South Africa

South Africa

Letter to the Editor: A future history of expropriation

Letter to the Editor: A future history of expropriation

Land expropriation without compensation must remove the constitutional property protection which, once removed, will no longer protect any property – whether cash, homes, vehicles, shares, retirement savings or bank balances. By JOHAN PRINS.

South Africa faces a range of challenges, some emanating from our history, others imposed upon us by a fickle environment and those which result from our own choices. Many of these challenges are urgent and dire, but none presents us with a greater or more pressing danger than the removal of the constitutional protection of property.

Land expropriation without compensation” must remove the constitutional property protection which, once removed, will no longer protect any property (cash, homes, vehicles, shares, retirement savings, bank balances).

If land, which is in legal terms simply a form of asset, can be expropriated, nothing can stop expropriation extending to other asset classes – except the political will of the government in power. The constitutional amendment proposed by the EFF and supported – in modified form – by the ANC would therefore perforce apply to all asset classes.

This will have a catastrophic and potentially irrecoverable impact on the economy, which is another way of saying the interconnected systems within which we earn our salaries, pay our bills, buy food and other necessities, settle our debts, accumulate our savings for a rainy day, and from which we pay an ever larger proportion of tax (income tax, VAT, taxes on petrol, etc.).

All of these activities are predicated solely on our belief that our assets cannot simply be taken from us, for nothing in return. If my asset (any asset) can be confiscated at no cost, then I would be acting irrationally by acquiring more such assets, or investing in my existing asset; I’d be throwing good money after bad.

My only rational choices are to watch as the asset slowly depreciates (i.e. breaks down and loses its value) or to try and sell the asset as quickly as I can (to some poor unsuspecting naïf, presumably). So, the quality of the asset declines, which feeds into a further decline in value because everybody is trying to sell assets at the same time – prices drop when everyone sells.

Practically, if farms can be expropriated, expect zero farm purchase transactions or any further maintenance or expansion of capital goods (tractors, irrigation systems, logistics to get the harvest to the silo). Many things flow from this, but let’s concern ourselves with a simple example: Most commercial farmers use debt to realise their crop. They pay the debt back if they have a good crop; they go further into debt when times are bad. But they still have access to credit, because banks will provide funds which are secured against a bond on the farm. What are these bonds worth after expropriation? Who carries the loss: the farmer (whose estate is presumably liquidated) or the bank (which is suddenly forced to write down a significant portion of its balance sheet)?

The bank certainly won’t lend more money to an enterprise which cannot be bonded in the first place. So, even if a farmer wants to invest, the banks won’t lend the money, so many farmers run out of cash and go belly-up. At this point, the bank probably tries to repossess the land in order to sell it, but now into a depressed market for land, and therefore at a low price (if at any price at all).

So, again, the bank takes a hit on its balance sheet, which compromises its ratios, which leads it to reduce the amount of credit available in the market. So land productivity declines, which means we produce less food more expensively, which means food prices go up more than they already have, and we import an ever-increasing proportion of what we need to survive. We’d probably be importing food in USD or EUR, which will add to inflation because of the almost certain decline in the value of the rand.

Why does the rand decline? Because no foreign currency holder will want to buy into rand, as it implies buying into an asset which is itself subject to confiscation without compensation.

And so the fear of expropriation will fly across all components of the economy, infecting every asset class with uncertainty. If they can take my land, can they take my shares? My money? My retirement annuity? My jewellery? My golden filling?

They could, if they wanted to. Or they could simply threaten to, unless you display the requisite revolutionary fervour, by making sure that you vote for them again next time around. Any doubt as to your loyalty and you could find yourself expropriated out of your house.

Speaking of houses: they tend to be built on land, and they also generally account for the largest single financial investment of their owners. They are most often bonded to banks. In the absence of guaranteed ownership, home owners would sell as quickly as they can, flooding the market with homes for sale but with no (sane) buyers to pick up the supply. House prices drop, and many owners go under water. The assets against which the banks have given bonds reduce in value, again impacting on banks’ balance sheets, further restricting credit in the market. It is at this point that we start seeing a full-blown banking crisis (a la Greece), with a sudden and probably quite strong financial shock shooting through the system.

Suddenly poor homeowners spend less, so retailers earn less, so companies produce less and manufacturers cut production, and at each step jobs are lost, and those who lose them add to the cycle of lower spending. Companies in all sectors run out of money. The economy contracts, slowly and then quickly as value is destroyed and capital flees the country by any means. Viewing all of this from afar, the ratings agencies ask their simple question: Can we recommend that our clients invest in this country? Will they get their money back? And as they say no, our supply of available credit declines while interest rates rise along with inflation.

South Africa becomes suddenly poorer and less able to address its problems, at precisely the moment when millions of citizens (many now with tertiary education but as yet no jobs) are expecting the economic miracle they’ve been promised for so long. The “miracle” which has been delayed for all of these years only because the Constitution made land reform “impossible”.

Except now confiscation has made any kind of complex economic activity impossible, and with it any hope of increasing employment or the standard of living. Both deteriorate precipitously. We are left, in the end, with a government facing a large number of surprised, angry and much poorer people. People looking for someone to blame, and a government with the power of penury over any who dare oppose it.

Our conception of a democratic, rights-based society cannot survive the implementation of expropriation without compensation, which is why it was written into the Constitution in the first place. The only outcome of this process which I can envision is a tyranny ruling over a wasteland.

Many in the ANC realise this, but believe perhaps that they can control the process or limit the damage. They will fail, because expectations have been set too high, and the consequences of insecure property rights will cascade across the entire economy.

Many people who support this amendment do not understand the implications and the dangers. It is imperative and urgent that these supporters must be brought to a clearer understanding of the danger. If they are to be complicit in our national suicide, they should at least know what the risks are. The time for waiting and hoping has now passed. The fight must be joined or lost. DM

Johan Prins, Director (Strategy), SPACE. Written in his personal capacity.

Photo: A general view of fields of Canola on a farm around Grabouw in the Western Cape of South Africa 13 August 2017. The Western Cape province of South Africa is home to massive Canola fields which flower at this time of year. The seeds of Canola plants are used to make cooking oil. EPA/NIC BOTHMA


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