Land reform, redistribution, and risk: Towards an inclusive South Africa

At the end of February 2018, a motion was put forward by the Economic Freedom Fighters (EFF), a far-left opposition party, to revisit South Africa’s Constitution and amend it to allow for land expropriation without compensation. This motion was successfully passed, and subsequent public hearings across the country confirmed that there was resounding support from the majority of the population.

This piece explores the drivers behind the push for a more extreme approach to land reform, as well as outlining the concerns of those who feel this could result in economic demise for the country. It concludes that the benefits of these reforms will only be felt if they are carried out in a clear, transparent, and coherent manner.

Land and law

Since the birth of the Union of South Africa in 1910, until the election of the first democratic government in 1994, legislation was designed to ensure that the majority of the country’s land was formally secured for the minority white population. This included the Natives Land Act of 1913, which stipulated that land should be apportioned along racial lines - with the white population (representing 20% of South Africa) given control of over 90% of the total land area.

The small percentage of land left to the black population was then ruled under the communal tenure of African chiefs. This meant that this land was not marketable or able to be used as collateral for accessing finance. This was exacerbated by the fact that no sales or rental agreements were permitted between different races. In addition, the Act criminalised sharecropping as well as labour tenants of black people on white-owned land. This had crippling effects for black farmers.

Apartheid

When the Apartheid government came into power in 1948, they enacted laws that further entrenched the segregation, and corresponding disenfranchisement, of the black population. Between 1960 and 1983, 3.5 million South African’s of colour were forcibly removed from their homes to segregated and isolated areas.

Most of the black population was restricted to the designated tribal homelands or ‘Bantustans’, which sometimes resulted in loss of South African citizenship. The Apartheid regime did, however, allow for labour tenants, i.e. black farmers, to work without pay on a white-owned farm in exchange for untitled land on its fringes.

The new South Africa

These laws were repealed in 1991 thanks to the courageous efforts of anti-Apartheid struggle activists and pressure from international sanctions. In 1994, when Nelson Mandela was elected the first democratic president of South Africa, he vowed to redistribute the country’s land to the black population.

He also promised to provide compensation for the labour tenants as well as those forcibly removed, and to actively pursue tenure reform to secure property rights for the majority black population. This was enshrined in Article 25 of the South African Constitution and passed into law in 1996. The Constitution currently provides for land expropriation with adequate compensation – which so far has only been interpreted as ‘willing-buyer, willing-seller’. 

Limited change

Apart from land reform being a deeply symbolic mechanism of justice, reconciliation, and dignity, if implemented correctly, it can also be a vehicle for economic growth. In Lima, Peru, for example, a large-scale land-titling programme increased housing investments by over 60% (Field 2005). In South Africa, this progress has been slow and therefore, the commensurate potential benefits of land reform have been meagre.

For example, in August 2018 the Economist noted that the black population owns 4% of agricultural land; while the white population still own 72% (The Economist, a. 2018). This is not for lack of demand; in fact, thousands of claims have been lodged, many meeting the required criteria. However, a mix of limited state financial and administrative resources, resistance from economically powerful incumbent land owners, poor record-keeping, and corruption means it would take around 709 years to process these claims (The Economist, b. 2018).

Where land redistribution has been enacted, it has often produced less than adequate results, largely because there is limited complimentary support from government in the form of capital inputs or necessary training.

 Ramaphosa’s Land Reform

Cyril Ramaphosa became South Africa's president following the resignation of Jacob Zuma in February 2018. Under his leadership, the plans for land reform have been packaged under the proviso ‘to strengthen the property rights of all South Africans’.

As noted, until now, the benefits of secure, marketable, and legally enforceable property rights have accrued only to a small minority of South Africans. This has entrenched systemic inequality and deeply rooted social instability. Therefore, the proviso’s focus on inclusivity is particularly important in terms of overcoming the injustices of the past. What’s more, the land could provide a catalyst for enabling far greater social mobility and economic participation (IGC, 2017).

Risk

Land expropriation, without compensation, has been proposed as a necessary component to enable the rapid redistribution of land within the dispossessed people’s lifetime. Although the vision for this is perhaps meritorious, at the same time, it will also infringe on the rights and benefits of a number of existing land owners. These existing land owners also represent a large proportion of South Africa’s private wealth and thus have strong economic sway.

Both the domestic and wider international investor community have already voiced concerns that the threat of expropriation without compensation dramatically elevates the risk of investing in property in South Africa. As the uncertainty around future property rights continues to prevail, they may increasingly be inclined to move their money elsewhere. This deterioration in investor confidence, and possible related capital flight, could have severe impacts on the economy.

To reject this policy outright, on this basis, is perhaps a myopic view. In order to assess the long-term economic outcomes, one needs to consider the extent to which the current exclusion of the majority of the population from the formal property market is holding the economy back. In addition, one needs to consider the ongoing economic costs of political and social unrest pertaining to this issue. Ultimately, any reform that is implemented needs to be done so in a transparent manner to encourage clarity and certainty to mitigate the consequences for those who will lose out from reform. 

The way forward

The majority of South Africa’s people have already waited 25 years for concrete change when it comes to land. President Ramaphosa’s proposed reforms promise to hasten this process. He continues to highlight that his aim is not about disrupting property rights; but rather about extending rights to those denied them under colonial rule and the Apartheid regime.

He has ensured that land expropriation without compensation is but one of many ways in which the package of reforms will be enacted, and that each case will be carefully reviewed on its own merit. He has also continuously reassured the investor community that large-scale land grabs will not be tolerated.

To be able to effectively implement what he has suggested, it will be important to carry out the process in a clear, fair, lawful, and transparent manner. Only then will it be likely that the long run benefits of security of tenure, political stability, and reduced state burden will outweigh the short run costs of reduced investor confidence and economic instability.

References:

Field, E. (2005). “Property Rights and Investments in Urban Slums”, Journal of the European Economic Association, 3(2-3): 279-90.

The Economist (a. 2018). Why South Africa is Revisiting Land Reform. Accessible at: https://www.economist.com/the-economist-explains/2018/08/30/why-south-africa-is-revisiting-land-reform

The Economist (b. 2018). Land Reform in South Africa has been slow and inept. Accessible:  https://www.economist.com/middle-east-and-africa/2018/08/23/land-reform-in-south-africa-has-been-slow-and-inept

The International Growth Centre/IGC (2017). Land Rights, Cities that Work. Accessible: https://www.theigc.org/research-themes/cities/cities-that-work/policy-toolkit/secure-legally-enforceable-marketable-land-rights-urban-development/