By Frans Cronje
ANC president Cyril Ramaphosa assured South Africans in an interview a day after delivering his party’s January 8 statement that he didn’t think "anyone should be overly concerned or nervous" about land reform.
This followed his announcement that the government would investigate why so many land reform farms were derelict. But he made that announcement only after committing to seize commercial farms without compensation for land reform purposes and the transformation of the agricultural landscape into what he believed would be a 'Garden of Eden'.
To use an agricultural metaphor, he has put the trailer before the tractor. In a letter to a leading business newspaper, we recently warned that "Mr Cyril Ramaphosa has his strategic objectives and biblical parables back to front".
We can tell him what his investigation will uncover; that emerging farmers have insufficient access to capital, particularly where their tenure status is uncertain.
The current policy of the government is not to give ownership of land to black farmers, but rather for the State to own all redistributed land and to force black farmers to lease it. But, without ownership, those farmers have no assets against which to raise loans to run their businesses. Seizing all commercial farms without compensation will condemn the whole industry to a similar fate.
The extent to which credit drives commercial farming production is not sufficiently appreciated by policy makers in the ruling party and the government. Farmers have borrowed over R150 billion to run their businesses. The CEO of AgriSA, Omri van Zyl, told a radio station that “a third of the money borrowed from banks in South Africa is borrowed against the asset value of farms”. Without that money, production will slump, innovation will dry up and food prices will rise.
Who will step in to fill the funding gap? The government cannot, as current credit extension to farmers dwarfs the land reform budget several times over. The Land Bank has already extended itself. The government struggles to meet its current spending obligations. It has recently indicated that it wants to finance free higher education. It also wants to implement free universal healthcare.
But economic growth forecasts for this year indicate that South Africa’s economy is expected to grow at a third of the global average and at only a quarter of the average for emerging markets. We estimate the government’s tax-to-GDP take is already far beyond sustainable levels.
The government is therefore in no position to take on any further funding obligations, let alone one as onerous as financing all commercial agricultural production. Even if it did, what would the point be in taking a function the private sector handles so expertly, removing that sector, and then diverting taxpayers’ money to try and replicate the very same function?
Even if it tried to do so, without collateral, what action could it take against farmers who did not repay their loans? Would the government send the police to drive the first generations of black farmers off their farms if they defaulted on their loans and then replace them with new people – only to repeat the same mistakes?
If it looked to force the commercial banks to take on the risk, that would trigger mass investment flight from the country.
For good reason, then, the chairman of AgriSA, Dan Kriek, has correctly warned of the broader political and economic catastrophe that will be brought forth should the expropriation policy be executed. So, too, has the head of Free State agriculture, Francois Wilken.
Policy makers, and media commentators must listen closely to these warnings – and to those that have been sounded over the past several years. Don’t cast the warnings aside because you do not like the people who express them. Some of them might wear khaki shirts (a journalist recently suggested that such people should be ignored), but be assured these are people who understand the economics of food production in South Africa very well.
It must be made quite clear to the politicians that without collateral against which to borrow money, South Africa’s next maize crop, as just one example, will not be planted.
Property rights are the economic basis of the rural economy. Threatening those rights holds at best some short-term political advantages. But even these are in doubt as polling shows that what concerns South Africans most is employment, education, and their standard of living.
Polls we conducted in 2015 and 2016 showed that only 1% of South Africans identified land reform as a policy area that could improve their lives. This makes sense as South Africa is a rapidly urbanising society. Our polls show that what people want is jobs, in cities, along with good schools and safe neighbourhoods.
Issues around land reform are often driven by sentiment and emotion, and, while this is important and must not be dismissed, it is more important to point to the hard economic and political realities that would ensue should policy be made on the grounds of populist emotion alone.
In any event, it is not the case that land reform objectives, and the demands of sentiment, cannot be met in an environment that respects property rights. The opposite is more likely true, and it is only via being allowed full ownership rights that farmers, black or white, emerging or established, will be successful in meeting South Africa’s food needs. Put differently, and more bluntly – in the absence of a secure property rights framework there will be no successful black commercial farming role models.
The evidence for this is already apparent, with research from AgriSA showing that black people control roughly half of the productive capacity of South Africa’s agricultural land (but are without the ownership rights to raise the capital to unlock that potential) and also that the land market has in all likelihood done more to transfer land into black hands than the redistributive efforts of the government.
In the longer term, undermining the capital base of commercial farming will trigger significant negative social and political ramifications that extend well beyond the borders of rural areas, such as food-price inflation rises on the back of declining production, which would reduce living standards and feed much higher levels of public anger at the ruling party.
Our analysis shows that levels of confidence in the future of the country – and, by extension, the government and the ruling party – closely follow changes in living standards and income levels for households. Rising food prices will lower those living standards and quickly reverse any short-term political gain earned from the populist promise of seizing farms.
Far from creating a 'Garden of Eden', as Ramaphosa recently suggested, expropriation without compensation will 'bring forth thorns and thistles' (Genesis 3:18) (as colleague Terence Corrigan observed in an article for HuffPost) – exactly as is already case on the majority of land reform farms, and is increasingly the case for the ANC’s electoral performance.
*Frans Cronje is a scenario planner and CEO of the IRR – a think tank that promotes political and economic freedom.
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