Expropriation Bill will 'tighten the noose' around business – Politicsweb, 9 March 2016

Anthea Jeffery responds to Coenraad Bezuidenhout's defence of the controversial legislation.

By Anthea Jeffery 

Coenraad Bezuidenhout has come with a lengthy defence of the Expropriation Bill (Politicsweb 4 March 2016), but this downplays key problems in the Bill and various other threats to property rights.

Bezuidenhout’s key points are the following:

1. The Bill, he believes, does not form ‘a key part of a raft of legislation and policy interventions aimed at weakening property rights and investor protections in South Africa’, the existence of which he seems also to doubt.

This assertion overlooks a host of damaging laws and policies, starting with the Restitution of Land Rights Amendment Act of 2014. This Act reopens the land claims process for a five-year period and is likely to witness the lodging of some 397 000 new claims. If past experience is anything to go by, these claims could unsettle the ownership rights of all those affected for well over 20 years. In addition, the Government does not have the R130bn to R180bn its own regulatory impact analysis estimates will be needed to settle all these claims. This raises questions as to how the money for compensation will be found.

Also relevant is the Property Valuation Act of 2014, under which a state official, the valuer general, is to be responsible for putting a value on all land and accompanying movables that are targeted for land reform. Salient too are proposed ceilings on land ownership; the 50:50 proposal under which farmers must transfer 50% of their land to long-serving farm workers; proposed restrictions on foreign farm ownership; and the Preservation and Development of Agricultural Land Framework Bill of 2014 (the Agri Land Bill), which seeks to vest all agricultural land in the custodianship of the State and makes the ‘right to farm’ subject to ministerial regulation. At various times, President Jacob Zuma and other ANC leaders have also called for the cut-off date for land claims to be changed from 1913 (as stated in the Constitution) to an earlier date.

Relevant too is the recent termination of 13 bilateral investment treaties with the United Kingdom and other European countries, many of which have long been by far the biggest investors in South Africa. These treaties have been replaced by the Protection of Investment Act of 2015, which provides no meaningful safeguards for either foreign or domestic investors.

Then there is the Draft National Policy on Intellectual Policy of 2013, which aims to give the State, among other things, the right to compulsory licences, in return for low royalties, over patented products of various kinds. Also relevant here is the Copyright Amendment Bill of 2015, which proposes to establish a state-controlled Intellectual Property Tribunal to decide on the granting of these compulsory licences.

In addition, there is the Private Security Industry Regulation Amendment Bill of 2012, which requires all foreign-owned security companies operating in South Africa (including those which merely transport security equipment, such as closed-circuit television cameras) to transfer 51% of their assets or equity to South Africans.

Also relevant is the Mineral and Petroleum Resources Development Amendment Bill of 2014, which could allow the mining minister to impose price and export controls on ‘strategic’ minerals. Its current wording also gives the minister significant powers over minerals ‘designated’ for local beneficiation. In addition, this Bill gives the State a 20% ‘free-carried’ interest in all new oil exploration and production operations, along with the right to a further stake at a price the Government is willing to agree.

In addition, there is the Expropriation Bill itself, which Bezuidenhout prefers to view in isolation from all these other policy interventions. This Bill, he says, ‘cannot be viewed as anathema to investor confidence...on any rational basis’. However, in the IRR’s experience, many fund managers and investment advisers do indeed see the Bill as a major barrier to investment, especially against the background of these other threats to property rights. Anyone who doubts this does not understand investor concerns.

2. Bezuidenhout says I am wrong in my interpretation of the Constitutional Court majority judgment in the Agri SA case. Here he quotes from Professor Elmien du Plessis, whom he describes as a ‘recognised’ expropriation law expert.

However, Du Plessis’s description of the majority judgment of in this case is flawed. In particular, Du Plessis fails to explain why Chief Justice Mogoeng Mogoeng concluded (to cite her words) that ‘the State had not acquired the substance of the right’ in this instance. The key passage in his judgment, which Du Plessis overlooks, makes it clear that it was the supposed distinction between custodianship and ownership that Mogoeng found compelling.

