Scary lessons for ANC about Venezuela-style land grab plans - Biznews

18 July 2018 - In the mid-1980s, Venezuela, with its major oil and mineral wealth, had per-capita GDP similar to Norway’s and was the richest country in Latin America. By 2017, however, more than 80% of its people were living in poverty.

Anthea Jeffery

In the mid-1980s, Venezuela, with its major oil and mineral wealth, had per-capita GDP similar to Norway’s and was the richest country in Latin America. By 2017, however, more than 80% of its people were living in poverty. In 2018 its annual inflation rate is expected to top 1 000 000 per cent.

President Nicolas Maduro blames the country’s implosion on an ‘economic war’ being waged against it by opposition parties and the US. The real reasons lie rather in the expropriations and price controls intrinsic to the ‘21st century socialism’ introduced by former president Hugo Chavez. (Chavez ruled from 1999 until his death in 2013, and was then replaced by Maduro.)

In 1999 Chavez amended the Constitution to declare that ‘the predominance of large idle estates (latifundios) was contrary to the interests of society’. In 2001 he introduced a Land Law which permitted the expropriation of such latifundios.

The stated rationale for this law was that the poor owned only 6% of the land, while the top 5% owned 75% of it. According to Chavez, these statistics made it imperative to ‘break up large, idle land estates and allow peasants to gain ownership of the land they cultivate’.

This is strongly reminiscent of the ANC’s (inaccurate) claim that black South Africans own only 4% of agricultural land, while whites own 72% – and that all ‘unproductive’ land must now be expropriated without compensationand then ‘shared among those who work it’ (as the Freedom Charter states).

In Venezuela, targeted latifundios were initially defined as ‘high quality idle agricultural land over 100 hectares’, or ‘lower quality idle agricultural land over 5 000 hectares’. In 2005, however, the maximum amount of ‘idle’ high quality land allowed was reduced from 100 hectares to 50. Lower quality ‘idle’ land was capped at 3 000 hectares.

In practice, however, it was not only ‘idle’ land that was taken. In addition, the government implicitly encouraged land invasions, which often reduced productivity to the point where farms were ‘idle’ enough to qualify for expropriation.

It also introduced a ‘one-cow-per-hectare’ rule, under which farms with less than one cow per hectare were deemed unproductive and expropriated for that reason. But farmers who increased the number of their cattle, so as not to fall foul of the rule, were then deemed to be overburdening the land. Since this would in future erode its productivity, these farmers were expropriated too. The result was a debilitating uncertainty which made virtually every farmer potentially vulnerable.

New farmers were not given full title to land, despite the government’s promises that this would be done. Instead, they were generally granted land on a provisional basis, which meant their land grants could be revoked if they failed to meet the state’s production targets.

Land was also allocated according to political criteria, with those who supported the government (chavistas) far more likely to receive it than those who were apolitical or supported the opposition. Writes Michael Albertus in Foreign Policy: ‘This helped generate a set of politically reliable clients, who were favoured through land grants, and who then helped the regime perpetuate itself in power by voting for it in elections.’

By 2010 the government put the quantity of farmland it had seized at between 5.5m and 7.5m hectares out of the 27 million hectares used for cultivation. At the lower of these figures, these 5.5m hectares amounted to 20% of Venezuela’s total productive farmland.

However, the redistribution of land to small farmers did not result in an increase in food production. On the contrary, according to the National Confederacy of Agriculture and Livestock Associations, agricultural production dropped sharply between 2007 and 2011: maize by 40%, rice by 39%, sorghum by 83%, sugar cane by 37%, coffee by 47%, potatoes by 64%, tomatoes by 34%, and onions by 25%.

Large quantities of fertile land fell out of production, while food imports rose. After 2014, however – when the oil price dropped dramatically – imports of all essentials, including food, became increasingly difficult for the government to afford. Shortages were blamed on ‘hoarding’, while food rationing was introduced.

In 2014 the government tightened up the price controls it had introduced in 2003. Both farmers and food producers were forced to sell at prices below production costs, which cut supply still further.

By 2015, thousands of people were queuing for five to six hours a day in the hope of buying food and other much-needed items. In 2016 Maduro began urging people to grow food and raise chickens in their homes, even though the population is 80% urbanised. Often, people were expected to achieve this on balconies and roof tops.

In 2016 foot riots began, along with the hijacking of food trucks and the violent looting of stores. Maduro put the delivery of basic foods under the control of defence minister General Vladimir Padrino Lopez. The labour ministry announced that all private and public employers must allow their workers to be reassigned to growing crops.

Though expropriations first targeted land, they soon spread to other sectors. In 2007, for example, the government demanded majority control of projects managed by international oil companies. It also expropriated the assets of the two companies (Exxon Mobil and ConocoPhillips) that refused to acquiesce in this. Chavez justified these takings on the basis that he was ‘returning’ the wealth of Venezuela to the ownership of ‘the people as a whole’.

In 2008 the government nationalised the cement sector, targeting Switzerland’s Holcim Ltd, France’s LaFarge, and Mexico’s Cemex SAB de CV. In 2009 Chavez closed down a number of small banks for what he said were operational irregularities, but re-opened some as state-run firms. He also vowed to nationalise any bank that failed to meet the government’s lending guidelines or was in financial trouble. In 2009 the mining ministry seized Gold Reserve Inc’s Brisas project, while in 2011 Chavez announced that he was nationalising the gold industry.

The economic consequences have become ever more catastrophic. In the words of Greg Mills and Lyal White of The Brenthurst Foundation, in a May 2018 discussion paper on Venezuela’s Populist Armageddon: “Between 2013 and 2017, Venezuela’s economy contracted by 39%. It is expected to plummet yet further, with a 50% contraction by 2019 at current rates of collapse.

“Although government stopped providing official figures in 2016, monthly inflation reached 100 per cent in February 2018. This will translate into annual rates of inflation of more than 1 000 000 per cent. While government studiously maintains an official exchange rate of 14 Bolivars to the US dollar,  the black-market rate, which shopkeepers openly use, is 240 000:1…

“University professors now earn US$6 a month, [as does] a police superintendent with 17 years of experience. It requires an estimated 98 times the official minimum monthly wage of 700 000 Bolivars merely to survive…

“By 2018, total government debt was estimated at US$150bn, more than 100% of GDP. In 2017 the government’s bond default was US$2.5bn. For 2018 it is projected to be US$10bn… Basic water and electricity infrastructure is near collapse, and unemployment is rampant…

“Local industry has been destroyed and virtually everything has to be imported, including food, but the government no longer has the funds to do so… The percentage of the population living in poverty is well over 80%. Extreme poverty has leapt from 24% of the population in 2014 to more than 61% three years later.”

South Africans tempted to believe that the uncompensated expropriation of ‘unproductive’ land will increase prosperity for all (as President Cyril Ramaphosa has suggested) need urgently to reflect on whether they really want to follow in Venezuela’s footsteps.

Dr Anthea Jeffery, Head of Policy Research at the IRR, a think tank which promotes political and economic freedom.