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Azar Jammine: Land debate uncertainty risks accelerating disinvestment in SA

JOHANNESBURG — A lack of clarity on the land debate from the ANC is starting to create serious uncertainty within the South African economy. While there is a need to address the imbalances of the past, a lack of communication to investors is starting to spook them. Subsequently, growth has started falling, the rand weakening and confidence taking a knock. Private property rights are at the centre of any thriving economy. Taking these rights away or denying these rights will be, without doubt, a recipe for a Venezuela-styled disaster. Unless Cyril Ramaphosa and his team calm market nerves soon, the economy risks entering a further phase of decay. – Gareth van Zyl

By Azar Jammine*

The coming week sees the start of hearings surrounding the possibility of amending the constitution to allow for land expropriation without compensation.

The uncertainty surrounding expropriation without compensation is arguably hurting the ability of South Africa to attract both foreign and local investment which could have lifted economic growth materially in the wake of the improvement in business confidence surrounding the election of Cyril Ramaphosa as president.

Unfortunately, this uncertainty is likely to prevail for a long while in view of the fact that the whole land reform issue is mired in complexity and addressing the issue satisfactorily for the population is mired in potential bureaucracy and whatever the process, could take several years.

Azar Jammine
Dr Azar Jammine

There is already much suspicion that certain factions within government are exploiting the issue as a pushback against some of the other policies president Ramaphosa is trying to implement, including the fight against corruption. The slow pace of land reform over the past decade can arguably be ascribed to attempts to direct such reform towards benefiting certain well connected individuals and tribal chiefs rather than the broader community.

It is also becoming clear that the flow of benefits from land reform are being stifled by the resistance on the part of the authorities to grant title deeds to hundreds of thousands of potential homeowners. This is depriving such homeowners of the ability to transform ownership. Success in providing title deeds to individuals could unleash an enormous amount of wealth in the economy which could transform it. This issue is arguably far more urgent than the issue of land expropriation. Then again, even the availability of title deeds would come to nought in expanding wealth if there was insufficient access to credit which could facilitate gearing as a means of expanding wealth.

Besides, there is still significant uncertainty as to how much land is available for redistribution, let alone restitution.

Issue of land reform as an impediment to investment

There can be no doubt that business and consumer confidence soared following the election of Cyril Ramaphosa first as president of the ANC in December and subsequently in February as president of the country. The improvement in confidence contributed towards an upward revision of economic growth forecasts by many analysts.

However, much of that euphoria has since faded. In recent weeks the principal contributing factor towards this dissipation of confidence has been a slew of economic data suggesting that the economy has not suddenly started performing better on account of the earlier improvement in confidence.

Read also: Running circles around land reform – ANC has tools, but implementation’s a problem

Nonetheless, even before the release of this weak economic data, a lot of the dampening down of enthusiasm regarding the new dispensation was arguably attributable to the escalation of the debate surrounding land expropriation without compensation. This was not a surprising development and ought to have been foreseen already at the conclusion of the National General Council of the ANC in December. Soon after being elected president of the organisation, Ramaphosa in his first speech to the Council made it quite clear that although the organisation that he was chosen to lead had endorsed a policy of land expropriation without compensation, it did not follow that such action would be taken without constraint.

Read also: Land grabs: Just another sneaky way to enrich ANC friends – Anthea Jeffery

He emphasised that there would be no such expropriation if it impaired food security. There was no point in redistributing productive land if it was to be allowed to lie fallow. Furthermore, he pointed out that in any case there was much land in government hands that could be used for redistribution, but that a thorough audit needed to be conducted to determine where and how much of this land was available before embarking upon the drastic step of expropriation.

Be that as it may, the intensification in recent months of the debate surrounding land reform has generated much uncertainty in the investor community regarding the sanctity of property rights in South Africa. In so doing it has served as an important impediment to investment, both by foreigners and locals. To the extent that the ability of improved business confidence to lift economic growth was premised on the increase in investment that such confidence might generate, the reluctance to commit to investment in the face of uncertainty surrounding land reform has contributed towards limiting the amelioration of economic growth and employment creation.

The EFF are still threatening to colonise farms. More brilliant cartoon work available at jerm.co.za.

The issue is caught up in a lot of emotion on both sides, those supporting expropriation without compensation and those warning against the hugely damaging effects that such policy might bring about. Besides, there is a lack of clarity in the debate regarding the distinction between redistribution and restitution and the difference between expropriation and confiscation.

Most of available land is in agriculture

At an illuminating economic roundtable discussion of the issue of land reform at the Reserve Bank a fortnight ago, it became apparent that the issue is hugely complex. It is estimated that by far the most important area of ownership of land lies in agriculture, which accounts for 68% of all land distribution, followed by 13% in the areas which were previously designated as homeland Bantustans by the former apartheid South African Nationalist Party government. A further 13% is owned by state-owned enterprises (SOEs), with just 6% distributed in urban areas, as well as for roads and national parks.

Read also: Math around land: SA can’t reform what it doesn’t know – FW de Klerk Foundation

The government owns around 24m hectares of land but has a poor handle on how much is in the hands of SOEs and municipalities. Until such time as there is greater clarity about the accuracy of such figures, one wonders whether there will be sufficient progress on the issue. There is already a significant amount of underutilised arable land in rural areas, especially in the Eastern Cape, that should be the first port of call in terms of redistributing land. Indeed, it is suggested that the Eastern Cape province is capable of producing an additional 1.5m of maize or between 5% and 10% of national production. What makes redistribution of arable land more difficult is the fact that the size of farms has increased enormously over the past three decades as economies of scale have been sought and capital intensive techniques have been adopted.

