South Africa – Land reform vs Investment

IT was not supposed to be this way. When newly democratised South Africa chose a path from the stranglehold of the Bretton Woods institutions and made sound economic decisions through less dependence on debt, the idea was for it to take strategic internal policy decisions without too much outside interference.

But South Africa is no island, and as part of a large global economic empire, the policy directions we took at home would be closely scrutinised by global purse strings holders. Our policies on the economy and on land quickly became the focal point of attention.

A massive programme of land redistribution driven by the department responsible for land affairs had been adopted to redress past imbalances by offering compensation to white farmers and resettling communities that were forcibly removed from their land, as well as the landless masses.

On paper, the policy was a sure winner. It would guarantee the gradual redistribution of land to the poor and landless, while land and property owners would be spared the anxiety of large-scale land grabs.

Practically, however, the policy hit a massive snag. Many farmers whose land had been earmarked for redistribution flatly refused to sell while others inflated the prices of their properties.

Bureaucratic bungling also reared its head with ill-equipped government officials unable to fast- track the process.

The results: Thirteen years after the advent of democracy, only about 4% of land has been redistributed to communities, far below the intended government target of redistributing 30% of prime land by 2014.

To remedy the situation, the willing seller, willing buyer principle was scrapped and the constitutionally entrenched principle of expropriation of land was mooted.

In April this year, the Expropriation Bill was published, giving the state the power to expropriate land when such expropriation was deemed to be in the public interest.

The drafters of the proposed law inserted clauses that enabled government to pay below the market price for any land or property that was to be expropriated.

Land earmarked for expropriation would be valued according to how it was acquired and whether the state subsidised the acquisition of such land in the past.

The bill further made provision for recourse to the courts if the state and property owners did not agree on compensation for expropriated land. But a massive outcry from a coalition of interest groups including opposition parties, big business and civil society groupings has created enough pressure to put the brakes on the legislation.

Government has been warned that if the bill is passed in its present format, foreign investors would shy away from investing in the country. It is not the first time that government has backtracked on similar pioneering legislation out of fear of offending investors.

The Mineral and Petroleum Resources Bill, which would have imposed higher royalties on mining and petroleum companies for digging South African earth, was revised downwards when government was warned that it would scare off foreign investors.

Late last year, a panel of experts recommended that cabinet impose a two-year moratorium on the sale of land to foreigners, but pressure groups have also warned government about the negative effect this would have on foreign investment.

Thandi Tobias-Pokolo, chairperson of the portfolio committee on public works, the committee that deliberated on the Expropriation Bill, says the theory that such pieces of legislation scare away foreign investors needs to be tested.

"I still want people to tell me how you scare away foreign investors when you better the lives of ordinary people. We need to balance between investor confidence and public need," says Tobias-Pokolo.

Even foreign investors, she says, will understand if the state needs to expropriate a holiday resort to provide land to the poor and landless.

Tobias-Pokolo says what needs to be clarified in the bill is the role of the minister and the role of the courts regarding a disagreement between an owner whose property has been earmarked for expropriation and the state. For this reason the bill has been shelved.

Tertius Smith, managing director of ratings agency Fitch Southern Africa – an agency that advises potential investors on the political and economic status of a country they want to invest in – says the bill could lead to a negative rating for South Africa.

"If the bill had been pushed through in its current format, it would have been disastrous. It quite possibly would have led to a rating action by ourselves as a rating agency."

Worrying aspects of the bill, says Smith, are the provision for the state to pay less than market value for property and the lack of clarity on recourse in the courts by aggrieved property owners. He says factors such as political risk, which includes the rule of law and respect for property rights, are considered when a country is assessed.

He says because South Africa’s savings rate is only about 15% of GDP and the current account deficit is increasing, foreign direct investment is badly needed to plug the gap.

Kallie Kriel of Afri-Forum, the Afrikaner interest group opposed to the bill, says it is problematic because it leaves much of the decision to expropriate in the hands of the minister and not the courts.

Kriel says nobody will invest in a country where they are not sure their property is protected.

"The bill that was withdrawn would not only have had a negative impact on property owners, but bad repercussions for investment and job creation as well," he said

But Cosatu national spokesperson Patrick Craven says as much as we need foreign direct investment, we should not be held to ransom by investors into abandoning our transformation programme.

"We are returning land that was stolen by the colonial and apartheid governments and this is a top priority which can’t be sacrificed simply to appease investors."

Ruth Hall from the University of the Western Cape’s Programme for Land and Agrarian Reform, says government kow-tows to pressure from a coalition of lobby groups that includes business, opposition parties and farmers’ organisations, who are keen on protecting their narrow interests. "This argument about foreign investors is used somewhat to deflect attention away from domestic interest groups."

She says it’s disappointing that 12 years since the Constitution granted government the right to expropriate in the public interest, the law that gives effect to this right has to wait for another Parliament to sit before it is passed.

While government has on several occasions bent over backwards to accommodate fickle foreign investors, there is little evidence that there has been a flood of investment into the country.

But if South Africa is to compete in the global market with other developing countries we will at times have to learn to live with being dictated to by foreign business interests.

The alternative, as we witness with our neighbour over the Limpopo, is too ghastly to contemplate.