STUART THEOBALD: Land rights and the economy are tightly bound in SA

Posted in: i-Blog on August 2, 2021


EFF land model could trigger a financial crisis that would happen far faster than the election cycle.


This column was first published in Business Day. 

Fifteen years ago I was sent on assignment to report on the banking industry in Angola for the Financial Times group. It was a few years after the civil war and there were promising signs that the economy was picking up.

Staying in the only business hotel in Luanda at the time, I defied the exhortations that guests not go out onto the streets unaccompanied and went walking one evening. A few blocks up the road, assaulted by the smells of sewage intermingled with cement I came across an oasis. Light music was emanating from behind verdant foliage alongside the street. Peering through the entrance I saw a bamboo-constructed bar with a few people sitting at it and wandered in.

The owner was serving, and we began talking about his business. I had come across a nursery of sorts, which supplied indoor plants to the formal businesses of Luanda — De Beers and some of the oil multinationals. Every month or so he would fly to Johannesburg, head to Keith Kirsten’s and fill an airborne container with office plants. Their price in the Angolan capital was multiples of that in Johannesburg, but his business was able to turn a good profit. The bar he’d set up in the nursery added revenue.

Why, I asked, did he not simply grow the plants? That would surely substantially reduce his costs and maximise profits? Oh no, he told me. It was extremely difficult to obtain the rights to a piece of land. And as soon as he had such rights and started planting, some local bureaucrat was sure to come by demanding some form of benefit in return for leaving his rights undisturbed. He motioned around where we were sitting and pointed out that every plant there could be picked up and moved — they were all in pots. If for some reason his right to occupy this little corner of Luanda were threatened, he could just move on.

I was reminded of that conversation by the news last week that talks have broken down between the ANC and EFF on amending Section 25 of the constitution. The split between the two parties is fundamental — the EFF wants all land to be owned by the state, whereas the ANC wants private ownership but a more just distribution of it. Justice minister Ronald Lamola last week said it is giving up on talks with the EFF to align. This means the ANC won’t get a two-thirds majority and Section 25 will go unchanged.

The EFF model is effectively that of 1975 Angola when all land rights were transferred to the state. As I’ve written here before, it is established that countries with weak property rights grow slower than those with strong ones, but that can be irrelevant in the short-term political cycle. The challenge for the EFF politically is that in SA land rights and the economy are tightly bound. Mortgages cover about a quarter of all assets in the banking system. Should there be any threat to the ability of the lender to take possession of a property from a defaulting borrower and sell it at a market price, banks would immediately face an increase in losses. This could trigger a financial crisis that would happen far faster than the election cycle.

The EFF cites the shift from old order mining rights brought about by the Minerals and Petroleum Resources Development Act (MPRDA) in 2004 as a model for land reform. This is a poor comparison. Once it is out of the ground, gold, platinum and iron ore belong to the miner. Land rights are different because you want the holder of the right to focus on increasing the value of the land itself, as that maximises the tax take. The MPRDA had the effect of forcing mining companies to actually mine the rights they were sitting on. A similar regime applied to all land would simply discourage them from investing in inalienable improvements to the land.

The MPRDA also provides a salient example of the challenges of administratively complex rights administration. There are more than 5,000 applications of various forms backed up at the department of mineral resources & energy, resulting in a virtual standstill in exploration and new development. In a survey late in 2020 miners estimated that R20bn of projects are on hold because of the permits snarl up. Many that have been granted have ended up being unpicked in court because they’ve often been granted to multiple parties. Much of this reflects the incompetence of the department in managing mining rights, but the fundamental complexity of the regime was always going to overwhelm a government with limited technical capability.

Focus will now turn to the Expropriation Bill that will work within the existing constitutional order. The draft has fundamental weaknesses, especially in applying to all property rather than just land, and the focus must now be on ensuring the final legislation manages to deliver both justice and economic development.

Meanwhile, Angola is still trying to re-establish property rights after reforms in 2004. It is now possible to own land, but for Angola’s vast rural agricultural population this is only in theory — accessing formal rights from a government with limited capacity remains only a dream.

Theobald is chairperson at Intellidex. 

 

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