According to Mogoeng, the ‘assumption of custodianship’ by the State did not amount to expropriation because it did not make the State the owner of the right in issue. He also said: ‘Whatever “custodian” might mean, it does not mean that the State has acquired and thus become the owner of the rights concerned.’ Mogoeng thus found that no expropriation had occurred, which in turn meant that no compensation was payable. (The Constitution requires the payment of compensation for expropriations, but not for other deprivations at state hands.)

Du Plessis also overlooks the warning sounded in the Agri SA case by the Constitutional Court’s Judge Johan Froneman, with Judge Johan van der Westhuizen concurring. Froneman cautioned against the ramifications of Mogoeng’s judgment, saying it could ‘immunise, by definition, any legislative transfer of property from existing property holders to others if it is done by the State as custodian of the country’s resources, from being recognised as expropriation’.

3. Bezuidenhout goes on to accuse me of overlooking the fact that Mogoeng was dealing only with the facts of the particular case and that his judgment might not be followed in different circumstances. I have of course pointed this out on many occasions.

However, I have also warned that the new definition of expropriation in the Bill seems to reflect Mogoeng’s judgment and his limited conception of expropriation. Hence, if this definition is made law and the State in future acquires custodianship, rather than ownership, of land and other assets, the State’s ‘assumption of custodianship’ is likely to be seen as falling short of expropriation (as in the Agri SA case). In these circumstances, the Bill’s rules regarding expropriations will not apply, and no compensation will be payable.

There is a real risk that this definition has belatedly been inserted into the Bill – without any Nedlac debate or public consultation – precisely because the ANC wishes to turn Mogoeng’s distinguishable precedent into a statutory rule. As a statutory rule – and one forming part of a Bill that will expressly trump all other legislation on expropriation – the new definition will apply to all takings of property in the future. This could encourage hundreds of organs of state, at all tiers of government, to acquire property as custodian, rather than as owner, so as to avoid having to pay compensation. This temptation is likely to be particularly strong in the current situation of limited growth, constrained tax revenues, rising public expenditure, and accelerating public debt.

The risk is thus an important one, which needs to be drawn to people’s attention, not disregarded. In raising this point, I am not trying to ‘snowball untruth into truth’, as Bezuidenhout claims. Nor is my analysis the product of ‘ignorance’ or some negative agenda. My aim is simply to alert South Africans to a key change in the Bill in the hope that this damaging definition will be removed or amended before the Bill is enacted into law.

4. Bezuidenhout goes on to say South Africans should not worry that the Agri Land Bill (the PD-ALF bill, in his analysis) seeks to vest all agricultural land in the ‘custodianship’ of the State, because Canada and the US are also now using the custodianship concept to help safeguard ‘scarce and valuable’ natural resources.

But US and Canadian law may well reflect a different concept of custodianship from the one that is being developed here, which is clearly novel even in South Africa. (This is evident from Judge Froneman’s ruling in the Agri SA case, which spoke of ‘the entirely new legal concept of state custodianship’ reflected in the majority judgment.) In addition, South Africa must do what is best for itself in its own particular circumstances, not simply follow policies in other countries that may have only a superficial resemblance to what is being proposed here.

5. According to Bezuidenhout, the Agri Land Bill is aimed simply at ‘ensuring that farmers use productive farmland for productive farming to ensure food security’. Yet the Bill goes much further than this. It also introduces a plethora of bureaucratic bodies from which farmers will have to obtain time-consuming and costly permissions before they may change the use of their land, possibly even in minor respects. If safeguarding food security were really the Government’s objective, this aim could be better achieved in other ways – and without vesting all farming land in the ‘custodianship’ of the State.

