Expropriation Bill: A major banking crisis is likely to ensue

“Custodial takings” of private property is the enormous threat to the economy posed by the Expropriation Bill, the draft law set to be considered this week by the portfolio committee on public works and infrastructure, and likely sent on to the National Assembly for its endorsement.

Most people seem to assume that the expropriation without compensation (EWC) provisions in this Expropriation Bill are limited to its vague clauses on “nil” compensation.

The greater risk, however, is that the definition of expropriation in the draft law will be used as the foundation for a host of uncompensated custodial takings.

Custodianship – where the state takes control of, say, all private property, to dispense as it wishes – could have devastating consequences for the country’s 11.5 million homeowners, about 9.6 million of whom are black. All these individuals could have their ownership rights replaced by 25-year “land-use licences” – to be granted or terminated as deployed cadres think fit.

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Though all custodial takings will be uncompensated, people with mortgage loans over their homes or other land will still be expected to pay off those loans, despite the loss of their properties. Their land-use licences will doubtless also require them to pay rent to the state, adding to injustice and financial woes.

Many South Africans may think this risk disappeared when the Draft Constitution 18th Amendment Bill (the Section 25 Amendment Bill) – which would have authorised state custodianship of “certain” land – was defeated in December 2021. It failed because the ANC was unable to muster the two-thirds majority required for all changes to the Bill of Rights.

However, the custodianship threat has been kept alive via the Expropriation Bill, an ordinary statute needing only a 51% majority. The custodianship threat is not immediately obvious, as the Expropriation Bill contains no reference to it.

However, the key words are found in the Bill’s narrow definition of “expropriation”. According to the Bill, “expropriation” means the “compulsory acquisition” of property by an “expropriating authority”, such as a municipality.

This wording looks harmless enough, but the underlying intent is anything but – and the practical ramifications are potentially enormous. Under the Bill’s definition, a municipality that takes ownership of homes, factories, or farms will have expropriated these properties and must in principle pay “just and equitable” compensation for them.

By contrast, a municipality that takes custodianship of homes, factories, or farms will not be obliged to pay any compensation at all.

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This distinction rests on the view that a custodial taking does not satisfy the Bill’s definition of “expropriation”, while the constitution requires compensation only where expropriation has occurred. The underlying explanation lies in a flawed judgment of the Constitutional Court in the Agri SA case in 2013.

Here, the majority ruling distinguished between the compulsory acquisition of ownership – which it (wrongly) identified as the hallmark of expropriation – and the mere “assumption of custodianship”.

The latter clearly involved a “deprivation” of property at state hands, but it did not qualify as an expropriation and so did not merit the payment of compensation. This ruling was doubtless welcome to the ANC, which had already vested all water and mineral resources in the custodianship of the state – and wanted to do the same for land.

The very next year, 2014, the ANC published a Bill which would have vested all agricultural land in the custodianship of the department of agriculture, forestry and fisheries.

Though this Bill was withdrawn, the Section 25 Amendment Bill tabled in mid-2021 brought back the custodianship idea and proposed to include it in the constitution. However, the ANC seemed to realise it need not risk condemnation by overtly amending the constitution when it could quietly achieve the custodianship goal via the Expropriation Bill.

Once the Expropriation Bill is on the Statute Book, there will be little to stop the ANC from enacting another ordinary statute that vests, say, all agricultural land in the custodianship of the state (as the 2014 Bill proposed).

Alternatively, a new statute could give the state custodianship over all privately owned land, thereby advancing the socialist objectives of the ANC’s National Democratic Revolution. No compensation would be payable in either instance because the state’s assumption of custodianship would be a mere “deprivation” not qualifying as an “expropriation”.

Some may believe the risks have been much reduced by the ANC’s strong criticism of custodianship in December 2021 – when the ruling party seemed to fall out with the Economic Freedom Fighters (EFF) on the extent of the land to be vested in the state’s custodianship under the Section 25 Amendment Bill.

The EFF – which regards custodianship as the only way to speed up land redistribution – wanted this Bill to state that “all” land would vest in the custodianship of the state.

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The ANC preferred to limit state custodianship to “certain” land, even though this could be interpreted widely enough to eliminate any real difference between the EFF and ANC positions. Tellingly, an ANC communique of December 2021, made it clear the governing party saw “state custodianship” as important to land reform.

“The state as intermediary, or custodian,” it said, “will hold land acquired… through the instruments of deprivation and expropriation… The land may be held in custodianship in perpetuity or released to beneficiaries in the future.”

Since then, President Cyril Ramaphosa has made it clear EWC remains the ANC’s goal. The potential costs are immense. As the Banking Association of SA has emphasised, “the market value of land-based property … is estimated at R7 trillion”.

If some of this property is subjected to EWC, property values will drop and a major banking crisis is likely to ensue. The economic fallout will be rapid and widespread. How extraordinary, then, that so few are speaking up against the Expropriation Bill, or the risk of uncompensated custodial takings.

-Jeffery is head of policy research at the Institute of Race Relations