Why South Africa Is Stuck in a Land Reform Quagmire
(Bloomberg) -- Land ownership in South Africa remains an explosive issue more than a quarter century after White-minority rule ended. A plan by the ruling party to change the constitution to make it easier for the government to seize land without paying for it looks set to unravel because it lacks sufficient support in parliament. While that should reassure banks that the billions of rand they’ve lent to farmers and real-estate owners aren’t at risk, expropriation still won’t be off the table. A draft law would permit seizure of land that’s being held for speculation or isn’t being used, although it could be hard to apply.
1. Why is land ownership such a thorny topic?
Because anger has mounted among the Black majority that racially skewed ownership patterns persist. The problem dates back to colonial rule, when most Black people were stripped of their right to own property by South Africa’s Natives Land Act of 1913. Discrimination escalated after the National Party came to power in 1948 and implemented a system of racial segregation, known as apartheid, or apartness, that left 87% of land in the hands of Whites. Today, about 60% of citizens still have no registered real-estate rights. President Cyril Ramaphosa says his administration isn’t planning wholesale land grabs, while warning that a failure to speed up reform will perpetuate injustice and constrain the economy.
2. Who owns the land?
A 2017 state-commissioned audit showed a third of rural land was owned by individuals, with 72% of that in White hands, while companies and trusts held 43%. The race of their beneficiaries and owners was difficult to determine. A separate audit released in late 2017, by Agri Development Solutions and farm-lobby group Agri SA, found Black, Indian and mixed race citizens owned 27% of farmland compared with 14% in 1994. About 81% of the country’s 60 million people are Black, 8% are White and the balance are mixed race or of Asian descent. South Africa had 82 million hectares of White-owned agricultural land when apartheid ended in 1994. The government set a target of redistributing 24.5 million hectares to those who had been disadvantaged by the racially discriminatory system by 2014, but it has only acquired 8.9 million hectares so far.
3. Why are constitutional changes unlikely?
The ruling African National Congress decided in December 2017 that expropriation without compensation was among the mechanisms needed to accelerate land reform, as long as it didn’t undermine the economy, agricultural production and food security. While it wants to amend Section 25 of the constitution, which deals with property rights, it only controls 58% of the seats in parliament and needs two-thirds of lawmakers to assent to changes. The Economic Freedom Fighters, the third-biggest political party, which has 11% of the seats and also supports expropriation, wanted the state to take custodianship of all land -- a proposition the ANC says would go too far. Parliament has yet to vote on the changes. Lawmakers are processing a separate Expropriation Bill that sets out when land can be seized. Passing it only requires a parliamentary majority, but its application could be challenged on constitutional grounds.
4. What’s at stake for the banks?
They have about 1.6 trillion rand ($113 billion) in mortgages, and were concerned that attempts to undermine property rights could cut real-estate values, weaken investor confidence and thwart economic development. Commercial lenders want the government to pay just and equitable compensation for any land that it takes, and for sufficient amounts to be dispensed to enable property owners to settle outstanding mortgages. They’ve also urged the government to clarify its reform policy to stimulate investment. Banks have also called for a land audit to track the status of transfers to Black owners.
5. How have financial markets reacted?
The rand and the nation’s bonds took a hit after almost every mention of the constitutional amendments that were aimed at facilitating expropriation, while they gained when it become evident that the ANC was unlikely to reach a deal with the EFF to push the changes through. Banking shares have also been impacted. A failure to respect property rights could result in South Africa violating conditions needed to retain its preferential access to U.S. markets, and may flaunt several international treaties the government has signed. The risks posed by expropriation have been evident in neighboring Zimbabwe, where the economy has yet to fully recover from the seizure of thousands of White-owned farms by ruling party-backed militants two decades ago.
The Reference Shelf
- A presidential advisory panel’s report on land reform.
- Why talks between the ruling party and opposition to change the constitution fell apart.
- A submission by the South African Institution of Race Relations to parliament that warns against changing the constitution.
- The University of the Western Cape’s Institute for Poverty, Land and Agrarian Studies overview of the distribution of land.
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