South Africa’s land expropriation debate continues to roil everyone from farmers to foreign investors and financial institutions. What has the government done to address land reform?
It’s a five-hour drive from Johannesburg to Smithfield in the Free State province of South Africa. As we arrive, the sun is shining its warm golden hue over 1,200 hectares of Eddie Prinsloo’s land. As we drive on the long dirt road towards the farm house, the smell of manure hangs thickly in the air. On the right is a beautiful view of the mountains towards Lesotho. It is quiet and peaceful here but debates about white-owned farms are getting louder and louder.
The issue of land in South Africa is big. Many black South Africans were pushed off commercial farms and even denied opportunities to own land during white colonial rule. In a democratic South Africa, it has caused heated debates around dinner tables, in political party headquarters, and parliament and even had United States President, Donald Trump, tweeting. It has also given birth to opposition political parties like Julius Malema’s Economic Freedom Fighters (EFF) and Andile Mngxitama’s Black First Land First (BLF).
Most black South Africans say they want land. The African National Congress (ANC) government agrees. It wants to change the Constitution to make it possible to take land from white farmers and give it back to black South Africans. It is calling it expropriation of land without compensation.
“The ANC will, through a parliamentary process, finalize a proposed amendment to the Constitution that outlines more clearly the conditions under which expropriation of land without compensation can be effected. The intention of this proposal is to promote redress, advance economic development, increase agricultural production and food security,” said South Africa’s President, Cyril Ramaphosa after the ruling party’s two-day National Executive Committee (NEC) Lekgotla in South Africa’s capital, Tshwane.
This news sent shivers down the spines of farmers, banks and some investors. The government is however adamant expropriation without compensation should happen to give opportunities to the blacks who had land unjustly taken from them.
Prinsloo, a white man who started sheep farming in 1974 when he inherited the farm from his father, says he is one of the few farmers already trying to empower blacks. We meet him in his thatched office. Awards and photographs of sheep hang on the wall.
Two years ago, he asked the government to buy one of his four farms on condition it will give it to his nine workers.
“In 1994, I wanted to give my people a farm because they sell a lot especially to the Lesotho people. That is their part of the business… In 2016, I offered the 1,500-hectare farm to the government on condition that my workers will be the new owners and they get title deeds,” says Prinsloo.
The process took two years. It worked. Currently, the farmworkers have 49% shareholding in the farm, while Prinsloo retains 51%.
“I will help them by training them on the business side of farming and letting them use my equipment for their sheep. Black farmers are good farmers, they do all the work but they don’t know about accounting and other stuff but these things can be taught. I want them to know every aspect of this business so that they are able to run their own farms,” says Prinsloo.
According to Prinsloo, who is fourth generation South African, the longest-serving workers will get more shares to the farm compared to newcomers.
“The government was very supportive. It just took too long and I almost sold the farm to another farmer who wanted to do this with my employees.”
Asked about his views on Ramaphosa’s plan for expropriation of land without compensation, Prinsloo does not appear worried.
“It has never scared me. I believe that before the elections, [the ANC] makes a lot of scary announcements but I have never been scared. I think it will just go on as we farm now. I don’t think it’s fair to expropriate land without compensation. Seventy five percent of all black people want to become a part of agriculture but only one percent wants to farm,” he says.
Prinsloo says his fear is that when people get things without paying for them, they would not value or look after them.
“The government must now give the black people who want farms a low interest rate so they can be able to buy land. In the old days, there was Agri bank. It helped poor farmers who couldn’t get a loan from the land bank. The government must bring it back.”
Prinsloo however says he is against farmers who have land here but are living overseas leaving the land unattended.
“Those farms should be taken and given to black people, like my staff members, who deserve it.”
Palesa Phantsi is one of Prinsloo’s workers set to benefit from this deal with the government. She has worked as a maid for Prinsloo since January 2012.
“I am so happy that I am getting land. I never thought this would ever happen in my life. Now, I will grow and be able to do many things I couldn’t do before,” says Phantsi.
Lebogang Phomane is another employee set to benefit from this initiative. He walks us around the sheep kraal showing us what his day-to-day work with sheep entails. He has worked for Prinsloo for 30 years and knows most of the work except the administrative side.
“I am so happy because a lot of farmers don’t do this kind of thing. When he started talking about it two years ago, I didn’t believe him. Now he is helping us create our own legacy. I stopped going to school in grade nine so this is going to be life-changing,” says Phomane.
Prinsloo says he will train these soon-to-be land owners on the business side of sheep farming and even help them with equipment and a place to sell their sheep or wool.
