As South Africans prepare for finance minister Tito Mboweni’s budget speech and how new taxes will impact their finances, economists have warned that the planned introduction of land expropriation without compensation will cause significant damage to consumer spending, savings, and the economy.
A panel hosted by the Institute of Race Relations economists Dawie Roodt and Lumkile Mondi, and leading financial commentator Magnus Heystek, said that land expropriation will have a direct impact on savings, investments, and the cost of living.
The economists also cautioned about the consequences of losing homes and farms and businesses while still bearing the responsibility to pay down bonds on expropriated property.
“Our discussion with these leading economists made it very clear that South Africans cannot be complacent about the state of their own, as well as the nation’s, finances,” said the IRR’s Hermann Pretorius.
“The reality is that the ANC’s model of so-called ‘sustainable wealth extraction’ is already leaving South Africans worse off and that the blind ideological commitment to state power and state control in the form of expropriation without compensation is putting our nation and our people’s finances at even greater risk.”
The Banking Association of South Africa (BASA) has already warned that government risks fiscal damage if the land expropriation process is not undertaken in an orderly manner and dilutes property rights in the country.
“A marked decrease in the value of land-based property, caused by either an amendment to legislation and/or market uncertainty, and the resultant reduced appetite from property buyers could destabilise the banking sector, and have a negative impact on the credit rating of the sector and the country,” the group said.
Basa said that the current exposure banks have in relation to land-based property is approximately R1.613 trillion in the form of mortgages.
It added that this amount excludes other types of non-mortgage loans afforded to borrowers premised on their net worth, where their land-based property constitutes much of their net equity base and provides support to lenders for such loans in the event of default (the market value of land-based property is estimated to be in excess of R7 trillion).
The US has also warned of the damaging effects of land expropriation without compensation, with US secretary of State Mike Pompeo stating that the policy will be ‘disastrous’ for South Africa’s economy.
Pompeo said that the policy proposal is an example of centralised planning that has failed in other African states like Zimbabwe, Tanzania and Ethiopia.
“South Africa is debating an amendment to permit the expropriation of private property without compensation,” he said. “That would be disastrous for that economy, and most importantly for the South African people.”
African economies need ‘strong rule of law, respect for property rights, regulation that encourages investment’ for inclusive and sustainable economic growth, Pompeo said.
Despite these warning, president Cyril Ramaphosa said the government will press ahead with plans to distribute more land to the black majority in an orderly fashion, warning that a failure to do so would perpetuate an injustice that dates back to apartheid rule and constrain the economy.
He reiterated that the government supports changing the constitution to make it easier for it to take land without compensation.
“Land grabs will not be allowed to happen in our country,” Ramaphosa said. “We refuse to be reckless.”