South Africa’s Path to Land Reform Is Riddled With Pitfalls

(Bloomberg Businessweek) -- The clay-rich soil of South Africa’s Western Cape province has produced some award-winning pinot noirs and sauvignon blancs, but Nokwanda Matebese is certain that without a patch of dirt to call her own, she and her relatives will never have a taste of prosperity. “I work hard for my three children and have to send money to my mother and extended family,” says Matebese, 35. A seasonal worker in the area’s vineyards, she lives in a one-room shanty fashioned from corrugated steel in Kayamandi township, an impoverished settlement on the outskirts of Stellenbosch. “Without owning land or property, it will forever be difficult for myself and my family to move up the economic ladder—for example, get a loan to start a business.”

South Africa’s Natives Land Act of 1913 stripped most black people of the right to own property, a policy reinforced by apartheid, the decades-long system of racial segregation. More than 20 years after white-minority rule ended, the ruling African National Congress has made limited progress in righting historical wrongs. Whites make up less than 8 percent of the population but own almost three-quarters of agricultural land, according to a 2016 audit commissioned by lobby group Agri SA.

South Africa’s Path to Land Reform Is Riddled With Pitfalls

With national elections looming in May and the economy in the doldrums, the ANC leadership is under pressure to speed up wealth distribution. For the first time since ascending to power in 1994, the party is at risk of losing its national majority, with a recent poll by the South African Institute of Race Relations indicating its support has dropped to a record low. On Nov. 15 a parliamentary committee resolved that South Africa’s constitution must be amended to allow the government to expropriate land without paying for it, an idea that President Cyril Ramaphosa endorsed last year.

The nation’s banks may have the most to lose from any changes. “If residential land comes under question, and if property rights more generally come under question, that could have an extremely large systemic effect on the banking sector,” says Kuben Naidoo, a deputy governor of the South African Reserve Bank. Lenders have 1.6 trillion rand ($114 billion) of mortgages outstanding, as well as 150 billion rand of loans to farmers.

Other important sectors could also be affected. “Tourism is booming now. You don’t want to mess that up,” says David Notten, who charges 5,995 rand a night to put up visitors at his family-owned game lodge near Kruger National Park. Safaris are an important source of revenue for South Africa’s travel industry, which supports 1.5 million jobs and generates about 9 percent of gross domestic product, according to government data. “This is a necessary conversation but a delicate one, too,” he says. “How will the government handle many tricky questions, including the fact that my grandfather bought this farm a long time ago and I have a title deed to prove that the sale predates the period of the injustice of the land that was taken from black people.”

Two-thirds of lawmakers would have to assent to change the constitution to allow expropriation without payment. The ANC holds 62 percent of the seats. The Economic Freedom Fighters, South Africa’s third-biggest political party, which supports land seizures, has 6.4 percent. The vote isn’t likely to take place before May, as it will have to be preceded by a laborious public hearings process, says Pierre de Vos, a law professor at the University of Cape Town. Even after that, it could take months, if not years, for the matter to be settled, because new laws would have to be put in place, says Ronald Lamola, the ANC’s spokesman on land reform.

The government knows it must tread carefully to avoid replicating the experience of Zimbabwe, where land seizures triggered an exodus of white farmers at the turn of the century, with disastrous consequences. Once an exporter of maize, cotton, beef, and tobacco, the country now suffers frequent food shortages. Eddie Cross, a Zimbabwean economist and legislator, has estimated the total cost of Zimbabwe’s so-called fast-track land reform at $20 billion.

For South Africa, a slow-track approach could also exact an economic cost in forgone investment. François Miller took out loans to build irrigation systems and other infrastructure at his farm along the Orange River, in Free State province, where he tends to 250 heads of wagyu, a type of cattle whose meat can fetch as much as 1,500 rand per kilogram in Asia. “There is a lot of money in wagyu farming,” he says. “We don’t want that affected by uncertainty and decisions that are not well-thought-out.”

Legislation that facilitates expropriations could also violate conditions of the African Growth and Opportunity Act, which grants 1,800 products from sub-Saharan Africa duty-free entry into the U.S. The list of eligible countries is reviewed annually.

Despite the risks involved, South Africa could reap rewards long-term if it can find a thoughtful way to tackle the land distribution issue, says Michael Jordaan, a venture capitalist and chairman of Bank Zero, an app-based lender. “The uncertainty about the exact nature of expropriation without compensation is not ideal,” says Jordaan, who previously headed one of the biggest retail banks in the country. “At the same time, property redistribution can solve inequality and improve societal stability.”

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net, Cristina Lindblad

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