[Source: South African Monitor by Heinrich Matthee.]
Greater ANC government intervention
In South Africa the ruling African National Congress (ANC) in South Africa has announced that it plans to expropriate mostly white-owned farms without compensation. This followed an announcement by President Cyril Ramaphosa on 31 July 2018 that the ANC will try to change the Constitution to support such expropriation without compensation (EWC).
Significant capital accumulation and both foreign and local investment cannot take place without the security that property rights offer. On 31 July 2018, the International Monetary Fund (IMF) warned in its annual Article IV report that the ongoing debate on expropriation without compensation is creating policy uncertainty on property rights and discrediting South Africa’s stated need for foreign investment.2
The ANC policy move fits into a longer-term pattern where the ANC pursues more government intervention in the economy and a weakening of property rights to help fund its politics of patronage.3 Examples during the past decade include new policy initiatives, legislation and regulations regarding investment, expropriation, mining and energy, the security industry, affirmative action, black empowerment and land.
According to Terrence Corrigan, an associate at the liberal thinktank, the Institute of Race Relations:
Once actual acts of compensation-free expropriation have been undertaken – probably targeting landholdings – pressure would rapidly build from interest groups within the state and the ruling party to apply this model to other sectors of the economy.4
On 22 August 2018 Ramaphosa confirmed that urban land would also be covered by the ANC’s expropriation policies.5
US government criticizes expropriation policies
Internationally, property rights protect the rich, but also the poor and the vulnerable middle class from predatory political elites. The US State Department on 23 August 2018 said it believed expropriation without compensation “would risk sending South Africa down the wrong path”.
This was after US President Donald Trump tweeted on 22 August 2018:
I have asked Secretary of State @SecPompeo to closely study the South Africa land and farm seizures and expropriations and the large-scale killing of farmers. “South African Government is now seizing land from white farmers”.6
After Trump tweeted about expropriation politics and brutal farm murders in South Africa, it sparked concern that South Africa may become the next target for US sanctions. The South African currency dropped even further – it has lost almost 15% in value in the past year against the US dollar.7
Trump’s tweet contained some inaccuracies. The ANC policy had not yet been implemented, although preparations were being made. Farmers and their families from all racial and ethnic groups were being killed, sometimes after horrible torture sessions. However, according to the Dutch newspaper, De Telegraaf, on 25 August 2018, Dutch farmers in South Africa generally agreed with Trump’s tweet. They are afraid that their properties will be expropriated by the government and they are afraid of becoming victims of gangs of farm murderers.8
The tweet internationalized the debate about expropriation without compensation in South Africa, to the detriment of the ANC.
US media responses
Bloomberg’s frank editorial on 24 August 2018 was headed “South Africa’s risky populist turn: Land seizures are more likely to hurt the economy – and the poorest – than to remedy inequality.”
If South African President Cyril Ramaphosa is serious about attracting the foreign investment his country needs, he has an odd way of showing it. His government and the ruling African National Congress have been pursuing policies all but certain to put foreign investors on edge, and hurt the very people they are meant to help.
Fixing the damage of the Zuma years was always going to take time. Yet Ramaphosa now threatens to make the job harder by pandering to populists in ways that sow economic uncertainty and undermine investor confidence in property rights.
Ramaphosa’s most misguided proposal is for a constitutional amendment that would allow land to be expropriated without compensation. Notwithstanding President Donald Trump’s reckless and inaccurate tweet about land seizures and attacks on farmers, Ramaphosa’s proposal is roiling investors and could jeopardize South Africa’s trading benefits under the U.S. African Growth and Opportunity Act. A similar strategy in the 2000s ruined the agricultural economy of Zimbabwe, South Africa’s neighbour to the north. The policy could also leave Ramaphosa’s government liable for debts on seized land adding up to more than $2 billion.9
David Frum recently wrote:
South Africa committed itself to respect existing property rights in 1996 not only as a matter of justice, but also to secure its own future … The new regime desperately needed to attract international investment to South Africa, after years of sanctions that had isolated the country’s economy. Countries that want investment must respect property rights.
Unfortunately, that concession to economic and political reality did not suffice to propel South Africa forward. The new regime made other mistakes. It operated the state as a jobs program for ANC loyalists. It indulged corruption – corruption that reached to the very top of the ANC. It politicized courts and bureaucracies. It imposed a vast system of race preferences on private industry. It accepted – even welcomed – the emigration of hundreds of thousands of South Africa’s most skilled citizens.
