WHERE ANGELS FEAR TO TREAD

Investors are being misled into believing the government has a good grasp on designing a workable land reform policy that includes expropriation without compensation (EWC) when, in fact, policy considerations have become lost in a swirl of politics and spin.

The government has no clear idea who the beneficiaries of land reform or expropriation should be, or how and where land is needed, making it impossible to design or cost an overarching land reform policy that includes EWC. This suggests that the fiscus is in for a rude shock once the actual costs finally emerge.

This is one of the key messages in a report on the future of land reform in SA by Intellidex, the capital markets and financial services research house.

The report coincides with the decision last week of parliament’s joint constitutional review committee that the constitution be amended to allow the state to expropriate land without compensation. A different committee will draft the wording of the amendment — something the ANC says will be impossible to finalise before the 2019 elections.

Most opposition parties and written submissions to the committee were strongly against amending the constitution, but most speakers at public hearings were strongly in favour of it, signalling pervasive dissatisfaction with the government’s existing land reform efforts.

Responding to the committee’s decision, Business Unity SA (Busa) points out that the issue is far broader than amending section 25 of the constitution: “It’s about how the entire edifice of the land reform programme has been a resounding disappointment to those intended to benefit from it.”

Busa urges the country to take a holistic, unifying approach to land reform that factors in past policy failures and moves SA forward without undermining its economic fundamentals.

However, according to Intellidex’s paper, “Land Distraction”, policy considerations have been drowned out by “politics, vested interest, short-term strategic plays and public relations”. And because it holds that politics will ultimately trump policy, it urges investors not to disregard the force that is exerted by those who believe in forced restitution and sweeping constitutional change.

“Land reform in its totality is a strong, long-term positive for SA if it can be executed through a capable, capacitated and clean state — conditions that do not exist and are unlikely to do so in the foreseeable future,” says Intellidex’s head of capital markets research, Peter Attard Montalto.

“Expropriation without compensation does have a role in this ideal policy world, but is a dangerous, potentially growthdampening distraction in the interim given the form of the debate.”

The problem is that the debate is not concerned with what an ideal land reform policy should look like and what new legislation, institutions, development of skills and capacity and additional spending will be needed to make land reform work.

As a result, it is impossible to say whether a good land policy is a R50bn or a R100bn project.

“We don’t believe there has been any particular discussion on increasing the allocation to the department of rural development & land reform in the latest medium-term expenditure framework negotiations,” says Attard Montalto.

The amount the government spends on land reform and restitution as a share of total government expenditure has been falling steadily in recent years (see graph), gobbled up increasingly by the department’s wage bill.

The department’s budget was just 0.2% of total government expenditure in 1997/1998 and rose to a peak of 1.1% in 2007/2008, during the Mbeki years. The National Treasury has budgeted for it to fall back to 0.7% by 2021/2022.

The pace at which land is redistributed has also fallen from a peak of 500 kilohectares (kha) a year in 2007/2008 to a projected 90kha a year. At this rate it will take another 43 years to settle all outstanding claims.

An ideal land reform policy would require strong, independent institutions backed by a decent budget. Government would have to invest in skills, equipment and infrastructure to support new farmers as well as rural supply chains and economic cluster developments in urban areas.

Because of this, Intellidex expects that there will be a “shock” when the expenditure implications of running a proper programme emerge.

But that assumes SA will get to the point of designing a holistic land reform strategy — something that cannot be taken for granted, given the way the land reform debate has become focused almost exclusively on EWC.

Intellidex believes that EWC should form only a small part of an ideal land reform strategy.

It says the debate has become skewed towards the expropriation issue partly because people misunderstand the conflicting data on land redistribution and what has