Bezuidenhout says farmers who might in time be compelled to enter into leases from the State before they may exercise their ‘right to farm’ will always be able to challenge any conditions in such leases that are unconstitutional. Given the costs and uncertainty of litigation, this is hardly a practical solution. In addition, experience in the mining sector – where private ownership of mineral resources has been replaced by state custodianship, and ever more onerous obligations are being placed on mining companies under different iterations of the mining charter – shows just how difficult it may be to comply with conditions that may not be unconstitutional but are nevertheless so uncertain and so costly as to erode profitability and deter investment.

6. Whether the constitutionality of PSIRA could be challenged is also not the point in issue here. My concern is that the new definition in the Expropriation Bill will bar indirect or regulatory takings from counting as expropriation. This definition could thus encourage additional indigenisation requirements, along with other regulatory takings. Such developments are likely to prove a further barrier to investment in South Africa.

7. According to Bezuidenhout, business has ‘struck a hopeful and optimistic tone’ in its comments on the Expropriation Bill.  Yet Business Unity South Africa expressed significant concerns about the Bill during the Nedlac process, while the Banking Association of South Africa (Basa) has repeatedly warned that the limited compensation available under the Bill may not be enough to cover mortgage loans on expropriated homes and other property.

More recently, Basa has also criticised the new definition of expropriation, warning that it could leave the door open for the State to take custodianship of property and so avoid paying compensation. Even Agri SA, which seems to have muted its criticisms of the Bill in the hope of building up the best possible relationship with Government, has recently indicated that, if the final version of the Bill seems unconstitutional, it will be tested in the Constitutional Court.

8. Bezuidenhout further asserts that ‘any lack of investor confidence in South Africa’ has ‘very little...to do with constraining legislation (outside of our labour regime)’. In saying this, he seems to overlook all the damaging policies listed at point 1 above. To these must be added recent changes to employment equity and black economic empowerment (BEE) requirements. These revised rules ignore practical obstacles to the attainment of racial targets, while threatening business with draconian fines and sometimes also with lengthy prison terms. These further challenges and risks also erode investor confidence.

9. Bezuidenhout goes on to claim that investors have ‘good perceptions’ of the ‘quality of our institutions’, and that these perceptions have recently been vindicated by Mr Zuma’s about-face on his appointment of David van Rooyen as finance minister in December 2015. However, Bezuidenhout makes no mention of the major damage that has been done to various institutions by alleged political interference in the National Prosecuting Authority; the Al-Bashir debacle; the Nkandla scandal; and Mr Zuma’s belated acknowledgment that the remedial action advised by the public protector is indeed binding on him. Instead, Bezuidenhout implies, it is the IRR’s ‘mindlessly repeated’ and ‘banal threats’ that are undermining ‘good perceptions’ of South Africa’s institutions.

10. Bezuidenhout suggests that the IRR is acting out of ‘pure ignorance’, but then goes on to propose that we should be more ‘solution-oriented’. But the IRR did, of course, put before Parliament an alternative expropriation bill, which deals with all the defects in the current Expropriation Act of 1975, complies fully with the Constitution, and reduces the risk that the power to expropriate might in future be abused. (The IRR’s proposed alternative bill is available on our website, at www.irr.org.za.)

Finally, I did indeed cite Bezuidenhout’s telling criticisms of the Employment Equity Amendment Bill of 2013 in my book BEE: Helping or Hurting? As executive director of the Manufacturing Circle, Bezuidenhout warned against the ‘punitive fines’ and other changes being introduced, adding: ‘The dictum that transformation needs economic growth [to succeed] appears to have been forgotten. Barely 40% of working-age adults in South Africa are employed at all, yet the Government sees fit to tighten the noose around the neck of [private firms].’

Given the salience of this critique, it is difficult to understand why Bezuidenhout now seems so little concerned about the Expropriation Bill – even though this measure will ‘tighten the noose’ around business even further.

Anthea Jeffery is of Head of Policy Research at the IRR. 

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