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17/01/2018 04:57 SAST | Updated 17/01/2018 05:52 SAST

Expropriation Without Compensation Would Deal A Massive Blow To SA’s Agricultural Sector

Expropriation without compensation would require a fundamental undermining of property rights in South Africa.

Siphiwe Sibeko / Reuters

Contradictory solutions are no solutions at all

The ANC's January 8 statement provided a disturbing picture of the policy contradictions that are the predictable and inevitable consequences of its recent conference resolution on pursuing land reform through a policy of expropriation without compensation.

The Institute of Race Relations notes that the statement unambiguously commits the party to pursue this policy. However, it also promises that there will be no disruption to South Africa's agricultural output, to its food security or to the economy in general.

It even pledges to build on the "enormous potential of agriculture to promote industrialisation, create employment and transform our economy." Indeed, it promises an economy open for business and investment.

These goals are incompatible with one another. They cannot be achieved simultaneously. Expropriation without compensation would require a fundamental undermining of property rights in South Africa. It has already been made clear that the constitution will need to be changed to enable it.

Stripping away the protections afforded to citizens and businesses in respect of their property -- with the avowed intention of allowing the state to seize assets -- will have a damaging impact on investor confidence. We believe that this is already manifesting itself, given the concerns that we have heard from businesses at the passage of the ANC's resolution.

Embarking on a campaign of expropriation without compensation will inflict even greater damage. South Africa's agricultural sector depends heavily on the secure ownership of its assets to leverage the funding it requires for its operations -- in excess of R160-billion rand annually, of which roughly two-thirds is raised from commercial banks.

If enacted, a policy based on expropriation without compensation would produce the polar opposite of what the statement promises.

It is difficult to imagine that they would have any appetite for providing loans against collateral that might vanish following a government proclamation. The government certainly has no ability to step into this funding gap, and the inevitable outcome would be a rapid drop in production. This would be the case for both established and emerging farmers. There is no way to avoid this reality.

Irrespective of government's intentions, expropriation without compensation would deal a massive if not fatal blow to South Africa's agricultural sector. The elevated risk profile would to all intents and purposes destroy its capital value.

Meanwhile, failures in agriculture would be followed in short order by contractions in upstream and downstream industries that feed and feed off the agricultural sector. The loss of foreign exchange earnings and the need to import greater volumes of food would drive inflation and batter the currency.

In addition, as we have previously indicated, any abridgement of property rights would not be confined to land and agriculture. Rather, it would open the way for extensive state intrusion into any number of other industries. The heightened sense of risk and vulnerability would be inimical to the investment and growth orientation that South Africa desperately needs.

There is simply no credible scenario in which embarking on this course would produce the positive outcomes laid out in the statement. It is a recipe for policy confusion, deeply damaging to the imperative of finding solutions to South Africa's long-term economic malaise. If enacted, a policy based on expropriation without compensation would produce the polar opposite of what the statement promises.

The Institute would advise policymakers in the governing party to opt instead for real, durable solutions to get South Africa's stalled land-reform endeavours back on track. Doing so demands respecting the importance of property rights for all, and extending them to those who were deprived of them in the past. They are a condition for South Africa's growth and prosperity.