South Africa’s business-friendly president alarms investors with land grab proposal

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Justina Crabtree

Source: South Africa’s business-friendly president alarms investors with land grab proposal

  • Cyril Ramaphosa announced this week that his government is to press on with a plan to overhaul how land is owned.
  • The ruling ANC party is to put through parliament an amendment to the constitution that would permit the seizing of land without expropriation.

South African President Cyril Ramaphosa announced this week that his government is to press on with a plan to overhaul how land is owned in the country, a move that has alarmed some investors in Africa’s most developed economy.

Ramaphosa said Tuesday that the ruling African National Congress (ANC) party is to put through parliament an amendment to the South African constitution that would permit the seizing of land without expropriation.

The bulk of South Africa’s land is owned by its minority white population, a vestige of its colonial past. Although apartheid ended almost 25 years ago, South African society remains one of the most unequal in the world.

“It has become pertinently clear that our people want the constitution to be more explicit about expropriation of land without compensation as demonstrated in the public hearings,” said Ramaphosa in a televised address.

He said that the proposal would “promote redress, advance economic development, increase agricultural production and food security.”

But, some investors are fearful that constitutionalizing land grabs would undermine business stability and economic growth, which has remained subpar thanks to years of corruption under former President Jacob Zuma’s administration. South Africa’s already-high unemployment rate rose in the second quarter of this year to 27.2 percent, it was announced Tuesday.

The volatile rand dropped to a one-week low of near 13.40 per U.S. dollar overnight after Ramaphosa’s announcement, according to Reuters.

Ramaphosa is walking a tightrope

Building bridges with the investment community has been of paramount importance to Ramaphosa since he
took power in February
. The president, himself a business tycoon and one of South Africa’s richest men, is on a mission to raise $100 billion in foreign investment.

But, the president is walking a tightrope between satiating investors and the South African electorate, which is due to head to the polls next year.

South Africa-based analysis firm NKC African Economics described the announcement as “populist rhetoric with no clear answers,” in a note published Wednesday.

In neighboring Zimbabwe, land-grabbing is a now notorious policy associated with former strongman leader Robert Mugabe as the country adjusted to black majority rule. In the early 2000s, Mugabe pushed thousands of white farmers off their land to the result of food shortages, hyperinflation and violence — as well as contributing to the country’s international ostracization.

After South Africa’s white minority rule ended in 1994, the ANC has adhered to a “willing seller, willing buyer” framework. This means that the South African government buys white-owned farms for redistribution among the black population.

Investor perception versus reality

But, some analysts have sought to stymie investor worries.

“The perception is worse than the reality,” wrote Ben Payton, head of Africa research at consultancy Verisk Maplecroft, in a note on Wednesday. Payton pointed out that the amendment’s passing is dependent on political process and not necessarily a done deal.

Ramaphosa’s announcement was “almost certainly intended as a populist distraction from recent bad news on the economy,” Payton said. He added that the reality of any changes to the constitution were likely to be less significant than investors fear due to constitutional provisions and the president’s own views.

“Even so, while the direct economic impacts are likely to be limited, any threat to property rights will inevitably scare off much-needed investment,” Payton said.

John Ashbourne, senior emerging markets economist at consulting firm Capital Economics, echoed Payton’s sentiment. He also pointed out Ramaphosa’s lack of detail in the announcement.

“The political salience of agriculture far exceeds its economic weight; the sector makes up just 2 percent of (gross domestic product),” Ashbourne wrote in a note Wednesday. But, given the volatility of South African markets, particularly in the face of political news, “heated political rhetoric will probably shock the rand and gradually undermine investor confidence, even if — as we expect — the eventual amendment is relatively modest.”