The ugly truth about South Africa’s new expropriation laws

South Africa’s new Expropriation Act is largely procedural, but the noise and blowout around it have very real implications for finances and investment in the country – and portfolio managers are already witnessing the fallout.

According to Warren Wilkinson, Franchise Principal and Financial Adviser at Consult by Momentum, the group has seen anecdotal instances of South African investors increasingly exploring offshore options and ‘wealth diversification’.

While this has been happening over the past few years, the recent signing of the Expropriation Act has amplified these moves.

Wilkinson said that “financial markets are influenced by perception as much as policy“, and the noise around the Act has done the job of feeding certain perceptions.

“While fears around property rights and asset security appear to be largely unfounded, uncertainty does have real-time investment implications and is linked to heightened market volatility.

“Investor sentiment plays a pivotal role in asset pricing, and when confidence wavers, we often see increased market fluctuations,” he said.

The issue of perceptions and fears have been in full play since the laws were signed. The most notable reaction has been from the United States, which has used the laws to ‘punish’ South Africa on the global stage.

Despite the many clarifications and discussions around the laws, and what they actually mean and what they actually do, this has largely fallen on deaf ears in the Trump administration, which has pushed allegations of widespread land grabs and discrimination against white farmers.

Whether the fears surrounding the Act are unfounded or not, the impact is very real.

“What is true is that we’ve seen concerns surface from clients around property rights, investment stability and a potential rise in wealth emigration,” Wilkinson said.

Cutting through the noise

The financial advisor said that it is important for any investor to cut through the noise and understand exactly what is going on.

In this case, it would be important to understand what the new Expropriation Act is and isn’t.

Firstly, he noted that expropriation is not a new thing or in any way unique to South Africa – there are several countries with similar frameworks in place.

“For example, Namibia has legal provisions for expropriation with compensation via a ‘willing buyer, willing seller’ approach. At the same time, Brazil’s constitution allows for the expropriation of unproductive land, with compensation paid in government bonds,” Wilkinson said.

In essence, South Africa’s new Expropriation Act refines existing regulations rather than introducing new far-reaching expropriation powers, with several key updates.

While the ‘willing buyer, willing seller’ approach was widely used in South Africa’s post-1994 land reform policy, Section 25 of the 1996 Constitution allows for expropriation with compensation based on just and equitable principles.

The new Expropriation Act does not overhaul these compensation rules but provides for nil compensation in specific cases, such as abandoned properties or land held for speculation.

At the same time, the Act strengthens protections for landowners by enforcing a structured process, greater judicial oversight and placing the burden of proving fair compensation on the state.

Landowners also now have more rights to object, mediate and challenge expropriation in court.

Land can also only be expropriated for public purpose (e.g. infrastructure like Gautrain) or public interest (e.g. land for redress/restitution).

“In short, the Act is mostly procedural, ensuring a controlled and legally governed process – rather than serving as a fully-fledged Land Reform Act,” he said.