Expropriation without compensation in SA: Are we repeating the mistakes of the past decade?

South Africa’s economy has not fared well over the past decade. Between years of indifferent, declining growth, stubbornly persistent unemployment and a steadily worsening fiscal position, and the sudden, knockout blow delivered by the pandemic and the lockdown meant to contain it, the country and its people have seen the varying manifestations of an economic crisis.

Optimists might argue that, with this context, things can only improve. Indeed, the pandemic was seen by some as a blessing in disguise; inflicting such damage that the government would have no choice but to accept the need for “reform”.

It would provide President Cyril Ramaphosa the opportunity he needed to bring his full reformist instincts to bear. As one academic put it in a letter to the financial media, with reference to the push for expropriation without compensation (EWC): “The coronavirus pandemic has finally provided the opportunity for Ramaphosa to further weaken this discourse, or even to completely abandon it, however subtly this may occur.”

If this argument has any validity, the president’s work has been subtle indeed.

In reality, there is no evidence of this. EWC was a flagship policy of Ramaphosa’s incumbency before the pandemic. It remains firmly and prominently on the president’s agenda and that of his party.

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Front and centre of this has been the proposed amendment of the Constitution. Some have argued – the optimists again – that this is largely symbolic, a concession to internal party politics, since the Constitution would in some circumstances already permit it. The amendment would “make explicit that which is implicit”.

The University of Johannesburg’s Prof Steven Friedman went further, arguing that an amended Section 25 would actually enhance property rights, by clarifying what property owners needed to do to hold on to their assets.

This is unconvincing. Whatever form the amendment should take, it will fortify the power of the state vis-à-vis those subject to it, expanding its latitude for intrusion. It sends a loud if discordant message that property rights are under threat, that the state is positioning itself to move on the holdings of both individuals and businesses.

That message is enhanced by the Expropriation Bill. This has been greeted positively by many commentators as a sensible means to grant EWC powers while also safeguarding the interests of property owners.

Minister of Public Works Patricia de Lille stated in a media piece that it was compliant with the Constitution as it currently exists (neglecting to mention that it is policy to change this). But it also prescribes a process weighted heavily in favour of the state.

By following a simple set of procedures along with some perfunctory negotiation, the state is empowered to take property even if challenges remain active and unresolved. Property owners might well find themselves having to try to fight their cases after having been dispossessed of their assets.

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It should also be noted that while the amendment and the Bill have been presented as ‘land reform’ measures, their impact stands to be much broader.

Property in the Constitution is explicitly defined as not being limited to land. The constitutional amendment does focus on land reform – but provides for the expropriation without compensation of both land and ‘improvements’. The Bill will cover all manner of expropriation.

Taken together, the amendment and the Bill not only widen the scope and latitude for the state to take property at no (or very limited) compensation, but incentivise it. This is all the more so as the country finds itself with an ever-shrinking pool of funds; taking private assets would be a temptation to stressed governments, not only as a means to plug their fiscal holes, but to maintain the patronage systems that have so infiltrated South Africa’s governance.

The EWC agenda is a danger to individuals and households in general and in conceptual terms. It is also a danger because of the dysfunctional nature and ideological predispositions of the state that South Africa has.

If this agenda is pushed forward, South Africa can expect to see a replay of the economic blows that it has witnessed over the past decade.

The immediate blow will be the shock of having passed these measures into the constitutional order and the law. The blow to South Africa’s credibility as a business and investment destination will be swift and severe. It is hard to believe that the government does not understand this – after all, senior figures have conceded the damage that the policy drive has done thus far – but are probably willing to accept this damage for the ideological satisfaction.

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The government would also be banking on being able to recover from it expeditiously.

The latter would likely prove optimistic. South Africa has long been dogged by “policy uncertainty”. A move against property rights would announce, at best, that this uncertainty is now manifest in the very security of investments, or indeed that uncertainty has been replaced by the certainty of very bad and counterproductive policy. Every act of expropriation would add to this crisis.

Investors and businesspeople (South Africans probably no less than their international counterparts) can be expected to adopt a wait-and-see attitude, if not abandon South Africa as a serious consideration altogether. No doubt the president would make soothing noises to try to assuage fears, but by now this would lack any credibility.

Look at what the president does, not says, has been the optimists’ advice since 2018. With fundamentally changed constitutional and legal protections, this would be the essence of the problem.

And thus the longer-term blow of ongoing suspicion and depressed investor confidence. This could last a very long time, and be very costly for the country.

Modelling by Dr Roelof Botha and Prof Ilse Botha projected losses to the economy amounting to hundreds of billions of rands, along with more than two million jobs. South Africa would be seen as uninvestable.

This would of course be coming on top of the devastation of the pandemic, compounding an existing crisis. Following the EWC agenda would derail a “recovery”, accentuating South Africa’s status as a global economic laggard.

What South Africa does on EWC will determine its future. If it continues on the current track, it will have affirmed its decline.

The outcome of this would be – to use a quintessentially South African phrase – “too ghastly to contemplate”.

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

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