Speaking last month to the Progressive Business Forum – a group of BEE and other businesses that pay the African National Congress (ANC) significant sums for increased access to business opportunities – President Cyril Ramaphosa said that 2021 would be a ‘game-changer’ for BEE in South Africa. The key focus would be on how to move the needle on black participation in all sectors of the economy.
Though the President did not explain what he had in mind, some key provisions of the Expropriation Bill could be particularly useful here. Yet most commentators continue to ignore the Bill, or to depict it as a land reform law of limited significance and reach.
In fact, the expropriation clauses in the Bill will affect far more than farming land and will be deeply damaging to all South Africans, whether they own property or not. Even more important, however, is the short and seemingly innocuous definition of ‘expropriation’ in the Bill.
A seemingly harmless definition
This definition has been carefully crafted to look harmless on the surface. However, its effect will be to give the state untrammelled power to embark on a host of ‘indirect’ expropriations for which no compensation will be paid.
The key to understanding the Bill’s definition lies in the difference between ‘direct’ and ‘indirect’ expropriations. A ‘direct’ expropriation takes place when the state takes ownership of property. An ‘indirect’ expropriation, by contrast, does not involve the acquisition of ownership by the state and can take the form of either ‘custodial’ or ‘regulatory’ takings.
A ‘custodial’ taking arises when the state takes custodianship of property – as the government has already done as regards all water resources (under the National Water Act of 1998) and all mineral resources (under the Mineral and Petroleum Resources Development Act or MPRDA of 2002).
A ‘regulatory’ expropriation arises when the state imposes price controls on a product, for example, and so prevents its owner from selling at market value. In this situation, the state does not acquire ownership of the product, but its regulations result in a loss to the owner.
Expropriation in international law
Under customary international law, as well as most bilateral investment treaties, expropriation is defined in a broad way to include both ‘direct’ and ‘indirect’ expropriations. In South Africa, Section 25 of the Constitution (the property clause) does not define what ‘expropriation’ means, but the term is generally understood as having its usual broad meaning.
In 2013, however, in the Agri SA case, the Constitutional Court sought to confine the meaning of expropriation to takings of the ‘direct’ kind. Here, Chief Justice Mogoeng Mogoeng ruled that expropriation requires the acquisition of ownership by the state. This meant that the state’s ‘assumption of custodianship’ over an unused mining right (the issue before him) did not qualify as an expropriation, nor merit the payment of any compensation.
The Bill’s definition of ‘expropriation’ is clearly based on Mogoeng’s ruling. According to the Bill, ‘expropriation’ means the ‘compulsory acquisition’ of property by the state. On this basis, neither custodial nor regulatory takings will qualify as ‘expropriations’ because they do not transfer ownership to the state. Moreover, where no expropriation has occurred, no compensation need be paid.
Custodianship of land
If no compensation is payable for custodial takings, this will encourage the government to take custodianship of all rural land, as the Preservation and Development of Agricultural Land Framework Bill of 2014 earlier envisaged. The government could also take custodianship of all other land – whether residential, mining, commercial or industrial – as the 2017 state land audit proposed and as the Economic Freedom Fighters (EFF) constantly demands.
Once the state has custodianship of all land, says EFF leader Julius Malema, ‘every title deed will be meaningless’ and anyone needing land will have to obtain a ‘land-use licence’ from the state. Though South Africa’s tax burden is one of the heaviest in the world – with revenues collected already amounting to almost 30% of GDP – people who now own their homes or business premises will have to start paying rent on them to the state, to help make up for the trillions lost to incompetence and corruption.
These land-use licences, whether granted to individuals or businesses, will generally last for 25 years, or so the EFF says. However, they will generally be vulnerable to early termination if the state so decides. Already, several black farmers have faced summary eviction from their leased land to make way for ANC luminaries or Umkhonto we Sizwe veterans: Ivan Cloete in the Darling area of the Western Cape being the latest to confront this threat. State custodianship over land will accelerate this trend, for land will then increasingly be used as a weapon in the ANC’s factional wars or as a patronage tool to keep the populace in line.
BEE could also be given a big boost, as farmers and other businesses wanting to retain their land-use licences could be compelled to comply with ever more onerous empowerment obligations: whether on ownership deals, management posts, or procurement contracts. This, of course, is the kind of BEE escalation that mining companies operating under the custodianship provisions in the MPRDA have already experienced.
A host of regulatory expropriations
The Bill’s definition will also allow a host of regulatory expropriations to proceed without the risk of compensation having to be paid. These takings will extend far beyond land, as both the Expropriation Bill and Section 25 of the Constitution expressly define ‘property’ as ‘not limited to land’.
As part of these regulatory expropriations, BEE ownership targets could be pushed up to 51% or more, without any compensation being paid for forced sales at prices below market value. Similarly, foreign security and other companies operating in South Africa could be subjected to 51% ‘indigenisation’ requirements, again without compensation being payable. In addition:
- export and price controls could be placed on platinum and other minerals to ensure their local beneficiation;
- price controls could be imposed on all private providers of medical treatment and healthcare goods and services under the National Health Insurance (NHI) system;
- ‘prescribed assets’ could be introduced for pension and other funds, thereby compelling them to invest in Eskom and other failing state-owned enterprises; and
- compulsory licences could become mandatory for many patented medicines, allowing them to be copied in return for low royalties.
All these regulatory expropriations are already either in the policy pipeline or under investigation by the ANC. If they proceed after the Bill has been enacted, many retail, manufacturing, security, mining, hospital, investment management, pharmaceutical, and other firms will suffer major losses from forced BEE ownership deals, price controls, asset prescription, compulsory licensing, and other interventions. However, they will receive ‘nil’ compensation for these regulatory expropriations under the Bill.
Many of these regulatory takings will provide lucrative opportunities for the BEE elite. Much of the unearned benefit they receive will come directly from the targeted companies, of course. But ordinary South Africans will bear an enormous burden too. The costs here will range from declining competitiveness, savings, and living standards to rising joblessness and higher taxes to help compensate for inefficiency, corruption, and ideological folly.
This large-scale destruction of property rights is what the ANC and South African Communist Party alliance has long been seeking as part of its national democratic revolution (NDR). The NDR’s overall goal is to take South Africa from a free market system to socialism and then communism.
Incremental ‘elimination’ of property rights
As part of its planned advance to socialism, the ANC pledged to ‘eliminate’ existing property relationships at its Stellenbosch national conference back in 2002. Ever since then, it has been moving incrementally towards this goal, in keeping with what the surrounding circumstances (‘the balance of forces’, in NDR parlance) will allow.
When the ANC Youth League began calling in 2009 for mine nationalisation, the ANC rejected this proposal at its Mangaung national conference in 2012. This was primarily, it said, because some R1 trillion in compensation would then have to be paid.
Now, however – through a series of incremental NDR interventions, including the Bill – the ANC has brought the country to the point where the state will soon be able to assert its control over land and a host of other assets without any compensation being payable at all.
Yet most commentators persist in either ignoring the Bill or in welcoming it as a sound and overdue measure. They continue to sleepwalk through the revolution, instead of helping to alert South Africans to the NDR and how the Bill will help advance this.
But ordinary people still have the chance (until 28th February) to send in their written objections to Parliament. The more resistance there is, the more this will help tip the balance of forces against pushing ahead with the measure.
By strongly raising their voices, the majority of black and white South Africans – united in their common desire for investment, growth, and jobs in place of radical redistribution – can still help to ‘kill this Bill’.
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