Katzenellenbogen on Expropriation Bill: SA “on the verge of an economic tipping point” - Biznews

South Africa could be on the verge of an economic tipping point. Once the Expropriation Bill is passed it will give the government wide-ranging powers to seize property of all sorts. That is likely to set off immense uncertainty over the security of property rights. And with that, there could be a steep drop in private investment.

As South Africa stands on the brink of a potential economic tipping point, the passage of the Expropriation Bill could give the government sweeping powers to seize various properties, triggering uncertainty over property rights and discouraging private investment. While President Cyril Ramaphosa assures that the legislation will be used judiciously, Katzenellenbogen raises concerns about potential abuse and parallels to disastrous cases like Zimbabwe and Venezuela. The bill’s broad scope and lack of safeguards raise alarm, and Katzenellenbogen emphasises the critical link between property rights and economic growth. Amidst the mounting apprehension, efforts to defend property rights and rally opposition parties gain traction, while businesses grapple with an uncertain future.

Jonathan Katzenellenbogen

South Africa could be on the verge of an economic tipping point. Once the Expropriation Bill is passed it will give the government wide-ranging powers to seize property of all sorts. That is likely to set off immense uncertainty over the security of property rights. And with that, there could be a steep drop in private investment.

The Expropriation Bill was passed by the National Assembly last year and is now before the National Council of Provinces. With the election less than a year away, the ANC might be keen to show the Economic Freedom Fighters, and its South African Communist Party allies, that it too is serious about expropriation without compensation (EWC).

President Cyril Ramaphosa has given assurances that we are a constitutional democracy and that the Act when passed will not be used ‘willy-nilly’, and only for public purposes. But like a gun placed on a table in the first act of a play, the legislation is bound to be used at some stage. As the ANC faces declining support, it could well be used sooner rather than later.

The experience of land seizures elsewhere, under the call of land reform, do not give great assurance that these will be for public purposes.

 The Bill is particularly troubling because it gives many organs of state, not only central government, wide expropriation powers and eliminates safeguards that help to prevent abuse of such powers at present. This is according to Anthea Jeffery, who was responsible for the submission on the Bill to Parliament by the Institute of Race Relations.

Under the Bill, expropriation may ensue when the land is ‘not being used’, the land has been bought for speculative purposes, or when it has been abandoned by failure to exercise control over the property. But under the Act, this is not a closed list and many of the criteria are vague. One of the problems is that if owners are temporarily not using the land or are subject to a land invasion beyond the owner’s control, this could be grounds for seizure. And EWC is not confined to land. It can also include a wide variety of other assets, urban property, shares, water rights, and much else.

Not scaremongering
Once used, the Expropriation Act will certainly have the potential to push the country into a version of Zimbabwe and Venezuela. That is not scaremongering, as the egg has dropped many times before.  The start of Zimbabwe’s seizure of farmland and the nationalisation programme in Venezuela made these countries into disaster cases.

Theo de Jager, who heads the South African Agri Initiative points out that at present, South Africa and Namibia, and parts of Botswana and Zimbabwe are the only African countries in which title deeds for agricultural land can be held. That does raise the question as to whether lack of property rights is a big reason why few countries on the continent have achieved food security. Leasing means the land cannot be used as collateral, and due to lack of security of tenure, there is a reduced incentive to invest in productivity-raising improvements. In South Africa we have had the bizarre situation where some black farmers, who were land reform beneficiaries, were denied the chance to renew their leases.

There is a high chance that land seizures will build on the failure of land reform in post-1994 South Africa. Under one land reform programme, the Recapitalisation and Development Programme, 76 percent of farmers performed at livelihood level or were not productive, according to a study cited by Amy Barclay, who heads the Land Centre for Excellence at AGRISA, a federation of agricultural organisations.

By contrast the extension of property rights has been closely associated with strong economic growth. Deng Xiaoping’s programme to extend property rights set the stage for China’s rapid economic growth and the massive elimination of poverty.

The lesson of the 1913 Land Act in South Africa, which resulted in massive dispossession of black people in South Africa and the elimination of a self-reliant class, is the need to strengthen property rights, rather than find means to abrogate them. In Round One it is white farms that might be seized, but in Round Two it could be black-owned farms.

Most of the world’s richest countries have the best protection of property rights. The Fraser Institute’s annual Economic Freedom of the World Report consistently shows Switzerland, New Zealand, Finland, Denmark, and Norway – all wealthy countries, are all leaders in the protection of property rights. Their protection of property rights is an important and necessary, albeit not sufficient, cause of their wealth.

Last week, the FW de Klerk Foundation held a conference on ‘Property Rights for All South Africans’ with help from the Konrad Adenauer Stiftung, the body associated with the Christian Democratic Union, the moderately conservative party in Germany. Speakers were drawn from libertarian-leaning think tanks, the Institute of Race Relations, the Free Market Foundation, economists Phumlani Majozi and Dawie Roodt,  and organised groups in agriculture like the South African Agri Initiative, and AGRI SA.

There is alarm about the imminent passage of the Bill, but what form can the campaign to defend property rights and oppose the Bill take?

Showing how property rights are a tool for better lives is one way. Through its Khaya Lam project, the Free Market Foundation helps township residents claim title deeds on the houses in which they are resident. Hernando de Soto, the Peruvian economist and former presidential candidate, has promoted the granting of title deeds across the world as a means to mobilise ‘dead’ capital to stimulate development. Achieving massive scale on these sorts of projects is key to building support for property rights.

This is a slow process, but one that can perhaps influence, at least, the opposition parties.  Parties other than the ANC and EFF should be urged to campaign on the property rights issue in the 2024 election. After all, large numbers could benefit from title deeds if they have lived in municipal homes. And according to the Institute of Race Relations’s polling, the issue of land redistribution is of far lower importance than the need for jobs.

As state land grabs could set off a financial crisis, the commercial banks should be urged to take a public stand, something they have been reluctant to do so far. Property seized by the state would still carry a mortgage that has to be serviced. Large-scale expropriations would create a mountain of bad debt for the banks.

Business needs to be brought on side in any campaign.

Business gets little
For business, the Bill changes rules that are fundamental to what it does. A business tax revolt is impossible, as the courts would give orders for the seizure of assets and business has a legal obligation to collect payroll tax. The Bill certainly shows that business gets little for all its efforts at social compacting with the state.

Ultimately, not much can really be done if the ruling party is so committed to land seizures as one way of achieving its nirvana of a National Democratic Revolution.

Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist


This article was first published on the Daily Friend.