Land Debate: Laudable goals, but flashing red lights for investors - Fin24

Jun 28, 2018
28 June 2018 - Without property rights, it is difficult to imagine how long-term, sustainable economic take-off will be achieved.

Terence Corrigan

President Cyril Ramaphosa's address to the South Africa-Canada Investor Engagement earlier this month calls to mind an observation made by former journalist Brian Pottinger in his book The Mbeki Legacy.

Uniting the apartheid government and its democratic successor is the idea that if only policy matters can be properly explained – if only people would listen – their substance need not be of undue concern.

Having observed the flows of South African politics since the 1920s, we at the Institute of Race Relations fully agree with this.

Decrying, reasonably, the historical dispossession and exclusion from economic activity of back people from the economic mainstream of the country, President Ramaphosa drew attention to the government’s intention to embark on a policy of expropriation without compensation.

"We have taken a decision to accelerate land reform," he said, "including land redistribution and ensuring security of tenure for the rural poor.

"This needs to be done through a range of measures, which will include, in appropriate circumstances, the expropriation of land without compensation."

Ramaphosa continued: "We are determined that this should be achieved in a manner that is consistent with our Constitution, enhances agricultural production and food security and promotes economic development.

"We are certain that our programme of land reform will enhance the country’s economic capacity and improve its attractiveness as an investment destination."

It is commendable that he flighted this matter before his audience. It is also notable that he tried to put a positive accent on it, saying that this was about rectifying injustices, and that it would be undertaken prudently, ultimately meaning great things for the country. The explanations offered, investors and their money are to be welcomed.

Whether this did much (or anything) to assuage concerns about property rights is a separate matter – and a doubtful proposition.

This is not a matter unique to South Africa. World Bank researchers argued some years ago that "[a]lthough redistributive policies have the potential to benefit the poor both directly and indirectly, they will do so only if redistribution does not jeopardise investment – this may be one explanation for the observation that, in the past, redistributive policies such as land reform have often failed to help the poor."

Nothing is more foundational to an attractive investment climate than secure property rights. They are a guarantee to investors – domestic or foreign, large or small – against arbitrary seizure, and the assurance of payment should their assets be requisitioned.

Without property rights, it is difficult to imagine how long-term, sustainable economic take-off will be achieved.

The recent experience of Venezuela is a warning.

It is equally difficult to imagine that investors would seek not reassuring words or expositions of government thinking, but a clear sense that their investments will be protected. Indeed, in attractive investment environments, this question is generally regarded as settled and is in that sense 'not an issue'.

South Africa, however, has chosen to make an ‘issue’ of it. How this plays out remains to be seen.

Government comments on the matter have been unclear and contradictory. It is unclear whether expropriation without compensation will be used to take over a few derelict buildings and abandoned fields, or as a means to force a mass transformation of the countryside (President Ramaphosa, after all, once confidently proclaimed that expropriation without compensation would turn South Africa into a 'Garden of Eden', a theologically questionable reference, but one nevertheless implying widespread application.)

As long as investors see in this a threat (or a threat that outweighs the probable rewards), they are unlikely to commit to the country. This is a hard reality.

South Africa has much to offer investors, along with significant drawbacks. Expropriation without compensation simply compounds the latter.   

Indeed, taken together with other developments – such as attempts to impose a new Mining Charter with onerous ownership requirements, or to encroach on intellectual property rights, or the cancellation of bilateral investment treaties (a source of concern even to those countries that did not have them) – South Africa’s government is signalling a message of insecurity. Should it act on these, it will strike at investors' core interests.

This, in turn, is a flashing red light for investors, and no amount of positive spin or explanation would likely compensate. Our own experience as the Institute of Race Relations, in our engagements both with local and with international businesses, is that this is a matter of great concern, and a significant disincentive to investment. Should expropriation without compensation become a reality, it is likely to deal a body blow to South Africa’s hopes for investment.

Ultimately, facts and realities matter a great deal. They cannot always be explained away.

* Terence Corrigan is a project manager at the Institute of Race Relations (IRR).

Support the IRR

If you want to see a free, non-racial, and prosperous South Africa, we’re on your side.

If you believe that our country can overcome its challenges with the right policies and decisions, we’re on your side.

Join our growing movement of like-minded, freedom-loving South Africans today and help us make a real difference.

© 2023 South African Institute of Race Relations | CMS Website by Juizi