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Expropriation without compensation spells economic disaster

01 March 2018, 08:51

So, recently a motion, forwarded by the EFF, was passed in Parliament that started the process of amending the constitution to allow for expropriating land without compensation.

Today, I join many fellow South Africans in voicing my concerns over this issue. This article will mainly focus on the historic precedent, and results, of land expropriation, the importance of property rights as well as who the main recipients of expropriated land will be, and the possible impact of this.

As leader of the DA, Mmusi Maimane rightly pointed out, there is a historic precedent which can be observed to see the effect that expropriating land without compensation has. That precedent takes the form of South Africa’s northern neighbour, Zimbabwe. In 2000, then president Robert Mugabe launched a campaign of expropriating land from white farmers without compensation, leading to mass-killing of white farmers and the exodus of many others.

Subsequently, Zimbabwe experienced a period of hyperinflation, which decimated the value of their currency, along with causing a famine within the country. Recently, Zimbabwe had asked many previous white farmers to come back to Zimbabwe, trying to lure them in with promises of long-overdue compensation. Although President Ramaphosa had promised that expropriation of land would take place in a manner that is not harmful to food security or economic growth, he has failed to forward any concrete ways in which this would be ensured, and it is hard to see how he would be able to secure the steady and stable transition of land after the legislation had been passed. As such, South Africa might be heading down the same route as Zimbabwe, should expropriation without compensation be followed through.

One of the most prevalent theories for economic growth is that it can only take place in a country that has strong institutions. These institutions refer to a judiciary that can enforce contracts, or a police force that is able to secure property rights. Strong property rights are fundamental for economic development, and one of the cornerstones of capitalism. As Ramaphosa himself had noted, South Africa is reliant on foreign investment for much of its economic growth.

However, this proposed legislation is not conducive to creating an atmosphere in which foreigners would want to invest. As a simple example, no foreign capital would be expended on land now, with the fears that it could be expropriated without any compensation. This fear is exacerbated to all sectors of the economy through the fact that Article 25 of the Constitution, the article that would have to be amended, protects all private property, not just farmlands.

Therefore, once this article is repealed, any foreign investment could be liable to being expropriated without any compensation at a moment’s notice. Foreign investors, looking for markets to invest in, would much rather invest in other developing markets, in which their investments are sure to be protected by the rule of law. This loss of foreign investment has dire consequences for South Africa’s economic growth and employment prospects.

Finally, ownership of land will not change hands from white farmers to previously disadvantaged black farmers. Rather, if the state works on the same model by which it has redistributed land so far, land would find itself in state ownership, and the new farmers on the land would simply rent it, not own it.

The core issue facing upcoming black farmers currently is their lack of access to capital. If they owned their land, they would be able to put it up as collateral for a loan to fund a harvest, but they merely rent the land they are staying on, and therefore has no access to collateral or loans. This has been forwarded as the main reason for the high failure rate among new black farmers. They tend to resort to subsistence farming, due to their lack of capital. This is bad for the country’s food security, and doesn’t improve the lot of new land owners, although it does significantly deteriorate the living conditions of the previous land owners.

In conclusion, the proposed expropriation without compensation will have a disastrous effect on the South African economy. South Africa might experience Zimbabwe-like economic conditions, see a massive flight of foreign capital due to the weak protection of private property, and see subsistence farming crop up where commercial farms with access to capital had once provided food security and export markets.

Therefore, economic pragmatism needs to take precedence over early campaign rhetoric and populist politics.

Disclaimer: All articles and letters published on MyNews24 have been independently written by members of News24's community. The views of users published on News24 are therefore their own and do not necessarily represent the views of News24. News24 editors also reserve the right to edit or delete any and all comments received.

 

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