Profiting from land reform: The risk of a different form of capture - Daily Maverick

21 November 2018 - Alongside the dangers of state abuse that Expropriation Without Compensation would make pretty much inevitable, there are other insidious threats that have yet to be properly discussed. One such is capture.

Terence Corrigan

Challenging a questionable policy means, in the first instance, challenging the political and administrative interests that are driving it, and interrogating their intentions. But the disruption or reconfiguration of any system will provide threats and opportunities for other interests.

Call it the law of unintended consequences. Danger may arise from unexpected quarters.

Expropriation Without Compensation (EWC) has been given a push with Parliament’s Joint Constitutional Review Committee recommending a constitutional amendment (choosing to ignore hundreds of thousands of submissions and the arguments they make in doing so).

As the Institute of Race Relations (IRR) has steadily argued, Expropriation Without Compensation would empower a severely compromised state, and degrade the protections that citizens are currently afforded – not to mention inevitably imperilling investment and growth prospects.

Alongside the dangers of state abuse that Expropriation Without Compensation would make pretty much inevitable, there are other insidious threats that have yet to be properly discussed.

One such is capture.

This is hardly a new issue for South Africa. The exposure – and a subsequent court case, in which judgment has yet to be given – of the effective looting of state funds through the Estina Dairy Farm near Vrede demonstrated the toxic potential of a collusive relationship between business and politics.

As crazy as the details of this scandal were (diverting money to a celebrity wedding takes particular pride of place), they are a revealing template. State power is a mighty weapon, a destructive one to those it is turned on, and never more so than when it is commandeered to serve a private or sectarian interest. It is for exactly this reason that private interests invariably seek good relations with it – and the less scrupulous attempt to co-opt it. It needs to be justified, of course, in the name of broad-based development and socio-economic upliftment.

This is not isolated. The ability of entrenched interests to suborn reform initiatives and bend them to their own purposes is well attested to in academic literature – not least in relation to land reform.

Indeed, “elite capture” has already emerged as a theme in the failure of South Africa’s land reform. A widely read paper by Professors Ruth Hall and Thembela Kepe painted a disturbing picture of South Africa’s redistribution efforts. Far from empowering the rural poor, or helping to grow a class of African farmers, it was a system that denied them virtually all rights over the land – they had neither ownership (which is explicitly rejected in current policy), nor leases. They remained to all intents and purposes tenants of the state.

In a few cases, “strategic partners” (these being agribusinesses participating in farming operations, or mentors helping the recipients of land reform schemes to operate the enterprises) had effectively become the real beneficiaries. They had been able to leverage the land reform programme – access to land, labour and financing – for their own benefit.

The authors wrote:

“There is no clarity on whether strategic partners are vetted, by whom and how. Strategic partners and mentors garner tangible benefits: mentors receive monthly cash payments from the state for playing this role, while strategic partners hold shares in joint ventures while benefiting from state subsidies and access to state land. In three cases, we found that the strategic partners owned downstream processing and packing factories, to which they sold the farm produce, enabling transfer pricing.”

Intriguingly, it seems that officials overseeing land reform programmes are not held to any objective standards in determining beneficiaries, assigning properties or clearing strategic partners.

This is deeply concerning, and a warning for the future.

Expropriation Without Compensation would open a fertile field of opportunities. An empowered state with a view of itself as a hegemonic, developmental role-player – but with a track record that suggests something quite different.

Certain corporate interests, meanwhile, would eye the use of this power eagerly. The discretion to take possession of landholdings would offer the possibility of expanding the footprint of agribusinesses willing to “partner” with beneficiaries – or to cut deals with politically connected businesspeople. Either could be defended in the name of empowerment.

The state would own; selected businesses would profit, sharing the latter in a judicious manner.

Indeed, the possibilities go beyond mere access to land. Over the years, the state has doled out vast sums in incentives and support to various sectors. With land and agriculture occupying a politically important position, the state might very well be willing to plough funding into it in the form of grants or low-interest loans. Whether nominally routed through the beneficiaries, or directly to the strategic partner would be irrelevant – it would be cheap money.

If this seems fanciful, it’s worth remembering that a few years ago, when Julius Malema – then ANC Youth League leader – was campaigning for the nationalisation of the country’s mines, he attracted some sympathy from businesspeople. Some hoped, no doubt, to feed on this. Others, noted some analysts, were not averse to the idea, seeing in this the advantage that it would free them of the responsibilities that came with owning declining assets.

South Africa should be wary of this. The abuse of power is by no means limited to politicians and governments. Indeed, where they show a susceptibility to such abuse, unscrupulous businesspeople are probably not far behind. DM

Terence Corrigan is a project manager at the Institute of Race Relations, a liberal think tank that promotes economic and political freedom.