South Africa will now begin to reclaim land taken from black people near a century ago without payback to the current owners, dividing public sentiment along fears of a “land grab” and cries for justice. On Feb. 27, lawmakers overwhelmingly voted in favor to amend the constitution to allow land expropriation without compensation.
This is a marked shift in policy, and comes at a time when land reform (through both the State and market) has made more progress than experts and policy makers care to admit. The African National Congress’ decision to back a motion by the more radical newcomers, the Economic Freedom Fighters also disregarded the facts about the stalled progress of existing land redistribution and restitution programs in post-apartheid South Africa. The decision comes after the ANC chose to formally adopt the policy at their December conference after a heated debate.
Someone somewhere within the economy will have to pay Ironically, South Africa’s decision comes at a time when the Zimbabwean government has established a compensation committee under its land acquisition act to allow for dispossessed white, former commercial farmers to be compensated for land seized 18 years ago. It also begs the question why the ANC and the EFF are taking a position that its revolutionary counterparts from across the Limpopo River are departing from. Nonetheless, if the Zimbabwean experience were not sufficient to proffer some fundamental lessons for South Africa, then it would be prudent to point out a number of facts that should call on policy makers to reconsider this new direction.
With the benefit of hindsight, the Zimbabwean experience tells us is that the notion of expropriation without compensation is a bad idea. Zimbabweans might have seized the land without compensation 18 years ago, but they collectively paid for it through eight consecutive years of economic decline that led to job losses, deindustrialization and a loss of agricultural export revenues. In 2009, economist Eddie Crossestimated the cost of Zimbabwe’s land reform at $20 billion–which included lost export revenues, food aid imports and economic growth foregone, which could’ve sustained Zimbabwe’s once promising economy, had it not seized farms without compensation.
The South African government will soon discover the extremely complex technical headache of expropriating land without compensation. After unemployment rates of over 90% and tepid growth in recent years, the Zimbabwean government is going back to correct the fundamental mistake it made nearly two decades ago – which is to compensate farmers, whose estimated compensation costs are set to amount to $11 billion. The moral of the story is if the government declines to directly compensate its commercial sector for land improvements, at the very least, then someone else will have to pay for it, indirectly. The compensation effect, as we would like to call it, will see the entire economy and its citizenry paying for land seizures through lost agriculture export revenues, job opportunities and more.
In the South African scenario, there are two immediate points that are worth noting: the difficulty in implementing expropriation without compensation, and the implications of the policy. Firstly, if the constitution is amended accordingly to allow for land to be expropriated without compensation, how would the law cater for the assets on the farm and improvements made on the land?
The land on its own is roughly 10% of the total value of a typical farm operation, if fixed and moveable assets are taken into account. Would sunk investments that make up the rest of the 90%, like general farm infrastructure, machinery and and other investments, be subject to expropriation without compensation too? If compensation is due for farm assets, and not the land itself, then the technical argument that arises is: Would it be prudent for government to pay 90% in compensating farmers for improvements to the land, in order to obtain the 10% that represents the actual land value?
Second is the complication that would emerge from the existing fact that South African agricultural land is heavily indebted. Farm debt emanating from title deeds to secure loans already stands at over $13.7 billion (160 billion rand), bringing into question how the government will handle indebted land. If farmers aren’t compensated, will the state repay to banks who are de facto partial owners of that land through debt? If government exonerates itself from compensating the banks, this would translate to $13.7 billion wiped off the banks’ books.
If government commits to cover this debt, it contradicts the policy, becoming instead expropriation with compensation—except that the money goes to the bank not the farmer. Let us assume that the government is sensible enough to compensate the commercial farmer for improvements made to land as well as the bank through debt owed by the farmers.
If it happens that the government determines the value of infrastructure and investments on the farms, and then uses that same value to cover the debt that is owed to the banks, then there are situations that could arise where farmers receive “zero compensation”. There might also be situations where seized farms are insolvent, in which case, the government would have to pay the banks the balance of what is owed by the farmers whose land they are seizing. This scenario is already permissible under the current constitution and does not require an amendment of any law.
The South African government will soon discover the extremely complex technical headache of expropriating land without compensation. By then, land reform may have stalled altogether. This could lead to further public impatience, placated by the kind reforms that could allow the government to seize land with impunity.
We saw this in Zimbabwe when commercial farmers took the Zimbabwean government to court over land seizures. The courts were inundated with litigations that would’ve taken the government an entire generation to resolve. Then, in another moment of madness in 2003, the constitution was amended to nullify all those cases brought to the courts by commercial farmers. In that instance, the Zimbabwean government wanted to get rid of the headaches that emerged from land seizures, but wiped off $10 billion in land value.
With the benefit of the Zimbabwean experience, most of which people are quick to ignore and dismiss, we learn an important lesson that needs to be the hallmark of land reform thinking in South Africa. This lesson is that there is no such thing as expropriation without compensation in a quasi-capitalist economy. The history of land expropriation under apartheid has left a painful wound in South African society, which indeed ought to be corrected. However, the enduring principle of equitable and just (not necessarily market value) compensation in contemporary economics serves as an important reference point.
If the South African government seizes private property for free, someone somewhere within the economy will have to pay, whether directly through loss in current and future on farm job opportunities as well as export revenues, or through protracted economic decline that will erode the purchasing power of money, losses in pensions and savings, and deindustrialisation that will destroy future economic growth and off-farm job opportunities for the current generation.