In contrast, the number of farmers with skills to develop such large farms has declined and a large proportion of these farmers have reached the age of 60 or more. There is therefore a real danger of jeopardising food security by expropriating such farms.

 

Poor record of land restitution and corruption has proliferated

Some might also suggest that the whole discussion around land expropriation without compensation is a hypocritical one and one that is embroiled in corrupt intent. Between the democratisation of the South African economy in 1994 and 2007, 9.7% of commercial farmland was redistributed. This is a far cry from the original intention of the ANC when it took power to transfer 30% of land to the Black communities. However, since then the pace of redistribution has slowed dramatically and virtually halted, with just a further 0.1% being redistributed in 2017. This slowdown in land distribution has ironically coincided with the presentation of a Green Paper on land reform to Parliament in 2011. Instead, beneficiaries have been selected in a manner which has been lacking in transparency and geared towards benefiting well-connected individuals rather than the broader population at large. The Department of Agriculture seems to have been reluctant to subdivide land and instead has concentrated on collective land reform. Between 2000 and 2011, the programme of Land Redistribution for Agricultural Development made individual grants of between R20,000 and R100,000 to a small group of whole farm projects. However, in 2013, the programme was adjusted to transform this land allocation to a process of turning the residents of land to rent paying occupiers for 50 years before they could take ownership. Assistance to small-scale farming has been characterised by rhetoric rather than substance.

Read also: Minister’s devilish formula for property valuation in restitution cases unpacked

Success in this regard may have been attained had the proper agricultural training mechanisms been put into place by the government. Instead, most of the agricultural education and training is being driven by agricultural organisations such as Grain SA and Sugar SA. It is suggested that only 1.9% of agricultural households have received some form of formal training in the practice. Furthermore, the State has been buying land but not redistributing it. The land reform budget itself has been downscaled continuously to account for just 0.4% of the total annual budget at present. It is partly because of the lack of transparency in the land redistribution process that the issue has also become so emotive within the ANC itself. Some will argue that the debate is being deliberately driven by those aiming to push back on Ramaphosa’s attempts at restructuring the economy. Those who stand to lose through a transparent policy of land redistribution are deliberately driving an agenda trying to suggest that he is not doing enough in support of this initiative.

There is growing blame on the constitution for not dealing appropriately with land reform, but proper analysis of the constitution can be shown to suggest that such accusations are false and that the perpetrators of such accusations have not read or understood the constitution appropriately.

International experience of land reform has been rather unsuccessful

Endorsing the complexity of the land reform process is international evidence that suggests that in most instances land reform has turned out to be unsuccessful. Some suggest that there may have been some success in Asia where small-scale farming was established on land that had been owned by government. In Latin America, attempts to break the pattern of rent-seeking powerful landlords was met with questionable success, whilst in certain African countries, attempts at redressing racial discrimination of the past through redistribution was disastrous in some instances.

Bureaucracy of land claims and high level of evictions

The country is currently saddled with a huge residue of unprocessed land claims. Some estimate the number of such claims to be 600,000. The bureaucracy involved in trying to process such claims is mind-boggling. Instead, the agricultural sector has been characterised by a massive decline in its workforce by more than 1 million over time due to casualisation and the introduction of minimum wage legislation in 2011. In addition, even after the demise of apartheid, evictions from land of hundreds of thousands of residents, has been in evidence.

The relative paucity of title deeds needed to unleash accumulation of wealth

Probably the biggest criticism of the land reform process thus far has been the lack of delivery of title deeds to the new occupiers of property. With access to title deeds, owners would have been able to sell such properties for financial benefit or alternatively to use such titles to obtain collateral from the banking sector as a means of gearing up for other projects which could have enhanced their wealth. It is estimated that if all existing Black owners of land were to be given title deeds, this could unleash over R2 trillion to their wealth.

Restoring sanity to the land expropriation debate; must-read analysis

However, there is a clear reluctance on the part of traditional tribal leaders to accede to allowing title deeds to be given to what are tantamount to their peasants living on their tribal land. This also raises questions around the merits of having a Department of Rural Development. Internationally, theory has been advanced to suggest that title deeds are the path through which wealth distribution is most readily diffused. It has become blatantly apparent from various pieces of anecdotal evidence that the underlying motive for land redistribution within the majority of the population is to convert such land into cash rather than to necessarily use it for productive purposes.

Read also: Private banks risk losing R125bn if land EWC goes totally pear-shaped

This also raises another aspect of the debate that has been insufficiently interrogated, namely the role of the financial sector in land reform. Currently around R160bn of debt from the agricultural sector is carried by the big commercial banks. Is there no way of accelerating the manner in which credit can be accessed by home owners to enhance the land redistribution process and for that matter the expropriation process. On a positive note, it can be suggested that, with the assistance of financial innovation, the land redistribution debate can be harnessed to improve the livelihood of the broader population fairly dramatically without antagonising existing landowners.

Conclusion

The above exposition of some of the issues encountered in the land reform debate, represents but a small proportion of insights into the complexities of the issue. Unfortunately, the debate has become mired in controversy and emotion which is anathema to attracting new investment. On the contrary, it appears to be encouraging disinvestment and is impairing the ability of the new leadership of the country to exploit the opportunity to shift the economic growth path meaningfully in an upward direction. It is a moot point that the complexities involved will extend the uncertainty surrounding the resolution to this debate and in this way extend the timeframe over which the reluctance to invest will be perpetuated.

  • Azar Jammine is the Chief Economist at Econometrix. 
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