how it will be used. But what does it actually say? The devil lies in the details.
As is well known, if the Bill is passed, it will allow for expropriation without compensation. Given its significance, it is worth going through the provisions one at a time.
Chapter 5, section 12,3 reads:
It may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to—
The last four words “but not limited to” highlight a major problem. Anyone who says that the Bill offers clarity must grapple with the fact that in plain English it does not. It escalates uncertainty.
The Bill provides five circumstances for expropriation without compensation (EWC) of private property, as opposed to expropriating state-owned assets. The expropriation provisions are the most important. The first reads:
Where the land is not being used and the owner’s main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value;
If the state can show, on standards that remain unclear, that your primary interest in buying land is to sell it later at a profit, then it could be subject to expropriation.
This year the South African Reserve Bank has slashed the repo rate by 300 basis points to create liquidity in the property market. This will have encouraged some people to buy property at X and resell it later at a profit when (or rather if) the real economy recovers. The Bill would punish them.
The second provision reads:
Notwithstanding registration of ownership in terms of the Deeds Registries Act, 1937 (Act No. 47 of 1937), where an owner has abandoned the land by failing to exercise control over it;
To see what this would mean in practice, consider a case of land invasion reported in Politicswebtwo years ago. In 2014, William Mnyandu, Walter Mnyandu and their families, as well as the Lutheran preacher Charles Nxumalo, had their homes burnt down in Ekuthuleni allegedly by an impi under chief Thandazani Zulu’s command.
Part of what made this case so stark is that it is common cause that the police were present when the Mnyandus and Nxumalo were intimidated into leaving their homes, which were then burnt down. But the police did not defend the owners; rather they helped escort the owners out.
Another part of what made this case so depressing is that William Mnyandu then died in hiding, but Walter received the title deed for the land that they had been struggling for over decades. This did not help. They were credibly threatened with murder if they tried to go home and the police were still not on their side. So, they remain in hiding.
In the Federalist Papers James Madison warned that such advents as a “Bill of Rights” and title deeds would be mere “parchment barriers” not thick enough to stop a bullet or a knife without proper administration. This is exactly what the title deed turned out to be for the Mnyandus.
The present Bill would turn all title deeds into parchment barriers not worth a Zim dollar.
Former British Supreme Court Justice Lord Sumption described a “fundamental right” as that without which “life is reduced to a crude contest in the deployment of force”.
This is exactly what life was reduced to for the Mnyandus and Nxumalo, and this is what the Bill would nationalise should it come into effect. If the only standard of whether you own something is that you control it, the concept of a “property right” gives way to the older idea that “might is right” according to which you own what you control by force, and visa versa.
The third scenario for expropriation according to the Bill is as follows:
Where the market value of the land is equivalent to, or less than, the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land;
The appeal of this provision is the intuitive thought that in such circumstances the state has already effectively compensated the owner for the property and so should not have to pay twice. The challenge to this intuition comes on two fronts.
First is the question, to what extent does a piece of land’s value depend on “beneficial capital improvement”? Unlike direct investment, “beneficial capital improvement” means, on its most common usage, government development elsewhere that improves the value of a property.
In urban and suburban areas, this occurs when the state builds a park, a theatre, a gallery or some other infrastructure that makes a neighbourhood more attractive. In an industrial setting, when the state builds or upgrades a power generator, substation, or logistical infrastructure (ports, airports, roads and freight stations) this makes the surrounding area more attractive to manufacturers and service providers. Those businesses already in the area enjoy “beneficial capital improvement” even if the substation or road or port is not on their own land.
Now, it would take a team of economists to calculate the total “beneficial capital improvement” of any stretch of land and many would draw different conclusions. But there can be little doubt that the value would often exceed the market value of a piece of land.
