The real purpose of the EWC and Expropriation Bills – Anthea Jeffery

The thought of land expropriation without compensation is keeping many South Africans awake at night. Myriad experts have warned against the dangers of land expropriation, with the fear of international disinvestment being a possibility. Not only will it discourage much needed investment into South Africa and stall the economy, but it has many South Africans worried about what will happen to their homes and other assets. In an earlier interview with BizNews, financial expert Dawn Ridler explained why going forward with this will severely effect the economy. “Land or property ownership – or the rights attached to property ownership – is very valued, in capitalist societies particularly. I just worry that we’re shooting ourselves in the foot.” Below, Anthea Jeffery outlines the real purpose behind EWC and the Expropriation Bill. – Jarryd Neves

A Cheshire Cat and Two Red Herrings – what ‘nil’ compensation is likely to mean in practice

By Anthea Jeffery*

Last week the Ad Hoc Committee responsible for drafting an expropriation-without- compensation (EWC) constitutional amendment bill (the EWC Bill) invited three ministers, including minister of mineral resources and energy Gwede Mantashe, to put forward their comments on its draft to date.  

Custodianship without compensation

land expropriation
Dr Anthea Jeffery

EFF deputy president Floyd Shivambu used the opportunity to urge once again that ‘the state be made custodian of all of South Africa’s land’, so that the government could then ‘redistribute it equitably’.

Said Mr Shivambu: ‘Land could be repossessed by the state in the same manner as mineral and water had been under the MPRDA [Mineral and Petroleum Resources Development Act of 2002] and the [National] Water Act of 1998. If the approach was to expropriate small parcels of land, piece by piece, every expropriation attempt would be met with litigation. The courts would be “swamped”.’

By contrast, ‘state custodianship would involve a more “dependable” process’ and provide ‘a more sustainable approach to securing land redistribution’. He asked if Mr Mantashe, with his experience of custodianship under the MPRDA, for his perspective.

To which Mr Mantashe answered that the MPRDA was an important example of ‘restorative legislation’. This was because it ‘provided for the vesting of the nation’s mineral resources under state custodianship without the obligation to pay compensation’.  This had helped to speed up reform, while the Constitutional Court had ‘confirmed the legitimacy of this regime’ in the Agri SA case in 2013.

The Agri SA case

This case began when a company, Sebenza (Pty) Ltd, found it lacked the funds needed to convert an unused ‘old-order’ mining right it had bought in 2001 for R1m into a ‘new-order’ mining right under the MPRDA. This Act not only vested all mineral resources in the ‘custodianship’ of the state, but also required that all unused old-order rights be converted to ‘new-order’ rights within a year – failing which they would ‘cease to exist’.

Since Sebenza could not afford the application fee for this conversion, its unused mining right came to an end after a year, prompting it to sue for compensation.  Agri SA, a lobby group for commercial farmers, many of whom had earlier owned unused old-order rights to the minerals beneath their land, took over the claim and brought it before the Pretoria High Court.

The High Court found that Sebenza had lost all the competencies of ownership it had previously enjoyed, while the MPRDA had given the mining minister substantially similar rights. The state had thus acquired ‘the substance of the property rights’ that Sebenza had previously owned – and it made no difference that the state’s competencies were termed ‘custodianship’ rather than ‘ownership’. Expropriation had indeed occurred and compensation of R750 000 was payable.

However, this ruling was in time taken on appeal to the Constitutional Court, which overturned it. The main judgment was penned by Chief Justice Mogoeng Mogoeng, who ruled that ‘the assumption of custodianship’ did not amount to expropriation because it did not make the state the owner of the right in issue.

Stated the chief justice: ‘Whatever “custodian” might mean, it does not mean that the state has acquired and thus become the owner of the rights concerned.’ No expropriation had thus occurred, and this meant that no compensation was payable.

What the Pretoria High Court had seen as a meaningless distinction between the state’s powers as ‘owner’ or ‘custodian’ thus became an issue of major legal and monetary importance.

Chief Justice Mogoeng’s approach suggests that Sebenza’s ownership of the mining right, for which it had paid R1m, had simply disappeared into thin air – rather like the Cheshire Cat in Lewis Carroll’s Alice’s Adventures in Wonderland.

The chief justice’s ruling was criticised by three of the judges hearing the case, who pointed out that expropriation does not necessarily require the state’s taking of ownership. His judgment also overlooks international law, which would have acknowledged Sebenza’s right to compensation.

Expropriation in international law and under South Africa’s Constitution

Under customary international law, as well as most bilateral investment treaties, expropriation is defined in a broad way to include both ‘direct’ and ‘indirect’ expropriations.

A ‘direct’ expropriation takes place when the state takes ownership of property. An ‘indirect’ expropriation does not involve the acquisition of ownership by the state and can take the form of either ‘custodial’ or ‘regulatory’ takings.

A ‘custodial’ taking arises when the state takes custodianship of property. As Mr Shivambu stresses, the government has already done this as regards all water resources (under the National Water Act of 1998) and all mineral resources (under the MPRDA).

A ‘regulatory’ expropriation arises when the state’s regulations impose losses on an owner – for example, through price controls on minerals that prevent their sale at market value – but the government makes no attempt to take ownership of the assets in issue.