As the economy stagnated, the ANC elite enriched itself ever more brazenly. The New York Times in August published a withering profile of David Mabuza, South Africa’s new deputy president, who is alleged to have pillaged millions from the education system in his poor province of Mpumalanga …
Ramaphosa, meanwhile, is estimated to have gained a fortune of at least $400 million from being cut in on other people’s deals that were required by law to include an ethnic African partner.10
The Wall Street Journal was also disillusioned in its editorial on 6 August 2018. Under the heading “South Africa’s slide”, it stated:
South Africa needs another enlightened leader like Nelson Mandela, but it keeps electing imitations of Robert Mugabe. President Cyril Ramaphosa confirmed recently that his government plans to expropriate private property without compensation, following the examples of Zimbabwe and Venezuela.11
Sceptical European responses
In German speaking-countries in Europe, the new ANC policy has also been viewed sceptically. “A populism with serious consequences”, was the heading in Die Welt on 1 August 2018, referring to
… the breached taboo of changing the Constitution, which will sustainably damage the political culture of the country … Once again the divided nation in the south … shows that it is more caught up in the past than being able to compete for the future.12
The Neue Zürcher Zeitung reported on 27 April 2018 (translation):
The ruling ANC party is pushing its intention to allow expropriation of land owners also without compensation, and to change a section in the Constitution to achieve that. Since months, as a result, the alarm bells are sounding in the business world. “Once one starts with changing the Constitution, one does not know what will follow after that,” says the CEO of the German South African Chamber of Commerce, Matthias Boddenberg.13
The German business magazine, Wirtschaftswoche, of 17 August 2018 was quite critical (translation):
When Cyril Ramaphosa came to power in South Africa six months ago, the expectation was gigantic after almost ten disastrous years under the corrupt president Jacob Zuma. However, the enthusiasm has already disappeared. Right at the beginning of his time in office, Ramaphosa started a debate about the land redistribution of whites to black South Africans. Among investors the plans encountered shock, because the parameters of these expropriations are completely open – and has already led to land occupations. In addition, South Africa must do nothing more and more urgent than creating an investor-friendly environment. However, the chances thereof do not look good. The almost obsessive striving of the ruling party to an artificial racial proportion has weakened all state institutions and enterprises like the electricity monopoly Eskom, or the state carrier SAA for a long time – and may hinder a real recovery.14
British Prime Minister Theresa May tried to extend post-Britain’s influence in Africa in August 2018, also by making comments that the UK would support the land reform process, if done lawfully and transparently. However, British investors accompanying her were more cautious, warning that question marks about property rights would have a detrimental effect on foreign investment.15 Foreign government diplomats will try to avoid offending the ANC in public. International trade with South Africa will also continue. However, it is expected that foreign business people will be prudent and hold back or limit fixed investment until property rights have been clarified.
Foreign investors deterred by weak property rights
The ANC’s support for expropriation without compensation serves as a red light to many foreign investors. Already in September 2017, Stefan Sakoschek, Regional Director of the EU Chamber of Commerce and Industry in South Africa, expressed the Chamber’s concern over pending land reform:
Again the definitions in the legislation are very broad and if accepted it will have major impact on foreigners operating in South Africa. There are concerns that the bill is aimed at keeping foreigners out, but there are worries about the expropriation potential that is created.16
Credit ratings firm Moody’s warned in 2017 that proposed plans by the ANC government to implement “radical economic transformation” could deter investors. Moody’s referred in this regard to ANC plans for land redistribution, preferential procurement and other forms of affirmative action.17
Government policy is designed to provide the state with vastly increased latitude to seize property in a wide variety of contexts. Bilateral Investment Treaties (BITS) previously protected European investors, including rights to international arbitration in case of creeping or direct expropriation. However, the ANC government decided not to renew the BITs for countries like Germany. Investor caution is also reinforced by weaker protection of investor rights to international arbitration in the ironically-named Protection and Promotion of Investment Bill (PPIB). The South African German Chamber of Commerce and Industry,18 as well as US and EU trade associations have commented that the new situation would raise the risk of foreign companies and their risk insurance premiums.
