[REN #590] Land Grab in South Africa

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picture of grassy field and farm land for Real Estate News for Investors Podcast Episode #590

South Africa is moving ahead with a plan to seize land from white farmers without paying them for the land. The South African president claims it is not a land grab and denies that it’s an assault on the private ownership of property. But, the announcement has fired up debate over land ownership and property rights in South Africa along with the impact that land seizures could have on the economy. And, it’s certainly something to pay attention to here in the U.S., as private property rights have become blurred as well.

President Cyril Ramaphosa had promised land reform during his campaign to help rebalance ownership between whites and blacks. Currently, 72% of the farms are owned by whites, yet white people make up less than 9% of the population.

He announced on August 1st, his government is working on a constitutional amendment that will allow the seizure of land without compensation. The goal is to put more land in the hands of black South Africans. He told the Financial Times, “What we now want to do is to unlock the utilisation of our land by spreading it among our people — so that the land can be properly and usefully utilised for the majority of our people.”
 

Trigger for Economic Decline

But handing farmland over to black farmers will not guarantee their success. It will also set off an economic decline if properties are seized without fair compensation. One immediate effect would be devaluation of the land, which is already starting to happen.

A South African cattle farmer mentioned in a Forbes article that even if he wanted to sell his farm, because of the government plan for seizures, his property is now worth “zero.” He said, there’s no buyer interest and several land auctions were cancelled recently. He said, “Why would you buy a farm to know the government’s going to take it?” [1]

As the Forbes article points out, “The defense of private property rights is fundamental to protecting personal liberties in any market-based economy.” It’s also written into the U.N. Universal Declaration of Human Rights, “Everyone has the right to own property alone as well as in association with others, and that no one shall be arbitrarily deprived of his property.”

One little loan contract detail that will also cause trouble if South Africa begins the seizing of land without compensation: The country’s very own Land and Agricultural Development Bank will demand immediate repayment for $2.8 billion in loans. It’s written into a standard clause that’s attached to the loans. As reported by Forbes, that repayment demand would force the government into default.
 

President Trump Responds in a Tweet

The announcement also drew the attention of President Trump. He said in a late-night tweet, “I have asked Secretary of State Michael Pompeo to closely study the South African land and farm seizures and expropriations and the large-scale killing of farmers.”

Land seizures have not yet begun, and there’s disagreement as to the killing of farmers. The New York Times reports that 47 were killed over the last year, but that’s also a 20-year low. It may also represent an average murder rate for South Africa.

Kate Wilkinson of Africa Check told the Times, “Nobody is disputing that people living and working on farms… are the victims of violent and often brutal attacks and murders. What is disputed is whether they face an elevated risk versus an average risk for South Africans.”

The South African government clarified its plan after the tweet, saying that only unused land and abandoned buildings would be targeted for seizure. That would appear to indicate that if the property is being actively farmed, it would not be taken. [2]
 

Land Redistribution Needed But How?

As Bloomberg reports, many investors feel that land redistribution is needed in South Africa to address racial inequalities, but there’s concern as to how it should be done. Any broad-based seizures would likely result in credit-rating downgrades and debt defaults, and the weakening of South Africa’s currency, the Rand. The Rand already suffered a 10% loss in value against the dollar last month in the midst of this issue.

South Africa also has a system in place for restoring land taken from individuals and families under the Restitution of Land Rights Act. This law gives black former landowners a choice as to how they want restitution. They can choose to their land returned or to receive compensation.

According to Forbes and the World Bank, 80% of the already submitted claims have been finalized, and 90% of the people making those claims chose to be compensated. They didn’t want the land back.

The government’s goal was to get at least 30% of farmable land back into the hands of black South Africans, but the plan didn’t work. Now there’s grave concern about taking land away from successful farmers, and handing it off to people who may not know what to do with it.
 

Moving Ahead with Constitutional Amendment

The South African parliament is drafting the constitutional amendment. President Ramaphosa says, the amendment will “outline more clearly the conditions under which expropriation of land without compensation can be effected.” He also tried to ease fears in the Financial Times article by saying, the amendment would not harm the South African economy or its agricultural sector.

But this government seizure of land hasn’t worked well for other countries. Zimbabwe, Cuba, and Venezuela are a few examples. Ironically, the Cuban government just announced that it is changing its constitution to allow the private ownership of land for the first time in decades.
 

Private Ownership of Land in Cuba!

Cuba’s new president, Miguel Diaz-Canel, is hoping to boost economic growth, address widespread poverty, and increase the nation’s food supply. Food is always in short supply. Most Cubans depend on a monthly allotment of food staples like rice, beans, eggs, and milk. There are state-run stores to buy more food, but it’s typical to see empty shelves. Cubans don’t have a lot of extra money to spend on food either. They make the equivalent of about $30 a month.

But Cuban farmers are skeptical that private ownership of land will provide much of a benefit. They still need other economic tools to build a business, such as the ability to take out loans to buy supplies and equipment. The government also imposes other rules on money-making ventures, such as price controls.

The private ownership of land is one step forward for Cuba, however. Land reform may be needed in South Africa, but most economists and people who believe in property rights and a free market economy would say the current plan for the expropriation of land is a giant step backward.

Links:

[1] Land Seizures and the Economy: Forbes

[2] New York Times Article

[3] Private Ownership of Land in Cuba: New York Times

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