Understanding the ‘Expropriation without Compensation’ drive – part 3 - Newsi

10 June 2021 - The constitutional amendment was pushed along through a highly visible campaign of public and parliamentary hearings, along with invitations for written submissions. These were nominally held to gauge whether or not such an amendment was required, and what the public thought of it. Hundreds of thousands of submissions were made on the issue, with all indications that the bulk of these opposed the amendment.

Terence Corrigan

The constitutional amendment was pushed along through a highly visible campaign of public and parliamentary hearings, along with invitations for written submissions. These were nominally held to gauge whether or not such an amendment was required, and what the public thought of it. Hundreds of thousands of submissions were made on the issue, with all indications that the bulk of these opposed the amendment.

The ANC and EFF, however, made clear that the idea of EWC – an issue of seminal importance for South Africa’s future – was not up for debate. This was effectively policy and would be implemented. The constitutional amendment was merely about method – would a constitutional amendment be necessary to do so. In the event, even this more modest issue was treated as having been decided independently of the official process. In July 2018, President Ramaphosa announced, while public hearings were ongoing: ‘It has become patently clear that our people want the Constitution to be more explicit about expropriation of land without compensation, as demonstrated in the public hearings.’

Subsequently, when it became clear that written submissions on the issue were substantively opposed to the amendment (and outnumbered the oral presentations at public events which tended to favour the amendment), ANC Secretary General Ace Magashule said that the views expressed at public hearings ‘outweigh’ written ones. ‘That’s why emphatically without any doubt we must amend Section 25.’

These were empirically questionable and constitutionally derelict positions to take but they illustrated that the issue had to all intents and purposed been decided by the political priorities of South Africa’s ruling party rather than by the outcomes of the constitutionally mandated participation process.

The committee duly recommended the amendment of the constitution, and a draft amendment was produced. It retained the final say in EWC with the courts (‘a court may, where land and any improvements thereon are expropriated for the purposes of land reform, determine that the amount of compensation is nil’ – note too that improvements are included here), and specified that legislation would set out the circumstances in which the courts could do this.

These changes might well have been able to pass themselves as minor and clarificatory, but in early 2020, the ANC indicated that it would seek changes to the amendment. The goal would be to place the process squarely in the hands of the executive, with the courts having very limited powers of review. The judiciary, the party believed, was not placed to implement policy and it moved to slowly for the sort of action South Africa required.

In parallel, in 2020, new draft expropriation legislation was introduced. This would replace the obsolete and constitutionally non-compliant 70s-era law. Much commentary noted that the Bill made provision for the expropriation of land at ‘nil’ compensation, but some succour was drawn from the fact that a list of applicable circumstances was supplied. This ignored (or misunderstood) the reality that the list was itself an open-ended one, but also that the process set out for expropriation was heavily weighted in favour of the state, which – even if compensation was offered – would create pressures on the expropriated owner to accept what was on the table rather than attempting to fight it.

Most concerning, however, was the definition of expropriation. The Bill states that this was ‘the compulsory acquisition of property by an expropriating authority or an organ of state upon request to an expropriating authority’. In other words, it required that property would need to be transferred to the ownership of the state; deprivation of an owner was insufficient.

Why was this important? In 2013, a ruling in a case before the Constitutional Court (Agri South Africa v Minister for Minerals and Energy) – which revolved around the loss of mineral rights under the Mineral and Petroleum Resources Development Act – held that expropriation required both that one party lose property and another acquire it. Since the MPRDA had assumed custodianship of minerals om behalf of the people of South Africa, and not ownership of them for the state, no expropriation had taken place and no compensation was owing. Property rights would simply evaporate.

Breathtakingly, in the decision it declined to define the terms ‘custodian’, merely stating: ‘Whatever “custodian” means, it does not mean that the state has acquired and thus has become owner of the mineral rights concerned.’ Although the judgement limited itself to the facts before it, the implications of the legal reasoning were profound – and are, as things stand, to be codified in law.

Another notable development concerns the regulations gazetted in late 2018 to guide the Valuer General in determining valuations in cases of land reform. The formula, as described to Parliament, was that ‘value = current use value + market value, divided by two’. This meant that values for land reform would reflect half of the combined value of what the property would sell for, along with what it produces (current use value has been defined as cash inflows and outflows on the day of the valuation.) Beyond this, various other sums, such as historical state subsidies, might be subtracted from this. In effect, unless a property is producing a substantial income, the starting point for valuation is likely to be well below (at around half of) market value. Residential properties would be particularly vulnerable.

Each of these processes would have the intention and effect of increasing state latitude to intervene in private property and to abridge property rights. While EWC was an important motif, it is important to note that the impact of this agenda would not only manifest itself in ‘nil’ compensation, but also in the ability of the government to take property at structurally discounted rates, and in the pressure that could be brought to bear on property owners to concede their assets.

