Land expropriation may further hurt South Africa’s economy

If the South Africa changes the constitution to allow expropriation of land without compensation,  property prices will be affected, triggering a banking crisis. This is according to Mike Brown, the chief executive of Nedbank Group Limited, who appeared before a Constitutional Review Committee of the South African Parliament on Friday.

“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,” Brown said.

President Cyril Ramaphosa announced on 1 August that the ruling African National Congress (ANC) would go ahead with plans to change the constitution to allow the expropriation of land without compensation. Whites still own most of South Africa’s land more than two decades after apartheid ended, with weaknesses in its current willing-buyer, willing-seller principle believed to be delaying land reform.

“Government supports land restitution and redistribution, which will redress the sins of the past by allowing access to the land in a way that grows the economy, ensures food security, and increases agricultural production,” Ramaphosa had told Parliament last month.

Despite Rsmaphosa’s commitment to making tough decisions and enabling reforms, the optimism about his leadership was not enough from saving the South African economy from recession. The country” GDP contracted for a consecutive quarter, according to Statistics SA. But the setback only strengthened Ramaphosa’s resolve to enact policies that will change things.

Research has shown that land reform in South Africa has a positive impact on the economy. In a 2010 thesis by Slørstad, Jarle Dale, it was concluded that the Land Redistribution for Agricultural Development-program (LRAD) raised monthly consumption expenditure per capita. A 2016 research by Mabuza, Nosipho Nomfundo, titled Socio-economic impact of land reform projects benefitting from the Recapitalisation and Development Programme (RECAP) in South Africa submitted that positive changes were mostly experienced in terms of food security, employment generation, and economic and social status after RECAP was introduced.

However, for all the gains, albeit slowly, recorded in the past land reform actions, expropriation without compensation comes with a lot of risks.

In addition to fears raised about Nedbank’s chief executive, the impact on agriculture may be grave. A fall in agricultural output by 29.2 percent was a major contributor to recession in South Africa. Expropriation without compensation may see output decline further as investments in the agricultural sector drop. This would be followed by a hike in food prices and increase in job losses.

Ramaphosa also has the contagion effect of the troubles being experienced in some emerging markets to deal with. But the president is unperturbed.

“We’re facing what people are saying is a technical recession, and it’s largely due to the performance of agriculture. Agriculture did not perform as highly as we’d thought, and some people are saying it’s largely because of the late rains and harvest,” he told professionals in Pietermaritzburg as part of ANC’s “Thuma Mina” campaign.

“… I’m saying we should not be fearful and think that we’re in a recession… we’re not, this is going to be corrected. I have no doubt about it,” Ramaphosa said, adding that the government will outline how it plans to tackle the country’s current economic challenges in the coming days.