Don't drink the Kool-Aid on the Expropriation Bill – Politicsweb, 2 March 2016

Frans Cronjé says the legislation is dangerous, and aimed at undermining the property rights of ordinary South Africans.

By Frans Cronjé 

The government wants the power to take your house, business, shares...and a whole lot more.

The IRR disagrees very strongly with the views on the Expropriation Bill expressed by Mr Coenraad Bezuidenhout on Politicsweb earlier this week (see here).

According to Bezuidenhout, the Expropriation Bill, which is currently making its way through Parliament, “is by no means the disaster for investor concerns”. Hence, he states, the Democratic Alliance and the chairperson of its national caucus, Anchen Dreyer, are wrong to oppose the Bill.

The Bill in fact forms a key part of a raft of legislation and policy interventions which are aimed at weakening property rights and investor protections in South Africa.

As my colleague Dr Anthea Jeffery has explained, the Bill’s most harmful effect will be to allow the state to take property as "custodian", rather than as owner, and so avoid paying any compensation at all for that property.

The custodianship point is important but also complex. Writing for this week Dr Jeffery explains that the Bill, “seeks to define ‘expropriation’ in a way that would exclude the taking of custodianship (rather than ownership) by the State. Where a taking by the Government does not count as an expropriation, then no compensation is payable under the Constitution”.

What this means is that if the government takes your business or farm or home or patent as owner of that asset, then it must pay ‘just and equitable’ compensation for that property. But if it takes such property as ‘custodian’ for the people of South Africa, it will not have to pay you anything at all.

That there can be such a vast difference between ‘custodianship’ and ‘ownership’ seems ridiculous. However, this distinction can be traced back to a Constitutional Court judgment which was handed down in 2013 in a case (the Agri SA case) involving a mining right.

The majority judgment found that the State had acquired custodianship, rather than ownership, of the mining right. This meant, it said, that no expropriation had occurred, and hence that no compensation was payable.

Two of the judges on the Constitutional Court warned that this approach could put an end to the private ownership of property without any compensation being paid. This shows just how serious the issue is.

The Agri SA case had also begun in the Pretoria High Court, which took a much more common sense approach. The Pretoria court questioned why custodianship should be treated so differently from ownership. According to this court, the State had effectively acquired all the normal competencies of ownership in relation to the mining right – and it made no difference if the State’s competencies were called ‘custodianship’ or ‘ownership’. The High Court thus found that expropriation had indeed occurred and that compensation must indeed be paid – but this judgment was set aside by the Constitutional Court.

Under the Expropriation Bill, as Dr Jeffery warns, the government is seeking to turn this judgment, which was based on the particular facts of the particular case and might not apply in other factual situations, into a general principle of law.  Why does this matter? Because if the government gets its way on the Bill, it could declare that it has taken your home, for example, as ‘custodian’ and that it therefore does not have to pay you any compensation at all.

In the farming sector, the Expropriation Bill needs to be read together with the Preservation and Development of Agricultural Land Framework Bill of 2014. Particularly important here is a provision seeking to vest all farming land in the custodianship of the State.

Dr Jeffery warns that, if these two pieces of legislation are adopted as they currently stand, “the Government could acquire custodianship of all agricultural land without having to pay any compensation. It would then control all farming land and would be able to lease it out to farmers, whether emergent or commercial, on such conditions as it thinks fit”.
If this occurs, it will bring South Africa very close to what the Economic Freedom Fighters (EFF) demand: that the State should take custodianship of all farm land (without paying compensation) and should then lease it out to people who want to farm.

Writing in Business Day, Dr Jeffery has also warned that the new definition of expropriation in the Bill could prevent regulatory takings from counting as expropriations. Such takings happen, as she explains, “where the state does not acquire ownership, but its regulations deprive the owner of many of the powers and benefits of ownership. The laying down of indigenisation rules — as under the Private Security Regulation Amendment Bill, which requires all foreign security companies to have 51% South African ownership — amounts to a regulatory taking. Foreign jurisprudence clearly recognises such takings as expropriations, for which compensation should be paid. Yet the bill’s definition aims to prevent such compensation being available here. With the government pushing for regulatory takings in other spheres as well (via 51% black ownership requirements and price and export controls on minerals), this aspect of the bill will also scare investment away."

In other words, if the government were in future to adopt regulations stating that 51% of the ownership of all music rights must be transferred to different owners, this would be a regulatory or indirect expropriation. Under the Bill, no compensation would be payable to those deprived of much of the benefits of their music rights.

A misleading impression has been fostered in the media that the Bill is a land reform measure. In fact, the scope of the Bill stretches very much further than land. The ‘property’ it covers is so wide that it could allow the State to seize virtually any assets, including shares, mining rights, and patents.

In what must rank as a new low point for political cynicism, the ANC is dressing the Bill up as a land reform measure in order to negate criticism of it. It is using emotions around the historical dispossession suffered by black people as cover to be able to dispossess the entire country.

The old Expropriation Act of 1975 was out of line with the Constitution and a new law had to written. However, in drafting the Bill, the State has gone well beyond what the Constitution requires and allows. It has also given itself extraordinarily broad, if not draconian, powers over property.

Given the link between civil liberties and property rights, this is a development that all South Africans should oppose. It is also very bad for investment, growth, and jobs. In our efforts to oppose the Bill, which included drafting an alternative bill fully in line with the Constitution, we canvassed a broad spectrum of investor and business sentiment. Within these circles, the Bill was widely seen as yet another obstacle to investment, particularly fixed investment, in South Africa.

In leading the charge against the Bill in Parliament, the Democratic Alliance and Anchen Dreyer have taken an important stand from both an investment and a civil rights standpoint.

For much of our country’s history, the majority of its citizens did not have proper property rights, making them particularly vulnerable to government abuse. That started to change in the 1970s, when restrictions on home ownership began to ease, while the remaining restrictions on black property ownership were repealed in 1991. Since then black home and land ownership have accelerated.

However, there is no doubt but that the Expropriation Bill could roll back much of this progress. South Africans may find themselves back in a situation where the State owns or controls (through the ‘custodianship’ concept) large numbers of homes, farms, businesses, and other assets. This could expose people to the kind of political manipulation that has been used in Zimbabwe to help keep Zanu-PF in power. This risk will be there irrespective of whether you are black or white, and irrespective of whether your key asset is a farm or some other business.

The Bill has little to do with land reform, which in any event will succeed only if emerging farmers are allowed full title to their land. It also has little to do with redress, or rural development, or improving living standards for the disadvantaged. In all these instances, secure property rights are the key to success. Such rights are central in attracting the job-creating and investment-driven economic growth that is the only solid and sustainable foundation for human progress in any society. What the Bill has a lot to do with is whether South Africa will be a country where people are allowed to build up homes, farms, business, and other assets without the fear that the government will one day take them all away.   

For the IRR fighting this Bill remains a key priority as so much of South Africa’s future hinges on the protection of property rights. We would prefer to continue conducting that fight through reasoned argument with the Government but will not hesitate to support efforts in the Constitutional Court if that becomes necessary.

Frans Cronje is CEO of the Institute of Race Relations.

Read the article on Politicsweb here