This initiative has won him a lot of support but also criticism. One of those against his actions is BLF, a South African political party founded in 2015.
“This is a scheme by whites to hide the fact that the likes of Prinsloo gets paid for stolen land. There is no prescription for historical land theft – and the white Prinsloo still benefited by selling the stolen land. This is a clear indication of the impunity with which whites continue to act – they will never return land without receiving payment,” says Free State Chairperson Luyolo Busakwe.
Millions of people lost land during colonisation in South Africa.
According to Professor Ruth Hall, from the University of the Western Cape’s Institute for Poverty, Land and Agrarian Studies, between 1984 and end 1993, 1,832,000 blacks were displaced from commercial farms and 737,000 were evicted from farms.
The numbers get worse. From 1994 to the end of 2004, 2,351,000 people were displaced from farms and 942,000 were evicted. After attaining democracy, the government started a land reform initiative to give land to those who had lost it. Some of the displaced were placed in other farms but 3,716,000 were permanently displaced and 1,586,000 permanently evicted.
In the Free State, where Prinsloo lives, there hasn’t been a lot of land redistribution. It is number three from the bottom on the list of land distribution numbers across South Africa’s nine provinces. Only about 400,000 hectares of land have been redistributed here. For some of those who received land, it ushered in years of court proceedings, pain, fear and poverty.
In QwaQwa, a part of the Free State province, 560 kilometers from Prinsloo in Smithfield, is Mmabatho Mphuthi. She is in the autumn of her life but spends her days moving from court to court trying to fight for her farm.
We meet her as the sun sinks behind the rugged mountains. Mphuthi says she fears dying without ever being able to make good money from her farm.
She was given land by the government in 1994 under the land reform program.
“The ANC said if you have 15 members, they would give you land. I organized people who were willing to join me and in total we are 17. We went to government and they gave us a big farm which was divided among us to work as small holder farmers,” recalls Mputhi.
Mputhi, and the other small holder farmers, moved into the farm on December 16, 1997. They were given title deeds to the land and were trained by the department of agriculture on how to farm and sell. They also learned how to supply milk to big dairies around the province.
“I was so happy because finally, after so many years of struggle under the white rule, we had our land back and could earn a living,” she says.
Trouble came when a white farmer moved into their property.
“One day in the year 2000, I was busy with my own work and saw trucks come in. A white man was moving into the other end of our farm. He said the department of rural development had given him a lease on the property. I don’t know how that happened because I had the title deeds to the farm and we are the rightful owners.”
Mphuthi says she tried and failed to get help from all departments in the area.
“At first, I was told that he was coming to help us while we were being educated on how to farm but that never happened. Instead, he came in and terrorized us. He closed us off from the areas around the farm that we needed… Everything we farm gets destroyed by the rain because we don’t have access to the equipped area of the farm,” she says, as tears roll down her wrinkled face.
“How can you lease someone a farm that belongs to someone else? That is wrong. I am the one getting bills for services and taxes but I can’t farm or use the land because someone else has taken it over,” she says.
Mphuthi says her efforts to seek help have been futile.
“I have paid agents thousands of rands over the years to get help and get a lawyer for this to be fixed but each time, the case gets postponed. When I go to the police, they tell me to go to the public protector but no one responds. He even got a protection order that prevents me from going to that part of the farm yet I have the title deeds of the land in my hand and it seems there is nothing I can do about it.”
Mismanagement, like this, of the redistribution processes is one of the big apprehensions.
“Over the years, the government has failed to effectively redistribute land to blacks and now they want to change the Constitution yet they have failed to use the Constitution they already have. First, government must clean out corruption and then understand what land it owns, what land has already been redistributed and iron out any ongoing cases on redistributed land before trying to change the Constitution,” says Mphuthi.
That is exactly what the government has been trying to do.
According to Professor Hall, South Africa has 122 million hectares of land and 86 million hectares of that is private commercial agricultural land. That is 67% of the land in the country held by white South Africans.
Another problem is, since 1994, the government has only redistributed 9.7% of commercial farmland to blacks under the land reform program.
“For many South Africans, this pace is too slow. There is frustration because not much land reform has happened. Land reform can and should be made to work. There is a huge demand for small holdings by black emerging farmers. To meet the demand for land, will mean the need to acquire land held by private owners,” says Hall.
It is true. During the ruling party’s public hearings on the matter, many blacks indicated they wanted land. The government says it now wants to make sure this happens faster and more effectively than it has in the past.
