This is the second of two articles on the stance adopted by the Agricultural Business Chamber of South Africa (Agbiz) in relation to expropriation without compensation.

Agbiz endorses an amendment to the Bill of Rights to allow for Expropriation without Compensation (EWC). It does so through its chief economist, Wandile Sihlobo, who endorsed the Ramaphosa Report, which, in one section, called for EWC under limitless circumstances (section 5.1). Agbiz also openly undermines market-related compensation through its submission to Parliament at the start of 2020.

In that submission to Parliament, Agbiz says EWC advocate Tembeka Ngcukaitobi captures the ‘essence’ of its own argument for below-market compensation without constitutional amendment when he writes, inter alia, that ‘the slavish adherence to market-driven compensation models’ has been ‘particularly’ responsible for ‘slowed down transformation’. Agbiz also urged the National Assembly to avoid ‘a slavish adherence to Common Law principles’.

Agbiz previously denied its endorsement of EWC, pointing to other moments when it opposed EWC. In my first article, I laid out the fact-pattern, establishing that over the past two years Agbiz’s executive not only violated its own professed ‘official mandate’ from the biggest food-based businesses in the country to oppose EWC consistently, but also exhibits a long history of advertised appeasement and capitulation before EWC champions.

Agbiz was given an opportunity to comment on this article on Tuesday, March 3, two days before its publication on Thursday, March 5. But Agbiz has not responded in the week since, despite its professed openness to ‘discussions with any institution’ – specifically mentioning the Institute of Race Relations – ‘on matters that may have an impact on the agricultural value chain’. This only adds weight to the claim that Agbiz’s leadership contradicts its own commitments.

It also gives urgency to the question: what could Agbiz possibly stand to gain by maintaining a positive association with EWC, and why won’t Agbiz explain itself?

Beggar Thy Neighbour

To answer the question of why Agbiz endorses EWC, it is worth putting oneself in the government’s shoes. Suppose you were in the president’s inner circle, committed to passing EWC and interested in offering agricultural big business something in exchange for its endorsement: what, hypothetically speaking, would you offer?

Glancing at international precedent, it might seem there is room to offer rewards to political loyalists by way of subsidy. According to the Organization for Economic Development (OECD), in 2018 the average ‘producer support estimate’ (PSE) in agriculture was 19.2% for member countries. That means that consumers and taxpayers subsidise one fifth of farmers’ incomes in OECD countries, on average, in line with the European Union average farm subsidy too. This comes by way of direct payments, tariff protections and other forms of protectionism. In Japan, Norway, and Iceland, the PSE is more than 50% of farm income.

It used to be like this in apartheid South Africa, where subsidies for white farmers were an integral part of the National Party’s patronage network. During the 1980s, these subsidies were already peeled back to a PSE of 11%. After the ANC took over, the subsidy was peeled back further, with the OECD indicating a decline of SA’s Agricultural PSE to 2.06% in 2016. SA has recently been one of the most liberalized markets on earth, alongside New Zealand and Chile.

To give some context, in 2016, SA agriculture had a total income of R277 billion. The difference between PSE subsidy rates of 2% and 11% is roughly R24 billion. If the government promised to return to late apartheid-era levels of subsidization for primary agriculture, this would reward major players like Agbiz, with subsidization at Japanese levels or an order of magnitude higher. Applying these subsidies to Agbiz members higher up the value-chain would be more rewarding still.

So far as I know, no such offer was made, and it is highly unlikely that it would be.

But Agbiz has openly called for increased subsidies to its banking members, all the big banks and the Land Bank, with an exposure of between R150-R200 billion to agri-debts. Agbiz’s ‘blended finance model’ would have the state sponsor 50% of new loans to preferred black farmers, collateralized or not, with potential underwriting of the bank’s debts too to cover the risk of subsistence farmers unable to pay their dues.

Last year the two agricultural ministries envisaged granting just over R3 billion to the Land Bank, but the release of funds is nominally delayed because ‘the model was not yet complete and some farmers were not ready‘. At the same meeting with government, the Land Bank Chairperson called for ‘government guarantees’, and that the bank ‘not pay taxes’ and ‘not declare dividends’.