Moving into the future
As the government pushed for a new constitutional and legal dispensation to enhance its powers over private property, developments in real-time and in the real world gave a strong indication of the future that officialdom envisaged.

To the extent that this drive is expressed as land reform, it is important to remember that it does not mean that it will confer ownership on its beneficiaries, even if this has been implied from time to time. As noted above, the dominant policy framework has been one of state ownership of redistributed property (properties transferred through restitution – i.e. where historical claims on particular piece of property are actualised – are somewhat different). But during the Parliamentary debate that kicked off the constitutional amendment process former land minister Gugile Nkwinti was unequivocal, title deeds would not be given to beneficiaries; rather the state would hold it and make it available to ‘our people’.

A highly publicised case illustrating this principle – and a great deal that was wrong with land politics in the country – involved a successful back farmer named David Rakgase. In the early 1990s, he had been able to lease a farm from the erstwhile Bophuthatswana homeland, and had by all accounts done well on it. In 2002, he made an offer to but the property, which the government accepted.

But the wheels of state turn slowly, and this was not concluded. In 2011, the government changed its mind, declaring that he could have a long-term lease, but not ownership. As it turned out, he was given five years, after which he would have had to reapply. By now he was in his 70s.

In the meantime, Rakgase’s farm had been subject to a land invasion, and he encountered difficulties having the unwelcome residents removed, since he was not the owner.

In frustration, he resorted to the courts; the judgement handed down in September 2019 was utterly damning of the state’s position. ‘There is no explanation why,’ the judgement read, ‘when the well-motivated occasion for conversion of a right presented itself, it was shied away from and the elderly Applicant was presented with a much lesser right, being a long-term lease, the end of which he will not see in his lifetime. The argument on behalf of the Minister that the Applicant has security of tenure and that there are no imminent eviction prospects on his horizon smacks of callousness and cynicism, particularly given our country’s historical deficiencies in dealing with land reform.’

For its part, the government made its position clear in its court papers: policy rested in ‘principle that black farming households and communities may obtain 30-year leases, renewable for a further 20 years, before the state will consider transferring ownership to them’. (Incidentally, in terms of existing policy, not all ‘black farming households and communities’ would be so eligible, with eligibility limited to those able to produce on a substantial commercial scale.)

This approach has not changed, and neither – unfortunately – have the consequences. In 2020, the government announced that it would ‘release’ 700 000 hectares of land for cultivation. That it had so much ‘underutilised’ land on hand was itself darkly interesting. But it also turned out that far from all of the land was unoccupied, and that the plan envisaged removing some productive black farmers.

Indeed, over the next few months it was revealed that this was a threat facing a number of black farmers working state-owned land. Having built up farming operations, they would find their leases cancelled, and be required to vacate the farms they had been operating. This was invariably linked to some form of malfeasance, with bribe-demanding officials and politically connected businesspeople standing in the shadows. The exact extent of this is unclear, but it once again points to severe pathologies in the country’s land governance systems.

Indeed, addressing, among other things, the abuse of these farmers and the poor state of land management, Minister of Agriculture, Land Reform and Rural Development Thoko Didiza has said: ‘It’s clear what we have in large measure are individuals who may not have the requisite skills to undertake this task.’

And a recent in the Daily Maverick pointed to the findings of the Auditor General: ‘The latest assessment of the department’s financials shows that its internal financial record-keeping displays minimal regard for accuracy, its supply chain controls are woeful and the conduct of its officials is worrisome. Overall, things have gone from bad to worse in the past five years.’

Indeed, the poor condition of state administration goes some way to explain the poor results of land reform. Land reform – particularly in its rural, agrarian expression – has failed to live up to its developmental promise. Former Minister of Minister of Rural Development and Land Reform once commented that 90% of land reform projects had failed. This was (correctly) criticised as a ‘thumbsuck’ figure. But Professor Ben Cousins of the Institute Poverty, Land and Agrarian Studies – hardly a land reform opponent – has pointed to that research indicating ‘around 50% of the projects have improved the livelihoods of beneficiaries to a degree’. This is not a result to celebrate.

It’s difficult to imagine the EWC push doing anything other than exacerbating these problems. Despite President Ramaphosa’s commitment to a ‘capable state’, there is little indication of it materialising – and achieving it will be a long-term, fraught project. And without such institutions, even a far more modest land reform plan would be inconceivable.

Yet if rhetoric is to be believed, the ambitions are extensive indeed. More to the point, so are the responsibilities that the state envisages itself undertaking.

Indeed, in May 2021, the committee processing the constitutional amendment heard arguments from state departments that echoed the ANC’s earlier suggestions that the amendment should place the executive, rather than the courts, in charge of expropriation. This would remove a key safeguard against abuse.

