Frans Cronje: The threat of expropriation without compensation is closer than you think

Contrary to more naïve opinion, the South African government is quite close to the point where it could begin seizing property without compensation. 

There are twin processes at play here, and their implications extend beyond farms and agriculture to threatened seizures of pension funds and even the economy itself. The manner in which those two processes play out will be important in determining your odds of living in a free and open and ultimately prosperous society.  

The twin processes are as follows.

The first is the adoption of the new Expropriation Bill. The ANC has a sufficient majority to do this and the process could be completed by the end of the year. My colleague, Anthea Jeffery, writes that the bill – if adopted in its current form – would allow an expropriating authority (a municipality, for example) to seize a property via the following steps:

1. The municipality will investigate a property it plans to expropriate, for which purpose it can enter the property either with the consent of the owner or with the backing of a court order.

2. The municipality will then serve on the owner a notice of intention to expropriate and ask for further information, plus invite representations on the proposed expropriation and the compensation offered.

3. The municipality will consider those representations (but will need not respond to them);

4. The municipality will then issue a notice of expropriation, under which both ownership and possession will pass to it on the dates set out in the notice. These dates can be set for very soon after the notice of expropriation has been served (the only time limit on the date on which ownership passes is that it can't be set for a day before the notice of expropriation has been served).

5. Property owners can go to court to challenge the amount of compensation offered (which is likely to be roughly half of market value, on the valuer-general's formula, and sometimes even less) and also the constitutionality of the expropriation (whether it is truly "in the public interest", for example). However, most people will lack the means for such legal challenges and will find them particularly difficult to mount if they have already lost ownership and possession of their properties.

6. Property owners will also have the right to object (on administrative justice grounds) if the time between the service of the expropriation notice and the passing of ownership and then of possession is unreasonably short. In practice, however, most people will also lack the means for this kind of legal challenge.

7. Where the property expropriated includes a person's home, there is no obligation on the expropriating authority to seek court approval for the eviction that will occur when the right to possess the house passes to the municipality.

There is a view that such a process could not survive a constitutional challenge. We have long argued that this is not necessarily the case, given the Constitutional Court's stance on "transformation". 

There is also a risk that the discount clauses in the Constitution may offer the government just enough room to reduce the compensation provided to well below market value. However, that is not guaranteed and this is where the second process kicks in: amending Section 25 of the Constitution to make it explicit that property can be seized without compensation.

Should this amendment be adopted, then the Expropriation Bill is even more likely to pass constitutional muster (though it could still be challenged for infringing administrative justice and the right of access to court).

The constitutional amendment will also deal with general principle, rather than the procedures to be followed on expropriation. This second process could comfortably be completed this year, although likely legal challenges could delay its implementation for some time.

We have also long maintained that the expropriation without compensation process as it relates to land is in part an attempt to dilute property rights more broadly, allowing the government to seize or extract wealth wherever it is found.

We have warned specifically of the risk of prescribed investments, whereby the state would force pension fund holders to invest some of their funds in state-owned enterprises such as Eskom and SAA. This in turn would allow those funds to be directed towards various empowerment contractors and related parties.

The budget deficit has reached levels last seen at the end of the apartheid era and government debt levels have more than doubled over the past decade. Growth rates are too low to flat-line, let alone rein in, either the deficit or the debt level.

Economic framework 'hopeless'

The economic policy framework of the ruling party, as set out in its most recent manifesto, is quite hopeless and cannot possibly draw the investment to turn the growth position around. Austerity is off the table as this would mean sacking large numbers of civil servants and turning off the cash taps that feed cadre deployment and tenderpreneurship rings.

Cutting off the cash flow to those rings would splinter the ANC. Accepting bailouts from foreign institutions would see the government surrender effective policy control and is rejected in many political quarters on those grounds. Put plainly, the government and the ANC are running out of the cash they need to remain in control both of the country and the party, and drawing on pension funds is now a very attractive short-term counter to those risks.

As we have further warned at length, the policy of expropriation without compensation holds civil rights and not just economic risks. 

Property rights anchor human liberty in all free and open societies and the evidence for this is unambiguous, on indicators ranging from political to media freedom. The Zimbabwean case study – now, again, much in the news – is clear on how the erosion of property rights paved the way for the erosion of civil rights and the rule of law. 

South Africa is a more diverse economy than Zimbabwe was and its institutions are stronger, but that does not mean it is immune from the risk of a democratic or civil rights reversal – just that such a reversal will be more difficult to achieve and be dragged out over a longer period of time. 

But much of that time has already elapsed, with our analysts having identified more than 30 assaults on property rights over the past decade in parallel with a process of racial nationalist agitation and the stigmatisation of minorities and black critics of the government.   

The Expropriation Bill and the proposed amendment to Section 25 of the Constitution threaten the lives and livelihoods of all South Africans – rich and poor, black and white. Too many organisations and commentators have fallen for the ruse that this is an issue that pits one section of our society against the other, or that there can be winners (the poor and black people) versus losers (property owners and whites), if the policy of expropriation without compensation goes ahead. The truth is that everyone will lose. 

'Ruse' that threats are short term

Others have fallen for the ruse that the threats are short term and will dissipate on their own, or that the government will use its new powers responsibly. The track record shows both views to be naïve. 

Do not think, therefore, that these are distant issues or that they will not affect you. In fact, they will do so very directly. They will also determine, as much as anything else that may happen this year, whether the South Africa you live in will evolve over time to become a stable and prosperous society. 

It is imperative therefore that you support those few organisations which, against great odds, are fighting in public and behind the scenes to ensure that threats to property rights are defeated. If those organisations lose, the consequences for you could in time be as severe as those that Zimbabweans and Venezuelans have been forced to endure.             

- Frans Cronje is the CEO of the Institute of Race Relations (IRR), a liberal think tank that promotes economic and political freedom. Readers are invited to take a stand with the IRR by sending an SMS to 32823 (SMSes cost R1, Ts and Cs apply). 

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