The Land Bank has subsequently been junked by Moody’s because ‘fiscal challenges’ will force the South African government to ‘be more selective in dispensing financial support to SOEs’ like the failing Land Bank, the first SOE to be junked.

With South Africa set to pay almost R1 billion every day in interest-servicing costs on a sunny-side outlook, with a budget deficit of 6.8% projected for this financial year, there is very little room, it turns out, for the state to credibly offer large subsidies to Agbiz members in exchange for their endorsing EWC.

So, if I were in the president’s inner circle and wanted to bargain for EWC I would have to hope Agbiz is either too uninformed to realize the state’s purse is too empty to offer a substantial reward for loyalty, or else I would have to lay down another chip.

In 2018, Agbiz’s CEO described ‘our biggest problem’ as ‘demand-side management’, which is the ability of Ramaphosa’s administration to bargain for better trade deals internationally, especially within Africa. Ramaphosa is in ongoing negotiations on the African Continental Free Trade Area (AfCFTA), a serious opportunity to beneficiate South Africa’s agri-potential for commodity producers and food manufacturers like Tiger Brands, an Agbiz member worth about R30 billion.

On the other hand, pushing through with EWC will almost certainly drop South Africa out of the US’s African Growth and Opportunity Act (AGOA) trade deal, which gives SA preferential treatment, while SA’s ability to penetrate UK and EU markets under an EWC regime remains unclear but will likely decrease under pressure both internally and from abroad. With President Ramaphosa having branded himself as trade negotiator-in-chief, he could hardly be more motivated to deliver the best possible deals, with or without Agbiz’s support for EWC, particularly regarding AfCFTA.

In short, if I were aiming to offer something in exchange for EWC endorsement, I would again have to think Agbiz too naïve to realize that Ramaphosa is already maximally motivated to expand trade into Africa, or I would have to find yet another chip to put on the table.

Notice the point of the hypothetical exercise: it shows what a weak position Ramaphosa’s administration is in to induce EWC endorsement from big business through promised rewards. It is a good and sensible thing that Ramaphosa’s administration has not even tried to buy EWC endorsement.

If not the carrot, then the stick. EWC is, after all, a threat to enable all property – land as well as buildings and improvements – to be expropriated by the government without compensation, or with the ‘quantum’ of compensation to be determined by the executive, if the ANC’s NEC and Ramaphosa have their way. Perhaps the simplest approach would then be to ask Agbiz to endorse EWC in exchange for the promise that its members would be spared EWC while others would be targeted.

I have no evidence that Ramaphosa’s administration offered this or any promise to Agbiz. In fact, let me be the first to say I would be greatly surprised if any of Ramaphosa’s officials would be open in the slightest to making such offers to Agbiz. This would open the president’s flank to aggressive attack by both the EFF and the radical faction of the ANC. It would also be corrupt, exposing Ramaphosa to attacks from the centre.

Again, the hypothetical illustrates a simple point: what a weak position Ramaphosa’s administration is in to bully Agbiz into endorsing EWC. Good thing that all the evidence suggests Ramaphosa has not tried that and would never make such an attempt.

Agbiz, on the other hand, has endorsed EWC and given the impression that it is open to a system of property rights that hits some legitimate owners harder than others.

Dividing Resistance to EWC

In its 2020 submission to parliament, Agbiz draws attention to the landmark case of Johannes and Dirk Cornelius Uys versus Msindo Phillemon Msiza and others. This is one of the most important cases in SA’s recent history so some context is important.

A portion of the Uys farm, Rondebosch, was to be expropriated with compensation to settle Msiza’s labour tenant claim. The question was, how much compensation? Three numbers dominated the case which was finally settled in 2017: R4.6 million; R1.8 million and R1.5 million.

Because the claimed land might be used for residential development it could have a market value of R4.6 million. But, under the Pointe Gourde principle, the relevant market value was to be considered only for the land as agricultural land. Under the Pointe Gourde principle, a landowner cannot claim compensation to the extent to which the land’s value is enhanced by the very scheme that will be implemented post-expropriation. If the state wants to expropriate cheap land to build a billion-rand airport, you cannot expect to be paid a billion rand.