The expropriation policies and weaker property rights will deter foreign and local investors needed for economic growth and jobs. Already, the GDP has shrunk to the worst in the past nine years and the biggest budget deficit since 2004 remains.19 Unemployment is at more than 27% and two-thirds for young South Africans, while foreign direct investment (FDI) is not reaching the levels that a country like South Africa should attract. From 2013 to 2017, FDI inflows into the country declined from US$ 8.3 billion to US$ 1.3 billion.20
Economic risks and food insecurity
“Land expropriations can become expensive for South Africa”, was the heading of the Frankfurther Allgemeine Zeitung on 21 August 2018.21 According to the Chairman of the Land and Agricultural Development Bank, Arthur Moloto, expropriation without compensation could trigger wide defaults that would translate to a loss of 41 billion rand to the government if the bank’s right as a creditor is not protected.22
The Banking Association of South Africa (BASA) has already expressed its concern over the land expropriation statements.23 Farming in South Africa, only feasible on about 13% of the land, is very capital intensive and needs modern technology. BASA’s Cas Coovadia stated that banks have lent an estimated 10 billion Euro or more to the agricultural sector based on land as collateral. Several banks and the entire financial system in South Africa could be put at risk if that security was threatened.
Due to expropriation without compensation, food prices could escalate considerably and South Africa could become a net food importer, rather than a food exporter. Serious disruption of the already challenged agricultural sector can have major negative implications for food security in South Africa, as it has done in Zimbabwe since 2000. Electorates in Western countries are unlikely to be keen to support development aid after such deliberate high-risk policies in South Africa.
Political pressures drive expropriation policy
The ANC’s expropriation policies emerged now for very specific political reasons. The ANC had lost control of several key metropolitan councils in the 2016 local elections. It is under increasing pressure from the radical socialist Economic Freedom Fighters (EFF) and progressively more service delivery protests occur, often organised by supporter constituencies. The ANC also comprises of several factions and entrenched patronage networks, with Ramaphosa narrowly winning the ANC leadership against the faction supporting Nkosazana Dlamini-Zuma. Whereas his predecessor won by a 60-40 margin, he was elected with just more than 50% of the votes, possibly as the result of an internal deal.
Against this background, a deeply divided ANC accepted the expropriation of land without compensation as its official policy during the party’s national congress of December 2017. On 27 February 2018, the ANC, EFF and other parties voted by a majority in Parliament in favour of a process involving the amendment of the Constitution to enable expropriation without compensation.24
Peter Bruce of Business Day commented:
The vote means President Cyril Ramaphosa, in his first real week as SA’s CE, has twice acted in the interests of his party rather than the country. The first was a cabinet reshuffle that failed to act decisively against blatantly corrupt and incompetent ministers. The second was to sacrifice the principle of tenure.25
In May 2018, during a national ANC land summit, it was argued that the amendment of the Constitution may not even be necessary, as Section 25 thereof may already create scope for such action. However, Ramaphosa confirmed on 31 July 2018 that the process will involve an amendment to the constitution.
ANC land reform and economic policy failures
In the run-up to the 2019 elections and beyond, investors and policymakers will encounter major ANC propaganda campaigns to promote the essentially non-democratic notion of expropriation without compensation. These campaigns will often focus on scapegoats like cultural minorities to divert attention from the ANC’s governance failures while ruling a one-party dominant order. A report by the liberal Institute of Race Relations accurately addresses many of the propaganda claims.26
Political economist Moeletsi Mbeki said in this regard:
This is not about land. It is about the loss of votes by the ANC. And the ANC and its little son, the EFF, they think they can bring back the voters who are abandoning the ANC by attacking the white population … Its solution is to attack the white population. Malema is leading the ANC’s election campaign by attacking the white population.27
Racial nationalist discourses by the ANC and EFF blaming Afrikaners and whites in general have started to overshadow the non-racialist approach of the Mandela years. However, a senior government panel chaired by former President Kgalema Motlanthe already concluded that the reason why land reform has not succeeded so far is not the fault of the Constitution, or of white farmers, but of government incompetence in dealing with thousands of still outstanding claims, 4 000 state farms not used for distribution, corruption, misguided policies, an insufficient 1% of the budget, and inefficient government systems, as elsewhere in the economy and security services.28
The restitution process has been abused to benefit ANC insiders, who use their political connections to influence the state to buy them farms, after which they sell off assets and allow crop land to fall fallow. The government also does not allow individual ownership of land acquired for restitution or redistribution. Farmers generally lack title to the land they work and struggle to raise working capital. Many of the people to whom land has been transferred have little knowledge of agriculture, with insufficient development of black commercial farming by the ANC.29
Land is not sufficient for successful farming in arid South Africa. Experience and entrepreneurship, working capital, know-how, machinery, labour, fuel, electricity, seed, chemicals, feed for livestock, security, and water are all essential. The historical challenges and achievements of farmers in successfully developing Africa’s best agricultural sector are insufficiently recognized by many ANC decisionmakers.
