Land report: Growth vision dispelled by commitment to expropriation

President Cyril Ramaphosa addresses the nation on the Public Protector's report. Photo by Felix Dlangamandla
President Cyril Ramaphosa addresses the nation on the Public Protector's report. Photo by Felix Dlangamandla

The drive towards expropriation without compensation has had a damaging impact already. President Ramaphosa’s investment envoys confirmed as much last year, writes Terence Corrigan.

The release of the report of the Presidential Advisory Panel on Land Reform and Agriculture signals another step in the move towards a policy of expropriation without compensation. Sunday's announcement follows last week’s decision by Parliament to convene a committee to push through an amendment to Section 25 of the Constitution. The issue is clearly back with momentum behind it.

The drive towards this policy should dispel any lingering expectations that a reformist agenda focused on growth, investment and development is in the offing.

While expropriation without compensation is typically phrased as a measure to expedite land reform, it offers little, if anything, to advance it. Land reform – a necessary, and potentially economically productive endeavour – has foundered not because the state lacked extensive expropriation powers (and certainly not because the constitution ties its hands), but because this has been a policy backwater, allocated paltry budgets, and beset by administrative incompetence and corruption.

READ: Land reform report – 5 questions answered

Expropriation without compensation seeks little more than to empower the state, and to expand its discretion at the expense of those subject to it. There is a certain irony that government is seeking to do this as witnesses before the Zondo commission – poor, black putative "beneficiaries" of what passes for land reform – detail the venality around the Estina dairy "project".

To believe expropriation without compensation could play a developmental role is to believe that these pathologies are being worked out of the state. The evidence for this is thin, to say the least.

Threats to the security of assets is inimical to healthy economic activity in a way that few other things are. The drive towards expropriation without compensation has had a damaging impact already. President Ramaphosa’s investment envoys confirmed as much last year. We at the Institute of Race Relations have repeatedly heard that this policy stands to make South Africa "uninvestable".

Economist Azar Jammine told the Financial Mail earlier this year that it was this that destroyed the possibilities of a "Ramaphoria dividend".

Expropriation without compensation will make sure that South Africa’s indifferent economic performance persists. At present, it’s doubtful South Africa will see 1% GDP growth this year, meaning the country’s people will on average be poorer, the tax base under increased pressure and the prospects of employment for the millions of unemployed more remote.

Meanwhile, wealth moves offshore, both as South Africans try to protect themselves against the hostile local realities, or as South African firms seek opportunities abroad that they cannot find domestically. Real Capital Analytics, a United States-based research group, recently reported that in 2018 "the gulf between investment activity in South Africa and overseas spending by South African investors has never been greater". It predicted the same to take place in 2019.

That is a relatively optimistic reading of things.

South Africa’s credit rating will soon face another round of scrutiny from Moody’s. The ratings agency held off on making a decision until after the elections – the point, so the "New Dawn" narrative had things, at which Ramaphosa would have his mandate and could start to implement reforms. At least, if he was so inclined.

Whether the president achieved a satisfactory mandate is matter of interpretation, but the commitment to expropriation without compensation makes it clear that the policy direction is indifferent to the country’s credit rating.

But fiscally, South Africa is under growing strain, as government has had to (or has made the choice to) pour billions upon billions into its poorly performing state-owned enterprises. On top of this, expropriation without compensation all but guarantees a ratings downgrade. Indeed, Fitch recently downgraded South Africa’s outlook from stable to negative. This would imply even more difficulty in attracting investment, along with higher borrowing costs.

Taken as a whole, this could well mean another lost decade. The tragedy is that it would be the consequence not just of the machinations of corrupt interests, or structural faults in the economy – but of deliberate choices made in the service of party and ideological goals. Future reflection on this will not be kind.

For the present, the land that the state may wish to take for itself without payment will come with a large bill to the people of South Africa.

- Terence Corrigan is a project manager at the Institute of Race Relations.

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