More than this, idea of custodianship has come up repeatedly. The EFF has been the chief political proponent here, but it is by no means confined to it. Given the commitment to state landholding, this would not be a great ideological leap to make. Indeed, it has been endorsed by numerous voices within the ANC and by state officials. The idea of a mass custodial taking actually made an appearance in an early iteration of the 2014 Preservation and Development of Agricultural Land Framework Bill. It was recommended in the 2017 state land audit and was presented as the government’s plans to an audience at the World Economic Forum in Davos in 2019.

The EFF has sought to introduce this idea into the constitutional amendment, and it is unclear where the ANC places itself in this respect, although it does not appear to be intrinsically opposed. Perhaps its position is best captured by its MP Vuzumusi Xaba that the imperative is ‘achieving the objective of having land without paying a cent’.

A custodial taking might well be attractive for the government as a means to achieve an ideological goal while having a chance at maintaining a functioning agricultural economy, and expanding the reach of its patronage network. 

President Ramaphosa was being sincere when he has called on farmers to continue investing. There is also some realisation that while economic damage is inevitable (it has already endured a deal of damage for the ‘debate’ around EWC), it will seek to contain this.

The goals might therefore not be to seize control of commercial operations – which the state has no prospect of running properly – but to ‘to regulate those means’ to the advantage of the State and the party, as the IRR’s president Russell Lamberti has put it.

How would this play out? Having undertaken a compensation-free custodial seizure of land, the government might then offer productive farmers (or some subset, say the country’s largest operators who contribute a disproportionate share to output) leases to continue their operations. These would be renewable, and probably contingent on meeting empowerment goals. The state develops regulatory power over an economic sector and uses that power to force businesses in that sector to surrender some of the value they produce. 

This would appear to be a pragmatic choice to those who are able to continue – at least the dreaded ‘uncertainty’ would be over, although even this would be a mirage. Over time, the conditions for operating would be made ever more onerous, with increasing demands to cede ever more equity, or to alter operations operate in accordance with official diktat. Perhaps the final outcome is that farmers would eventually be turned into civil servants, perhaps as an adjunct to the ruling party’s patronage system, or perhaps the industry would simply wither away as demands and burdens became overwhelming. (For a glimpse of this, see the not dissimilar path has been followed by the mining industry.)

Meanwhile, the focus on land as the target of EWC has led to the regrettable misunderstanding that this is the only asset under consideration. This is the fallacy of the phrase so often used in the media ‘land expropriation without compensation’ – word of the year in 2018, as noted above. The expansion of state power to deprive people and institutions of their property will not be limited to land.

Among the changes recommended to the constitutional amendment by the Department of Public Works recently as to make explicit that EWC can be undertaken in respect of all property, and not only land (which is currently the import of the wording). Explicit constitutional sanction of seizures at ‘nil’ compensation of all manner of property is now in play.

This is not a purely intellectual point. The statist drift of much economic thinking in recent years opens up numerous possibilities for intrusion into and confiscation of property. In fact, they make it inevitable.

The proposed National Health Insurance, for example, is premised on effectively placing all health funding in the hands of a state-controlled fund. Professor Simon Nemutandani of the Health Professions Council of South Africa recently recommended to Parliament that reserves held by medical aid schemes should be requisitioned to capitalise the scheme: ‘all assets under the control of the medical schemes must be taken by over the NHI’. It is difficult to see this as anything other than an act of expropriation, worth something in the region of R90 billion.

While it is quite possible that there might be some pushback from those affected, their prospects of success would be significantly reduced if the constitutional and legal changes described above are enacted. Besides, if land may be taken for policy reasons, and for purposes – nominally – of the upliftment of the country as a whole, surely similar argument might be made in respect of other assets?

Given the ambitions of the ruling party – both ideological and venal – medical funds will not be the only subject of such a demand. Look too at such things as pension funds and intellectual properties.

Certainty would, of course, be welcome. As we at the IRR have argued before, South Africa has managed the not inconsiderable feat of establishing just enough certainty that bad policy is on the way, but not enough to allow any planning around it.

In a sense, then, EWC is about land, but not solely or exclusively so. It is rather about the ideological currents of a liberation movement, the failure to resolve socio-economic stresses, and the crises besetting the country.

Giving the state enormous power over citizens’ property would mean reviving many of the restrictions on freedom rightly decried as being central to colonialism and apartheid, and which have persisted into the present. The costs – in failed policy, lost growth and stalled upliftment – have been extensive indeed.

Perhaps one might fruitfully bear in mind Prof Asmal’s words: ‘Where there are conflicts between the rights of individuals, the objective of government will be to promote the rights to a basic quality of life for all citizens, particularly the poor.’ This is sage advice, and one that has been recognised in the breach over the course of the property rights debate.

Terence Corrigan is a project manager at the Institute of Race Relations. 

This is the last of a three-part analysis of the history and notion of Expropriation without Compensation (EWC) 

https://www.newsi.co.za/opinion/understanding-the-expropriation-without-compensation-drive-part-3

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