Urban corruption, tensions and lawlessness to remain high
Uncertainty about property rights now reigns supreme as the ANC operates behind closed doors. Those affected include the shrinking community of farmers, already traumatized by brutal farm murders and attacks, and agricultural and commercial banks, but also foreign and local investors. Current and prospective urban property owners are uncertain too.30
Expropriation without compensation does not necessarily imply the redistribution of property amongst citizens, but from property owners to the one-party dominant state. It mostly envisions ownership to stay with the state, with only tenancy rights to be re-allocated. As in Zimbabwe, there is a high likelihood that the allocation or withdrawal of such tenancy rights will depend on being political supporters of the ruling party.31
Expropriation and weaker property rights will increase the incentives and opportunities for patronage politics and corruption. These dynamics will be visible in national and local politics. Professor Susan Booysen, a political scientist at the University of the Witwatersrand, has commented:
The ANC across several metropolitan fronts this week could very well be clambering back into power, accompanied by alliance partners that might help sweep combat against local-level corruption under the carpet. Several provinces have top-down constructed ANC faction alliances that are based on compromise and tolerance of corruption records. The possibly less implicated ones enter into deals with the incorrigibly corrupted ones. Fragile alliances rule.32
At local level, the implementation of expropriation without compensation will become enmeshed in corruption and factional politics. The prospect of expropriation without compensation is also increasing the already high level of tension and intimidation in politics. In past years, the high stakes of patronage politics have also resulted in intra-ANC political assassinations.33
The public consultation sessions on expropriation were marked by high levels of intolerance for dissenting opinions. Anyone, regardless of race, who expressed dissenting opinions were shouted down, threatened, or even physically removed from the venues. Ramaphosa made the announcement to amend the Constitution even before the public participation process about expropriation without compensation had been finalised.34
The ANC has said little about how it will implement its plan, but two party sources told Reuters what the basic strategy will involve. Special teams will identify unused land and begin giving people property rights in areas where jobs are to be found, rather than in distant townships. Giving people dormant land – some owned by local governments – would pave the way for expropriation without compensation.35
Such approaches are already making a socio-economic impact. According to business people, the affordable housing market in Gauteng had dropped by about 40% in the past two months. Affordable housing is the term used to describe property that is often subsidised by the government. Land expropriation without compensation has decimated the demand for affordable housing, as low-income earners, often semi-literate or illiterate, believe they will be given free homes by the government. Low-income earners hold onto their hard-earned cash instead of ploughing it into property, because of rumours that they may get a house and land for nothing. Attempted invasions of some rental units have also occurred, with some tenants also thinking about stopping paying their rentals, because they also might get units for nothing.36
The number of sometimes violent urban invasions of property and land-related protests has increased, with private owners often left to fend for themselves. According to the City of Cape Town’s Safety and Security Directorate, for example, year-on-year there has been a 53% increase in the number of land invasions recorded and a 249% increase in the number of protests in the 2017/2018 financial year.37 Urban and rural invasions and urban protests are expected to continue to remain prominent in the run-up to the 2019 elections.38
The ANC’s record of value destruction
In the past decade, the ANC has been a prime destroyer of economic value and democratic institutions in South Africa, also when Ramaphosa had been Vice President to Jacob Zuma. Dr John Purchase, Agbiz’s CEO, has stated that poor ANC governance had already made South Africans 25% poorer in the past seven years.39
This state of affairs is also reflected in foreign business perceptions. According to the Global Competitiveness Index 2017-2018 of the World Economic Forum, South Africa has dropped to position 106 out of 136 countries regarding the diversion of public funds, to position 103 regarding the perceived wastefulness of public funds, to position 122 regarding organised crime, and to position 133 regarding the business costs of crime and violence.