If someone has a mielie farm it is not of much use without road access, built by the state, to a silo, often originally built with state subsidies, or access to ports for export, again built by the state. If that farm is irrigated, then its access to water depends on government regulation of water usage and may even depend directly on a state-owned dam. Practically all farming depends on petroleum to drive machines and the importation of those machines which again goes through state infrastructure.
The same is also true of urban and peri-urban land. There is no way to understand mass development in the last two decades between Johannesburg and Pretoria, for example, without accounting for “beneficial capital improvement”. Any metropolis works in part because government makes it work through roads, traffic lights, streetlights, hospitals, fire stations, police offices, public schools, utilities and public amenities. Outside of homes and businesses that generate all their own power, everyone depends on state-owned Eskom to add or enjoy value, and even those who do generate their own power often depend on others who do not. “Beneficial capital improvement” wherever business happens and taxpayers reside.
To be sure, in South Africa we have become so accustomed to slipping standards of state service delivery that it is tempting to say the government adds nothing of value. But try and start a factory in the Congo, or try and plant crops in Uganda’s amazing soils and you quickly realise how much we still have to lose in South Africa.
How confident are you that your home or business is worth more than the highest reasonable valuation that a team of economists might place on the “beneficial capital improvement” you enjoy on your property?
The other side of the problem is this. The state is funded by taxes. If the thinking behind this provision is that the state should not have to pay twice, the same principle should be applied to the owner.
A more reasonable formula might go like this. Compensation = market value – state subsidy + contributions made to the state through rates, taxes and community beneficiation. The principle of fairness would dictate that the backdating for whatever value the state added to the property and whatever value the property and its owner added to the state should come to the same point in time.
The “community beneficiation” is also important since owners do more than just pay taxes. If a farmer paid for an electricity line to be brought in, or dug boreholes, or paid to cut and maintain roads, or built a school or housing for others, this should also be included in “beneficial capital improvement” to the state since it lightened the load on state obligations. Also, anyone who does not use a public school or hospital or hires private security makes more room available for those who cannot afford the private options, another factor to calculate in how much the owner has subsidised the state.
As it stands the Bill considers how the state adds to the owner’s life, but not how the owner adds to the state’s capacity. How can this be fair? And yet this is what will become law very soon.
The fourth condition is as follows:
When the nature or condition of the property poses a health, safety or physical risk to persons or other property.
Again, the appeal here is that we can all imagine a case where this would seem to be fair. If someone planted landmines across their land hoping to blow up little children it may seem correct to jail that person, confiscate his property and put it to better use. But consider how loose the language is to see how far this provision could be stretched.
It is in the nature of a hospital to pose health risks. If a rogue surgeon was uncovered, or a super-bug spreads through a private hospital, should there be a narrow punishment, or should the whole enterprise be subject to EWC?
Likewise, all South Africans were appalled at the Listeriosis outbreaks at Enterprise processors, the “condition” of which posed serious health and safety risks to thousands. But would EWC have been the best remedy?
Laws already exist to sue, fine, and imprison those who pose a blameworthy risk to others. All the Bill does is add uncertainty as to when and how to apply EWC on top of that. Short of something drastic, this will be the law.
The final provision is as follows:
When a court or arbitrator determines the amount of compensation in terms of section 23 of the Land Reform (Labour Tenants) Act, 1996 (Act No. 3 of 1996), it may be just and equitable for nil compensation to be paid, having regard to all relevant circumstances.
This is the vaguest provision of them all since the relevant section in the Labour Tenants Act says that “just and equitable compensation” must be understood within the Constitution’s ambit, which according to the Bill already makes unlimited allowance for expropriation.
The Bill’s provisions are just vague enough to seem appealing if you do not offer them a second thought. Upon second thought, the Bill is a death warrant for long-term freedom and prosperity in South Africa. The writing is not just on the proverbial wall of speculation. It is on parliament’s table. Do nothing and it will pass.
Gabriel Crouse is a writer and analyst at the Institute of Race Relations (IRR), a liberal think tank that promotes political and economic freedom