South Africa’s “dangerous” land policy …

South African women protest against the government’s latest land reform strategy in Cape Town, South Africa on October 15, 2020 (Photo: EPA-EFE / NIC BOTHMA)

Talk about a bad signal to send to foreign investors. The Fraser Institute’s recently released Annual Economic Freedom Report includes an entire chapter titled “The Dangers of South Africa’s Proposed Property Confiscation Policy”.

The Fraser Institute is a Canadian think tank that annually publishes a Global Index of Economic Freedom. It also produces annual assessments of the investment environment in mining jurisdictions and that sort of thing. The institute’s outlook is largely liberal – which will raise pitfalls in some neighborhoods – but its audience ostensibly understands the foreign investors that President Cyril Ramaphosa’s administration is keen to woo. It is suspected that the new Minister of Finance Enoch Godongwana is very attentive to such reports.

Like my colleague Tim Cohen noted, this year, SA placed 84th on the list of 152 countries analyzed, a rather shabby performance.

The main reasons include concerns about property rights and polarizing debates over “expropriation without compensation” and constitutional change. Lo and behold, the last Fraser Report on Economic Freedom devotes an entire chapter to this issue. Entitled “The Dangers of South Africa‘s Proposed Property Confiscation Policy”, it was written by Martin van Staden of the Free Market Foundation. (The full report is available here.)

Politically, the will to amend the Constitution in this direction is probably dead in the water.

But the overall political direction – in the context of South Africa’s unsuccessful land reform attempts – remains a red flag wrapping additional layers of risk and uncertainty around the domestic investment environment.

Van Staden doesn’t fire any punches here.

“… [E]xpropriation “without compensation” is in fact not expropriation at all, but another form of arbitrary dispossession, “he writes, pointing out the dangers of what he calls” the government’s proposed confiscation regime “.

He noted the two statutes which were under consideration. One is the Constitutional Eighteenth Amendment Bill, which appears to lack political traction at the moment because it has been watered down too much for EFF’s liking. And many critics argue that it is not necessary, because the Constitution in fact allows expropriation without compensation under the “fair and equitable clause”.

The other is the Expropriation Bill, which will almost certainly become law. Van Staden says that “the bill makes it much easier for the government to engage in expropriation.”

“The most worrying provisions are those relating to the so-called expropriation for ‘nil compensation’ – colloquially called ‘expropriation without compensation’ – but more precisely described as ‘confiscation’. The Expropriation Bill … contains a list of six circumstances that authorize the government to do just that. However, in particular, this list is not a closed list (numerus clausus), but an open list. This means that in addition to the six circumstances listed, the government may in any other circumstance fail to pay compensation in the forfeiture if it deems it to be “fair and equitable”.

“The uncertainty and dangers that accompany such awesome power cannot be overstated. There is no assurance for domestic or foreign landowners and investors that their assets are safe from an expropriating authority deciding. simply to confiscate their property arbitrarily, ”writes Van Staden.

In addition, he notes that the Expropriation Bill will become an ordinary law that could be changed, perhaps for the worse, by a simple parliamentary majority.

“… [In] however, some of its provisions are worded so broadly that they would allow any new abusive government to victimize landowners. The seemingly benign rhetoric of the current ANC government must therefore be seen in the context that the ANC has no guarantee of perpetual political power, and that the current “faction” that controls the party no. such control is not guaranteed.

Patterns of expropriation of one kind or another exist in just about every country in the world, including those with the top rankings in economic freedom from the Fraser Institute.

But the problem in South Africa is that policy-making has been transparently motivated by populist impulses and the ANC’s abject failures in land reform and economic management in general. With record world unemployment and growing income disparities, more and more fuel is being thrown on the smoldering embers of social discontent. Meanwhile, politics remain uncertain and investors will be reluctant to deploy capital under such circumstances.

As a warning, Van Staden points to what happened in Zimbabwe and Venezuela when property rights were undermined. No country that wants to attract foreign investment – and ANC mandarins argue that this is one of their main economic goals – wants to be put in the same basket as Zimbabwe and Venezuela. Especially in a global report that is high on the radar screens of investors. DM / BM

About Mitchel McMillan

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