An impossible policy that would erode property rights
Otto Von Bismarck – the Prussian statesman who presided over the formation of a united Germany – once famously said: “Politics is the art of the possible, the attainable — the art of the next best.” The dictates of reality, he suggested, made certain courses of action imprudent, even impossible.
President Cyril Ramaphosa’s comments in the state of the nation address on land expropriation call this admonition to mind.
Ramaphosa has promised that the expropriation of land without compensation will be a tool for land reform. This, he said, would be done so as to increase (not just safeguard) agricultural production and enhance food security. His statements match those made previously, such as his claim on a visit to the Zulu king that this policy would turn SA into a Garden of Eden.
The earthbound realities of South African agriculture make this proposition doubtful in the extreme. The country’s commercial agricultural sector is dependent on large volumes of credit – to the tune of R160bn, of which some two thirds is held by commercial banks. This is generally secured against the value of farmers’ landholdings.
To embark on a regime of non-compensation would strike at the heart of this. With property rights diluted and land subject to seizure, it is difficult to imagine that banks would retain an appetite for the risk the environment would imply. Indeed, Banking Association SA head Cas Coovadia cautioned against this last year: “Expropriation without compensation erodes property rights. And once this happens land can no longer serve as collateral. This places public and private loans to the agricultural sector – worth roughly R162bn – under threat, and makes financiers more likely to exit the sector.”
Government, for its part, lacks the resources to match the scale that agriculture would need. Far from driving production, expropriation without compensation would deal it a severe blow.
Food security would inevitably suffer. This is not just because of the decline in domestic production but because agricultural products earn considerable foreign exchange. This plays a key role in bringing in foreign exchange and balancing SA’s national accounts. This in turn is important for SA’s overall food security, as the country needs to import a large part of its food needs, not least staples like rice and wheat. The Agriculture Department reports that in 2016 exports from the agricultural sector earned SA R97.9bn, while imports cost R82.4bn.
These numbers represent a healthy surplus. Should the sector’s ability to export be undermined, the consequences would be severe. Rapidly rising demand for imported foodstuffs would strain SA’s ability to manage its balance of payments and would spur inflation domestically. Heightened food insecurity, particularly for the poor, would be the result.
The objectives articulated by the president simply do not work with one another. The consequences would be as dire as they are predictable. Far from being the art of the possible, they are a venture into the impossible.
Sadly, by taking this course of action, Ramaphosa’s government would probably also undermine the goodwill and confidence that has greeted his rise to power. Without question, it would herald a new wave of uncertainty across the economy – after all, if property rights were abridged to allow landholdings to be targeted, what else would in time become vulnerable?
IT PLACES PUBLIC AND PRIVATE LOANS TO THE AGRICULTURAL SECTOR – WORTH ROUGHLY R162BN – UNDER THREAT
Perhaps most concerning is that by placing expropriation without compensation at the forefront of the land reform agenda, Ramaphosa has diverted attention from the real and serious issues afflicting SA’s initiatives in this regard. Government’s own commission into the impact of transformative legislation, chaired by former president Kgalema Motlanthe, rejected the idea that compensation requirements have been a significant hindrance.
Fortunately, there is abundant evidence about what has gone wrong to enable government and its stakeholders in the sector to take meaningful action. Attention should rather be given to reconceptualising project design, to capacitating and upskilling the landreform bureaucracy, to providing useful postsettlement support, and to combating corruption. Property rights need to be respected, and extended to those denied them in the past. Nowhere is this more necessary than in respect of those aspirant farmers, beneficiaries of land reform efforts, who have been made tenants of the state rather than being given title to their land.
Ramaphosa is correct on one thing: agriculture has a large and important role to play in SA’s economy. That is, if its realities are accepted for what they are, and policy reflects the art of the possible.