International law requires the payment of compensation for both direct and indirect expropriations. So too does Section 25 of the Constitution (the property clause), which, in the absence of legislation to the contrary, should be interpreted in a manner consistent with international law.

The real purpose of the EWC and Expropriation Bills

The real purpose of the EWC and Expropriation Bills is to prepare the way for:

  • the vesting of all land in the custodianship of the state without compensation being paid, as Mr Shivambu and Mr Mantashe have recommended; and
  • the introduction, also without compensation for resulting losses, of prescribed asset and other rules that will require pension funds, banks, life insurance and other institutions managing R16 trillion’s worth of savings to invest these in Eskom, other failing SOEs, and the government’s ‘infrastructure’ bonds.

The EWC Bill will pave the way for state custodianship of land by providing that nil compensation may be paid for land and ‘the improvements thereon’ in circumstances to be set out by Parliament in future legislation.

Once the Constitution has been amended along these lines, a statute vesting all land and improvements in the custodianship of the state could be enacted. A court would have to confirm that ‘nil’ compensation should be paid in this instance – but Chief Justice Mogoeng’s flawed Agri SA ruling would be used to help secure this outcome.

The Expropriation Bill will pave the way, not only for state custodianship, but also for the regulatory takings to be aimed at the asset management industry (and many others too). Its major contribution to these goals lies in its broad definition of property – as ‘not limited to land’ – and its narrow definition of ‘expropriation’.

The Expropriation Bill defines ‘expropriation’ as meaning the ‘compulsory acquisition’ of property by the state. This definition is clearly modelled on Chief Justice Mogoeng’s ruling in the Agri SA case. It is also clearly intended to confine the payment of compensation to instances of ‘direct’ expropriation: where the state takes ownership of assets.

Once these definitions have been adopted and given the capacity to trump all other law (as the Expropriation Bill provides), no compensation will be payable for the indirect expropriations that will occur when the state takes custodianship of all land – or when it introduces regulations giving it control (but not ownership) of the country’s massive pot of pension and other savings.

How do we know the state wants land custodianship and various regulatory takings?

The government has already tried to vest all non-urban land in the custodianship of the state via the Preservation and Development of Agricultural Land Bill of 2014. In January 2019, moreover, a senior land department official, Masiphulo Mbongwa, told the World Economic Forum meeting in Davos (Switzerland) that the government planned to amend the property clause in the Constitution and then vest all land ‘in the people of South Africa’ via a National Land Act similar to the National Water Act and the MPRDA.

As regards regulatory takings, the ANC pledged at its Nasrec national conference in 2017 to ‘investigate’ prescribed assets for pension funds and other financial institutions. It has already begun amending Regulation 28 under the Pension Funds Act, though compulsory investment into state and SOE bonds has yet to be introduced.

Many other regulatory takings could also be introduced. Among other things:

  • BEE ownership targets could be pushed up to 51% or more, without any compensation being paid for forced sales at prices below market value;
  • foreign security operating in South Africa could be subjected to 51% ‘indigenisation’ requirements, again without compensation being payable;
  • export and price controls could be placed on platinum and other minerals to prevent their sale at global prices;
  • price controls could be imposed on all private hospitals and other private healthcare providers under the National Health Insurance (NHI) system; and
  • compulsory licences could become mandatory for Covid-19 vaccines and many patented medicines, allowing them to be copied in return for low or nil compensation.

All these interventions are already in the policy pipeline – and are likely to be enacted into law once the EWC and Expropriation Bills are in place. Combined with land custodianship, these indirect expropriations will enormously expand the power of the state. They will also be effective in transforming the ‘ownership, management, and structure’ of the economy – which is one of the key goals of the SACP/ANC alliance in this ‘second phase’ of the National Democratic Revolution (NDR).

Two red herrings

This is where two red herrings merit a mention. The first is the belief, sedulously fostered by the SACP/ANC and many commentators – that the EWC and Expropriation Bills deal solely with land and are aimed at transferring individual plots into the ownership of ordinary black South Africans to provide redress for past injustice.

In reality, state custodianship of land will strip all owners of the rights they now enjoy and terminate any hope of gaining title for millions of black people. Instead, South Africans will be turned into tenants of the state: obliged to pay rent for what (in many cases) they used to own – and vulnerable to summary eviction at bureaucratic whim to make way for ANC luminaries and other favoured cadres.

The second red herring is that the ‘nil’ compensation for which both bills provide will be narrowly applied to land which has been ‘abandoned’ or is being held solely for speculative purposes. In fact, nil compensation will apply to all land taken into state custodianship – which could be all land in the country. And nil compensation will also apply to all the losses that people will suffer from asset prescription and other regulatory takings.

Both these red herrings are as unbelievable as the Cheshire Cat’s capacity to fade away and disappear. That both are nevertheless so widely endorsed shows the power of ANC propaganda – and how astute the SACP/ANC alliance has been in weaving a complex web of rules which are hard to understand and easy to discount.

  • Anthea Jeffery is Head of Policy Research at the IRR, a think tank which promotes political and economic freedom. This article was originally published on the Daily Friend.
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