Delay to South Africa’s land expropriation plan brings its own set of problems

South Africa continues to face uncertainty around the issue of land expropriation without compensation, with clarity around the issue now only expected towards the end of the year.

On Friday (4 June), a national assembly ad-hoc committee responsible for overseeing the constitutional change said that a new deadline has now been set for the end of August.

The committee had previously pledged set a deadline for the end of May, and comes after a disagreement between the ANC and EFF on how the proposed amendment should be made to the constitution.

The ANC requires the EFF’s support to make the amendment, but the party – which holds a more radical view on land reform – is pushing for more far-reaching changes, including a move to have the state made the custodian of all land in the country.

The EFF is also advocating for the courts to play no role in determining the amount of compensation for expropriated property.

The issue of land expropriation remains a controversial topic in South Africa, and the Banking Association of South Africa (Basa) has warned that the policy could pose a significant risk to the banking sector.

In a submission to parliament in March, the association said that a marked decrease in the value of land-based property, caused by either an amendment to legislation, and the resultant reduced appetite from property buyers, could destabilise the banking sector.

Delay brings its own problem 

The banking association has also cited market uncertainty as a potentially destabilising factor, and the latest delay means that both international and local investors face prolonged uncertainty.

In comments made at the end of May, finance minister Tito Mboweni said that the land expropriation without compensation already risks taking a toll on South Africa’s economy because of the current uncertainty around the policy.

Mboweni said that the National Treasury has not conducted formal research on the impacts of land expropriation without compensation or undertaken a risk assessment of the impact on the economy.

“However, to the extent that land expropriation without compensation were to generate policy uncertainty, it would have harmful effects on the economy,” he said.

“Several studies have looked at the impact of policy uncertainty on the South African economy. For example, policy uncertainty diminishes the responsiveness of exports to changes in the real exchange rate, as well as introducing harmful short- and long-run level effects on export performance.”

Mboweni cited other research which found that unanticipated increases in uncertainty are linked to declines in investment, private sector employment, output and industrial production, while resulting in an inflationary shock.

“Recent research finds that an increase in uncertainty results in a decline in industrial production and the real effective exchange rate, while fostering an increase in the general price level and 10-year government bond yield.

“These studies have been used to inform the National Treasury’s own assessments of the impact of policy uncertainty on the macroeconomic outlook, which are typically included as part of the macro-fiscal scenarios that inform the budgeting process.”

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Delay to South Africa’s land expropriation plan brings its own set of problems