Expropriation law scuppers SA’s investment case - IRR

The signing into law of the Expropriation Act on 24 January by President Cyril Ramaphosa represents a frontal assault on property rights in South Africa.

The Act empowers the state to seize land from individuals and businesses without paying for it, and take other assets at values below market value, by applying procedures that heavily favour the state and weaken the position of the expropriated person or business.

For investors, including those hobnobbing with the ANC at the World Economic Forum in Davos, this should set the alarm bells ringing.

South Africa has a desperate need to attract more investment, and especially fixed investment. Low fixed investment is one of the main reasons for the dismal economic growth and skyrocketing unemployment recorded over the past decade and a half.

Captured in an economic indicator called Gross Fixed Capital Formation, fixed investment refers to the amount of money invested in heavy assets that cannot be easily moved. They include things such as roads, railways, factories, heavy machinery, and buildings. Such assets are used to produce economic value, helping the economy to grow.

As a share of GDP, the government has suggested fixed investment should be at a level of 30%. The actual level is half that – 14.9%. This is far below the global average of around 26% and far too little to support the fast economic growth that the country needs.

The ANC has paid lip service to the need for economic growth and more fixed investment.

But which investor will make a commitment in the form of glass, steel and concrete to a country where the government has given itself the right to seize such assets?

The passing of the Expropriation Act will drive fixed investment down instead of up. It scuppers the country’s growth prospects and will lead to further rising unemployment and destitution.

Says John Endres, CEO of the IRR: “If the ANC is genuinely committed to achieving high economic growth then this is not the way to go. Economies grow when property rights are secure and economic freedom is high. Laws like the current version of the Expropriation Act scare off investors and will prevent South Africa’s economy from growing. However, the problems with the law can be fixed with some targeted amendments.”

The IRR is consulting with its legal team to challenge the Expropriation Act on the basis of unconstitutionality. The Act should be returned to Parliament for amendment. Its flaws can easily be remedied by introducing changes that will bring it in line with the Constitution while also achieving a better balance in the power relationship between the individual and the mighty state.

Members of the public who are concerned about the impact of the Expropriation Act on their lives are encouraged to support the IRR via its website at www.irr.org.za.

Media contact: Hermann Pretorius IRR Head of Strategic Communications Tel: 079 875 4290 Email: hermann@irr.org.za

Media enquiries: Michael Morris Tel: 066 302 1968 Email: michael@irr.org.za