South Africa braces for economic fallout of land nationalisation move

The push for a change in the legislation has sparked a fierce debate in the top Industrialised African economy

Wheat fields near Cape Town. Land expropriation in South Africa moved a step closer last week after a parliament adopted a motion to change legislation. Mike Hutchings / Reuters

Land expropriation without compensation in South Africa moved a step closer as the country's parliament adopted a motion last week to make changes to existing legislation that would put the contentious plan into effect.

The ruling African National Congress (ANC), together with opposition party the Economic Freedom Fighters (who sponsored the bill), voted to change the country's constitution to reduce property rights. The move has sparked fierce debate and could widened the racial divide in the top Industrialised African economy.

EFF leader Julius Malema told reporters shortly after the vote that the push is for all the land, including farms and urban properties. "Every land in South Africa should be expropriated without compensation," he said. "The state should be the custodian of the land."

That has put in doubt the fate of outstanding private property market mortgages, which local banking groups have estimated to be valued at 160 billion rand ($13.5bn).  About 145bn rand in loans is owed by the farming sector, of which white South Africans account for 72 per cent, government audits show.

South African has struggled with muted growth over the past five years, brought about in part by uncertainty over key economic policies. The World Bank projects the country's GDP to grow 1.1 per cent this year from near zero in 2017. Unemployment is now north of 26 per cent, according to government statistics, adding pressure to the ruling party that must face elections in 2019. For the banking sector that underpins the economy, full nationalisation could prove to be a massive hit, analysts said.

Although details of the nationalisation plan are thin, the EFF's Mr Malema has touted a lease-rental model that would see existing homeowners become state tenants. This system is already in place in a number of African countries including Mozambique, which only allows a 99-year lease on farmland, instead of outright private ownership.

"No one is going to lose his or her house, no one is going to lose his or her flat, no one is going to lose his or her factory or industry. All we are saying is they will not have the ownership of the land," Mr Malema said.

Last week's vote comes as South Africa's new president Cyril Ramaphosa has barely settled into the office. He is is widely seen as business friendly and a free marketer, so the motion caught many by surprise. However his priority, perhaps, is to lead the ANC -  already wounded by years of corruption scandals under his predecessor Jacob Zuma - into next year's polls, according to analysts.

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While the EFF gained only 6 per cent in the last elections, its vocal populism has eroded support for the ANC, particularly in urban areas. The joint motion on land may be an attempt to regain some of the lost ground among the vote bank blunt EFF's criticism of ANC, party sources said.

Still, the door to full nationalisation of all property is now open, which has made many in the country of 55 million nervous. A growing black middle class that has embraced the property market in urban areas especially will particularly be affected.

"Why must government own land on behalf of [South African] blacks?" said Sihle Ngobese, a political activist with the official opposition Democratic Alliance, a party that supports free markets. "The EFF and ANC want all land to be owned by government. So, they want [South African] blacks to be permanent renters of their own land."

Tribal leaders in the country have also expressed alarm at the idea. Goodwill Zwelithini, king of the Zulus (the country's largest ethnic group) said he is prepared to 'fight' attempts to seize the tribe's land. The king oversees nearly 3 million hectares of property in a tribal trust that the government wants to parcel off to individual tenant farmers who now live there with the monarch's permission.

"Land cannot be removed from the traditional leadership," King Zwelithini said. "In fact‚ the land is like the soul of the body of traditional leadership. We will never allow [it]‚ not for one day."

For now, nothing much will change, as property laws remain in place. Last week's motion requires a parliamentary committee to investigate the ramifications of a constitutional change. This will take at least six months, before the committee reports its findings to the parliament. Further reviews are likely, which could push the matter well beyond national elections, due to be held in the first quarter of 2019.

Bond and equity markets have also shown little reaction so far. South Africa's rand is still trading below the key level of 12 to the dollar that it held prior to the motion.

As yet, the ANC's view on what comes next should the constitution be changed is vague.

Enoch Godongwana, the ANC head of economic transformation, told the Eastern Province daily Herald that few details had been hammered out by the party so far.

“Anyone who says they fully understand what this whole process fully means is lying," he said. “I myself don’t fully understand it, which is why there’s this consultative process under way.”