The second number, R1.8 million, was the market value of the land for agricultural use. But the Land Claims Court (LCC) claimed there was a ‘disproportionate chasm’ between the earlier purchase price and the land’s current value, thus ruling compensation should only be R1.5 million. Agbiz notes further that, according to the LCC: ‘The national fiscus should [not] be saddled with extravagant claims of compensation [that is market-related], when the clear object of taking the land is to address a pressing public interest concern such as land reform.’

The Supreme Court of Appeal overturned this ruling on the basis that there was no such ‘disproportionate chasm’ as ‘the value of the land had escalated over time‘.

But Ngcukaitobi laments that this case was not taken on appeal to the Constitutional Court, which he seems to think might have upheld the LCC’s original below-market compensation. In the same piece, Ngcukaitobi calls for EWC on ‘absentee landlords, unused land…and unproductive land’.

Agbiz also laments the single case as ‘unfortunate’ since the ‘ambiguity’ around how much weight ‘social justice’ carries against the weight of owners’ interest in not losing market value has not been ‘fully tested’. It is here, in Agbiz’s submission to Parliament, that it quotes Ngcukaitobi as capturing the ‘essence’ of its argument by claiming: ‘What has slowed down transformation of property relations are…particularly the slavish adherence to market-driven compensation models’.

Land reform is an imperative of South Africa’s Republican project. The question is whether the cost is to be borne by the fiscus, funded by black, white, Indian and coloured tax-payers who want to make whole those dispossessed since the 1913 Land Act, or a few highly stigmatized landowners. By seconding Ncgukaitobi, Agbiz answers that it should, at least in part, be the latter.

Agbiz further pleads that parliament must not create a closed list of ‘circumstances in which nil compensation may be just and equitable’. Why? Without reflection, one of its points seems reasonable. Agbiz worries that a complete list of circumstances to be targeted for ‘nil compensation’ would create a ‘blank cheque’ for the government to enact EWC for anything on the list, which could possibly be disastrous.

Yet such a list can easily be created in which the government rightly has such powers. Only property that is a) valued at R0 should be subject to EWC. A one-item, complete list that is (I submit) very useful.

No, says Agbiz, my list and all others are simply too short for a second, unfathomable reason it provides. ‘It is impossible to list all circumstances that may be relevant’ for EWC, according to Agbiz. In creating such a list, ‘one also runs the risk of limiting understanding of which factors’ should lead to EWC. Agbiz seems to be worried that the circumstances for EWC should not be too limited and that any attempt to create a list would have an (unacceptable) limiting effect.

This lines up with Agbiz’s endorsement of the Ramaphosa Report, which listed the following circumstances in which EWC ‘may commence immediately…including but not limited to [emphasis added]: abandoned land; hopelessly indebted land; land held purely for speculative purposes…and farm equity schemes’.

For Agbiz, this is not entirely new either. Since 2018, Agbiz has mooted that various properties might be subject to expropriation at a ‘significant departure from market value’, starting with land used for ‘recreational purposes‘.

In the same piece, Agbiz laid out four scenarios for land reform where the ‘hybrid approach’ is on the better side, in its view, of both legal and economic axes. In this ‘hybrid approach’, a ‘blended financing model and AgriBEE are used to transform productive farmland, and land that is unbonded, unused and uninhabited by the owner is targeted for expropriation so as to reduce the economic impact.’

Furthermore, says Agbiz, ‘it is argued that the public interest would require compensation to be significantly less than market value in instances where land is unused, unbonded and uninhabited’.

Agbiz further moots that productive farmers with a turnover of more than R3 million a year who undergo expropriation should then make a ‘cash contribution’ of 40% of the cost of setting up new black farming enterprises on their former land. (The other 60% would come half from government grants and half as a loan from a bank). In exchange, the farmer will ‘be exempted from future land claims’.

