Expropriation of land “with” or “without” compensation: Why the latter is not a viable option

There is a broad consensus that a Zimbabwe-style land reform process will be grossly counter-productive in South Africa. But after two decades of frustration over the slow pace of land reforms, there are growing fears that the proponents of radicalism are beginning to find a voice, particularly amongst a broad section of the poor, who are now desperate for any respite to their continued suffering.

The pressure has undoubtedly mounted on the government to deliver on the promise of land reform, and experts and observers feel that the next 10 to 15 years might prove crucial to the policy direction that will ultimately determine the fate of the agricultural sector. Some analysts even believe that should land reform stall, or remain sluggish, it would increase the likelihood of a radical, if not chaotic policy response.

The reason being that the land reform agenda will fall prey to opportunism from the body politic. On the one hand, the ruling party will feel the need to strategically deflect attention from the broader failures of economic policy and unemployment; while opposition politics will likely use land reform as a draw card to grow political capital among the poor, on the other.

To the keen observer, this scenario has already been playing out strongly particularly in the last five years, and it is now epitomised by President Jacob Zuma’s new “expropriation without compensation” message, which hitherto, had been associated with Julius Malema and the Economic Freedom Fighters (EFF). With President Zuma’s utterances at the State of the Nation (SONA) address going against the African National Congress’ (ANC) policy, the contradictions within the ANC itself will continue to manifestly play out in the public space, and this will reassert the land reform debate at the 2016 policy conference.

Within the context of the politics, the country’s land reform debate, at this juncture, is now narrowly focused on two options, meaning that land reform is no longer at a crossroads, but at a T-junction. The two options that frame this T-junction are whether to expropriate farmland “with” OR “without” compensation. This dichotomy seems to defy the complex nature of the “land question” itself, which until now, has been handled with delicate care. But the intensity of the frustration among a broad section of South African society has morphed into dissent, to the extent that the option to expropriate “without” compensation has become appealing, with little regard over the broader consequences to the sector and the economy.

Yet the “with” or “without” compensation option is in itself, a false dichotomy, not least because the latter will come at a heavy long-term economic cost that will attract some very unpalatable and unintended consequences – some of which could very well negate the benefits that land reform intends to deliver.

In that sense, the public discourse for land reform should continue to emphasize two overriding factors. The first is that, expropriation “without” compensation will wipe out, overnight, R160 billion of bank lending collateralised through land. This will no doubt cause irreparable damage that will not only destroy the value of land – and thus, make it a dead asset – but will also make any future long-term investment prospects in farmland highly unlikely.

The second factor, which is a consequence of the first, is the crisis in confidence which will emerge as a result of the apathy of foreign and domestic investors to inject capital into a sector, especially given weakened and insecure property rights. This crisis in confidence will take years, if not decades to overcome, particularly due to the fact that a longer time frame will need to lapse before a new equilibrium and a new level of certainty can be re-established within the sector. This again, will lead to permanent and irreversible structural damage in the sector, which could cost the country billions of Rand in lost production, unrealised export potential, and losses in taxable agricultural revenues.

With that said, the critical consideration of land reform should not only be to achieve the goal of pivoting the balance of land ownership, but to achieve this feat without disrupting commercial agricultural production. In this sense, while due consideration is placed on the landless, the primary target beneficiaries should however, be black farmers that are actually intent on becoming full-time small to medium (or even large) commercial farmers.

Professor Ben Cousins – a land reform expert – estimated this group of black farmers to be around 200 000 and argued that this group can be allocated farms that have remained under-utilized in the sector, with such farms still being acquired through market purchases. Professor Cousins further argued that, in order to ensure that land reform is not disruptive to food security and foreign-exchange earning exports, the future process will also have to place special consideration on the country’s top 20% of farmers who produce 80% of agricultural revenue.

This sentiment goes against the radical economic transformation narrative, mainly because radicalism is disruptive and costly, by nature. As the debate on land reform continues, the guiding principles –  from a process perspective – should remain anchored in preserving (i) the value of farmland, (ii) food security, (iii) property rights, and (iv) a system of confidence that can attract foreign and domestic capital. Such a process is neither quick nor perfect, but it will at least keep the sector under relative stability, which is key to attaining the long-term growth and equity.

**A version of this article was published in the Farmer’s Weekly of the 27th March 2017

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s