Inclusive land reform is good

FIRSTRAND CHAIR: REEXAMINE LESS SYSTEMIC SOES

Ideology around state asset ownership shouldn’t prevail when children are drowning in pit toilets, says Jardine.

New FirstRand chair Roger Jardine says “there is tremendous upside potential should property rights evolve to be more inclusive of South Africa’s real economy”, but warns that “if land reform is done in a way that prejudices property rights, the downside risk potential is equally significant”.

Writing in FirstRand’s annual report, Jardine says “so far, the Presidency is navigating this issue well. The process is transparent and designed to be inclusive of all views, but the assertion that mortgaged private property assets can be expropriated without compensation (and banks will just absorb the loss) is a ludicrous and dangerous fallacy.

“The Banking Association of South Africa estimates that the current total exposure that banks have to property assets is approximately R1.6 trillion ... these loans are funded by depositors’ money – that’s yours and mine.”

There’s so much upside potential because “best estimates suggest that more than half of South Africans occupy land without their property rights being recorded in the deeds registry, leaving them outside of the formal economy and unable to put these assets to productive work within it”.

While Brazil’s Gini coefficient was similar to SA’s in 1994, “inequality in Brazil has fallen on the back of strong economic growth and … [it] has experienced a significant rise in secondary school enrolments and graduations.”

SA, however, has experienced “low economic growth, a moderate reduction in poverty levels, but a sharp rise in income inequality.

“The obvious question is ... why did Brazil do better?”

While there are many reasons – including that our economy is skills and capital-intensive and doesn’t generate enough blue-collar jobs, critical to reducing unemployment and inequality – Jardine highlights that the “World Bank and other institutions have also identified that the skewed distribution of land and productive assets is a key constraint to SA’s economic growth potential”.

He argues that while the new state-owned enterprise (SOE) boards are welcomed and tackling systemic SOEs’ broken balance sheets and business models seems to be top of mind for government, “we must shape a view on the less systemic enterprises”.

He questions the need for a national carrier that costs billions of rand a year in a country with thousands of chronically underfunded state schools and hospitals.

“The banks can step in with short-term liquidity, but this is just ‘kicking the can down the road’,” and not sustainable, he says, adding that perhaps government should accelerate finding strategic equity partners for these assets.

Jardine is downright scathing: “Fiscal resources of the magnitude required to keep these SOEs going can be used elsewhere... Questions of ideology around the ownership of ‘state assets’ cannot and should not prevail when children are drowning in pit toilets.”

Hilton Tarrant works at YFM.