What Agbiz fails to recognize is why the fundamental nature of property rights makes it impossible to decide who gets nil or below-market value compensation in this ad hoc way. Of course, productive farmers might be tempted to endorse EWC for holidaymakers if it meant the farmers would be left alone. And, of course, mega-farmers might be tempted to pay out a few million rand, once-off, and lose some of their land if it means only smaller farmers and holidaymakers get hit with all-out EWC.

Moreover, it might seem that almost everyone would tolerate EWC against ‘unused’ land if it meant they personally would be left alone. This temptation to throw one’s neighbours to the crocodile to spare oneself is exactly what Hugo Chavez relied on when his administration introduced EWC to Venezuela.

Breaking Venezuela

In 1999, the Venezuelan constitution was amended to declare ‘the predominance of large idle estates (latifundios) was contrary to the interests of society’ and, in 2001, a Land Law permitted latifundios to be targets of EWC. Once that started, however, the definition of ‘idle’ shifted, while overgrazing was enforced to stop ‘idleness’, and price-controls were enforced to stop food prices from rocketing under conditions of lower supply.

In conjunction, this led to further legalized dispossession, which itself led to further economic decline, which naturally led to nationalization of various manufacturers and other parts of big business that once assumed that they would be safe from EWC.

That was predictable because property rights are, by their fundamental constitution, the last trench between your stuff and marauding apparatchiks. Once this trench is breached in one arbitrary place the whole economy goes. At the lower end of its own estimates, by 2010 only 20% of Venezuela’s farmland had been expropriated, but the damage to the economy was total and the assault on the body politic remains totalitarian.

Agbiz seems totally ignorant of the Venezuelan slow-creep model of EWC. In 2019, it was still characterizing the Venezuelan model as the same as the Zimbabwean one, as ‘unconditional‘ or ‘wholesale’, such as the 100% nationalization called for by the EFF. But the Venezuelan and Zimbabwean models were not the same.

Major differences between Venezuela and Zimbabwe are a) in Venezuela EWC was a slow creep that nominally targeted only ‘idle’ land and b) in Venezuela the majority of agricultural land was not subjected to EWC by the time the proverbial Rubicon had been crossed, differences that go apparently unrecognized by Agbiz.

On March 3, I drew Agbiz’s attention to this point and asked if they still endorsed EWC for ‘unused’ land or ‘underutilized’ land as well as ‘farm equity schemes’. Despite their professed openness to dialogue, Agbiz declined to answer.

Beggars Belief

It is impossible to know what Agbiz hopes to get out of its endorsement of EWC under limitless circumstances and expropriation at below market compensation for SA’s latifundios, since nothing at all has been offered. Even worse, the government could not bribe or bully Agbiz into endorsing EWC even if it tried.

Given all that, it might seem the simplest explanation is that Agbiz endorses EWC and abandoning market-related compensation because it thinks that is a good idea. If so, Agbiz really owes it to the public to explain that position clearly.

Perhaps, alternatively, Agbiz is just too proud to admit it did not know something about EWC’s precedent, particularly in Venezuela. Perhaps its members mostly do not know what its leadership has been up to. On the other hand, Agbiz might have known all along, but thinks that ‘access’ to Ramaphosa alone is enough reward to sign on to his signature policy.

By both endorsing and opposing EWC, Agbiz might even think it is supporting Ramaphosa’s ‘long-term strategy’ which promises to kick in just as soon as tomorrow, or whenever his mandate gets big enough – whichever comes too late to save South Africa from EWC.

But because it will not explain itself I cannot know what Agbiz’s doublespeak really means, nor can any member of the public. Until Agbiz answers simple questions, its EWC endorsement floats around without rhyme or reason.

In any event, EWC is such a fundamental assault on human rights, comes at such trying economic times, under a land reform department that remains so brazenly corrupt, alongside the normalization of such hateful rhetoric against food-growers of a certain phenotype, that it really is very simple. Either you are against EWC or you are for South Africa’s doom.

Unless you are Agbiz, in which case you are both. This position is illogical. Solomon himself could not explain it, and neither will Agbiz – until the penny drops: feeding the crocodile only makes it stronger.

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Gabriel Crouse is Executive Director of IRR Legal, and is a Fellow at the Institute of Race Relations (IRR). He holds a degree in Philosophy from Princeton University.