“We want to now work on providing greater clarity on how expropriation without compensation can be effected. The proposal (to amend the Constitution) is informed by the views of our people that have been expressed in the public hearings that have been taking place,” said President Ramaphosa in Parliament.
Currently, Section 25 of the South African Constitution allows for expropriation without compensation but says there should be an equitable balance between public interest and those affected. Ramaphosa says he has appointed an inter-ministerial committee on land reform led by the deputy president to work on clarifying how expropriation will take place and under what circumstances.
“The acceleration of land redistribution is necessary not only to redress a grave historical injustice but also to bring more producers into the agricultural sector and to make more land available for cultivation,” says Ramaphosa.
Hall is however of the opinion that the problem is not the Constitution but the failure to use the Constitution as expropriation is already allowed by the Constitution.
“This can be justified in many cases, for example, when state expropriates land, when it wants to build roads or other public infrastructure. Expropriation isn’t new. What is new is the idea that the state will take property without paying compensation. This is not likely to happen in the majority of cases. We may only see it in cases where the state can justify why there is no compensation,” says Hall.
According to Hall, the kinds of cases that would require expropriation without compensation for example would be an abandoned city building, land left unoccupied and unoccupied land where informal settlements have grown in that property.
“There are a small number of landowners who have absolutely not been using their land, who may lose out in the process of land expropriation without compensation. My view is that they are very few in number and I have no doubt they will contest each case in court,” she says.
There is also a question of motive on behalf of the ANC.
Dumisani Nyembe, an ordinary South African who wants land to farm crops, says he thinks the ruling party is only doing this now because of the upcoming 2019 elections.
“I wonder why the ANC hasn’t been doing this for the past two decades. They can see that EFF is gaining a lot of traction because they are the most vocal about the land issue and all of a sudden they are promising us land expropriation without compensation. Whatever they are trying to do is EFF policy and not ANC policy. I don’t trust them a bit and I wouldn’t be surprised if this amendment of the Constitution isn’t passed come elections,” he says.
According to Hall, another problem is money.
“The land reform process is being hampered by corruption and mismanagement. If we sort out those problems, there will be funds to provide basic support to the new farmers being given access to farmland. The land reform budget has always been a very small part of the total fiscus. Right now, the land reform budget is at 0.4% of the total budget. If money is spent well and appropriately, funding would be available,” she says.
Ramaphosa however reiterates in most conversations about land expropriation that the intention of the proposed amendment is to strengthen the property rights of all South Africans and to provide certainty to those who own land, to those who need land to those who are considering investing in the country.
The ANC will need a two-thirds majority in parliament to be able to amend the Constitution.
“I don’t think this will be hard to get because if they join forces with the EFF, this amendment can be passed. The EFF can’t be seen going against this because it has been their main message since foundation,” says Nyembe.
Hall, however, insists that even when passed, expropriation without compensation is most likely not going to be the norm but likely applied selectively on a case-by-case basis and the courts will review every case.
Even if that is the case, another big fear with this amendment is the potential loss of Foreign Direct Investment (FDI) into the country.
According to David Nathanson, a global equity specialist at Bellwood Capital, investors are concerned.
“South African investors are really over-invested in South Africa and they are worried about many things in the country such as our debt situation, how we are very close to junk rating and the talk of expropriation without compensation. They are concerned about property rights where they are invested,” he says.
Although Nathanson says he doesn’t think investors think their houses will be confiscated in the short-term, they are worried because the country is dependent on foreign investment and when the government talks about land expropriation without compensation, it will make it more difficult to get foreign investment which will make it even more difficult to fix South Africa’s problems.
“We could see the weakening of the rand in the long-term and South Africa could find itself in a situation where it is unable to meet its obligations and we could have a crisis like a Brazil or Argentina,” he says.
South Africa is already in technical recession following two consecutive quarters of negative growth.
“The government doesn’t have a lot of flexibility to be spending money on anything other than the necessities. Things like the National Health Insurance (NHI) and other noble policies that the government is trying to implement; the question is where will the money come from? If they expropriate land, they will need to assist the farmers and maybe give some sort of guarantees to banks…We don’t know the depths of what kind of money could be required to do that but the government probably won’t afford it. We are struggling to manage our public wage bill, so it would be difficult,” says Nathanson.
Ian Matthews, Head of Business Development at Bravura, an independent investment banking firm specializing in corporate finance and structured solutions, has similar views to Nathanson. He says an uncertain regulatory landscape cannot hope to instil confidence in foreign investors. The main concern, he says, has been whether foreign investment assets could be expropriated without compensation.