South Africa also dropped from position 102 in 2015 to position 118 regarding the reliability of the police, to position 98 regarding the burden of government regulation, from a position of 65 in 2009 to position 114 regarding public trust in politicians, and from a position of 69 in 2009 to position 127 regarding favouritism in the decisions of government officials.40
The ANC’s expropriation policies will damage foreign business sentiment and South Africa’s economic value even more.41 They will result in continued divestment by international investors and South African companies. It will also fuel the wave of emigration from South Africa by many among the wealthy and the middle class. Either the ANC has already underestimated the degree to which companies have opportunities to go elsewhere than South Africa, or it does not care too much.42 In addition, these ANC policies could limit government revenue, lower overall GDP growth and trigger further downgrades by international credit rating agencies in 2019.43
Political pressures to raise extra income for the ANC, its cadre networks in the state structures and key constituencies will remain high in the two next years. Factional struggles, political uncertainty and shrinking resources will reinforce economic interventionist measures by ANC policymakers.
Expropriation policies will be a mainstay of ANC efforts to strengthen its electoral support and its hold on supporters and citizens between elections. Major propaganda campaigns to promote the expropriation policies can be expected in the next few years. Unorthodox actions and new rules of the game created by the ANC and other actors favouring weaker property rights are also likely.
- Dr. Heinrich Matthee is a political risk analyst for companies and NGOs in the Middle East and Africa.
- See http://sa-monitor.com/wp-content/uploads/2018/03/SAM-8-February-2018.pdf, part X.
- https://www.telegraaf.nl/nieuws/2478290/nederlandse-boeren-in-zuid-afrika-leven-in-angst. See also Eeuwige boerenstrijd, De Telegraaf, 30 Augustus 2018, p T9.
- Wirtschaftswoche, 17 August 218, p 34.
- “Europe discovers Africa, again”, Africa Confidential, p 9.
- http://www.ftwonline.co.za/article/126293/Pending-legislation-unsettles-EU-business/66; https://www.bloomberg.com/news/articles/2017-03-20/south-africa-seeks-ban-on-foreigners-buying-agricultural-land.
- https://www.moneyweb.co.za/news/south-africa/sas-land-bank-warns-expropriation-could-trigger-default/; https://www.businesslive.co.za/bt/business-and-economy/2018-08-25-land-bank-boss-tshokolo-nchocho-on-the-dire-consequences-of-expropriation/.
- http://www.politicsweb.co.za/documents/triumph-of-the-raceultras-this-is-who-voted-for-ew; https://www.iol.co.za/news/south-africa/kwazulu-natal/warning-of-war-follows-violent-clashes-on-farms-12637332.
- https://citizen.co.za/news/south-africa/1933899/anc-admits-land-reform-failure-recommends-security-of-tenure/; https://www.youtube.com/watch?v=eBkzjji9mkQ; https://irr.org.za/reports/freefacts/files/freefacts-june-2018-22-06-2018.pdf; https://irr.org.za/reports/occasional-reports/files/irr-in-britain-notes-tc-11-07-18.pdf.
- See http://sa-monitor.com/wp-content/uploads/2018/03/SAM-8-February-2018.pdf.
- See http://sa-monitor.com/wp-content/uploads/2018/03/SAM-8-February-2018.pdf, Part V.
- https://www.dailymaverick.co.za/opinionista/2018-07-02-the-farce-of-public-consultation-on-land-expropriation-without-compensation/; https://www.news24.com/SouthAfrica/News/land-the-people-speak-tensions-simmer-in-pietermaritzburg-20180720; https://www.news24.com/SouthAfrica/News/land-the-people-speak-we-are-all-africans-rustenburg-residents-told-20180719.
- https://www.reuters.com/article/us-safrica-land-cities/south-africas-cities-hold-key-to-ramaphosas-land-plan-idUSKCN1J0145; https://ewn.co.za/2018/07/25/reports-of-intimidation-threats-add-to-tensions-in-zwelihle.
- Also see http://www.bdlive.co.za/business/trade/2015/05/07/bee-code-change-shocks-industry; http://www.bdlive.co.za/opinion/2015/04/20/why-new-bee-codes-will-pull-the-rug-from-under-business.
57 700 000 (mid 2018 estimate)
4.5% y/y in May 2019 (CPI) & +6.4 y/y in May 2019 (PPI)
-3.2% q/q (1st quarter of 2019)
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