According to Matthews, in this climate, there is every possibility that direct foreign investment could contract significantly.
Prior to 2018, South African Reserve Bank (SARB) statistics had shown that FDI into South Africa declined from R76 billion in 2008 to just R17.6 billion in 2017 and a UN report, Global Investment Trends Monitor indicates that in 2015, FDI into South Africa fell by 74% to $1.5 billion.
According to Matthews, banks are the biggest source of credit for farmers at 61% and about R148 billion outstanding in loans for agricultural land and R1.6 trillion in property.
“Initially playing down the risk of expropriation of property without compensation, South Africa’s banks have since proposed a fund to help accelerate land transformation. Although no amount has been suggested for the fund, the proposal signifies the banks’ intention of seeking practical solutions to protect the billions of rands in assets that are tied up in farm loans,” he says.
South African banks are worried.
Taking the same view as Hall, according to Nedbank Group, one of South Africa’s commercial banks, the government has not used its existing powers to expropriate land for land reform purposes effectively, nor has it used the provisions in the Constitution that allow compensation to be below market value in particular circumstances.
“Changing [the Constitution] would send a very strange and damaging signal to our people and potential investors. It is our view that the acquisition of land and the current Constitutional provisions have not been a key obstacle to land reform so far and that an amendment to Section 25 of the Constitution would offer little in the way of sustainable solutions in the future,” says the bank in its written submission at the Public Hearings on the review of Section 25 of the Constitution.
It says the key challenges are lack of effective implementation of current powers, lack of capacity, lack of resource allocation and lack of proper and structured support for new land owners.
“As a commercial bank, we are a key role player in funding the economy and any material impact to property prices would adversely affect confidence in the banking system and could trigger a classic banking crisis with significant negative knock-on effects on the economy,” said Nedbank CEO Mike Brown, speaking to the Constitutional Review Committee, which is investigating proposed changes to the Constitution.
Cas Coovadia, Managing Director of the Banking Association of South Africa, says there are better ways of expropriating land for blacks.
“To expropriate land with compensation without ensuring that we have the funds to support those who get the land in the way that fulfils the commitment of the president that it will not threaten food security and agricultural production is going to be a challenge,” he says.
Coovadia says the banks made it clear that the critical thing for the country right now is to get investments and create growth.
“We have been engaging government through the department of land and rural development for the past five years. We have presented projects and initiatives, we think, through a public-private partnership between the banking sector, agricultural sector, and government, can ensure people get land in a sustainable way and get commercial farmers involved to offer support,” he says.
The trick is, according to Coovadia, releasing land owned by the state first and giving it to the people.
“This is a problem that needs to be dealt with but it should be handled carefully… We don’t even know how much land is owned by who and where. We need a land audit to understand these issues. We don’t have enough issues or data on land to understand how exactly to deal with it. We need to stop pretending that having an amendment of Section 25 is going to fix our land reform issues,” he says.
On the other hand, the EFF has welcomed the government’s plans to expropriate land.
“The ANC president Cyril Ramaphosa has finally capitulated and submitted to the basic logic of amending Section 25 of South Africa’s Constitution to allow for expropriation of land without compensation,” said spokesperson Mbuyiseni Ndlozi in a statement after Ramaphosa’s announcement.
“The resolute submissions of the people on the ground and in all the public hearings exposed the ANC to the fact that an absolute majority of black people agree with the EFF’s steadfast and consistent position that the Constitution should be amended to allow for expropriation of land without compensation. This illustrates that when given an opportunity, the people of South Africa are always ready to provide resolute guidance on key economic and redress questions,” he says.
Until the motion is brought to a vote in parliament, the land expropriation debate lives on.
Risks of amending the Constitution, according to Nedbank
Any changes to the Constitution, however well-intentioned, would send a negative signal to potential investors and be seen as a risk to future property rights. Should this happen, according to Nedbank at the Public Hearings on the review of Section 25 of the Constitution:
• Fixed investment spending and job creation would suffer
• Borrowing costs could rise at a time that the country – and government – could ill-afford
• Growth would remain below potential
In the unlikely event of a poorly-implemented land reform program, carried out exclusively or largely through Expropriation Without Compensation, the effects would be more structural and significant:
• Property prices would plummet along with other asset prices
• There would be large-scale defaults, with little or no collateral for the banks to offset losses
• Government may have to step in to protect depositors’ funds in the event of a banking crisis
• Borrowing costs generally would soar
• The economy would be severely depressed and unemployment would rise even further
• Food security would be impaired and food prices would increase
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