For recent years, there has been immense uncertainty regarding the future of the South African economy. We have seen a decade of political corruption unwind years of progress but the era of a new leader brought hope to the people of the continent’s economic power house.
Although there remains reasons to be positive, the reality needs to be faced. On Tuesday, South Africa officially entered their first technical recession since 2009 after Stats SA announced the country’s real GDP declined in the second quarter of 2018. This news follows weeks of erratic trading of the national currency, the rand. In addition, Rand Merchant Bank’s 2018 report of where to invest in Africa, saw South Africa relinquish top spot to Egypt for among other reasons, uncertain business environment and political instability.
Which way will the economy go?
Recent economic indicators suggest that the South African economy is only going downhill. However, observing from across the Atlantic, I believe things are not that straight forward. Over the next six months, a variety of scenarios may unfold, so it is worth carefully watching the nation’s progress before investing.
The main issue of interest of late is the uncertainty surrounding the ‘land expropriation without compensation’. Until the day the first farm is physically seized without compensation, I refuse to believe that President Ramaphosa will allow it to happen. As a out-and-out businessman, he will be well aware of what this would mean for South Africa’s business climate and hence incoming foreign investment. I believe the phrase of ‘expropriation without compensation’ has merely become political rhetoric.
‘If by chance, the expropriation without compensation took place, it would be the beginning of the end of South Africa.’
Although it is in my view highly unlikely that it does go forth without compensation, I acknowledge that stranger things have happened. If by chance, the expropriation without compensation took place, it would be the beginning of the end of South Africa. Investor confidence would be ruined for the foreseeable future, and with the improving business environments in other African nations, the South African government would struggle to bring back lost investment.
This does not mean that I do not support land reform. As severe as I believe the results to be from expropriating without compensating, I believe results may be equally severe in the long run if we progress without any land reform. However, I believe that the government should start by handing out their own land before starting any expropriation. Further, I believe there is a middle ground as to how the expropriation may take place.
How should the Land be Seized?
We must acknowledge the country’s past and therefore we cannot avoid the fact that South Africa desperately needs land reform. I believe a fair result could take any one of three forms, or even better, a combination of the three.
First, there should be the option for the government to expropriate farms in targeted regions with compensation of 60-70% of its market value determined by a transparent third party. On the contrary, farmers in these regions should have the option of having 20-30% of their land expropriated without compensation in order to hold onto the remaining area. The last option would be for a farmer to pay in 20-30% of their land’s value to the government in order to hold onto their entire farm. This pay-in can be used by the government in their purchases of other land.
Understandably, there would be huge opposing arguments to this proposed solution. First, those that side with EFF’s Julius Malema would say that many do not want to see their ‘colonizers’ compensated. It is also true that for farmers to be offered substantially below market value or for them to have to make a payment in order to maintain their land is not ‘just’. This would mean that my recommendation would leave both sides of the aisle unhappy.
My response to this would be two-fold. First, growing up with a lawyer father, I learnt that if any dispute is settled and both parties remain unhappy, then the settlement was probably a good one. However, I would take this one step further. I believe over time, when both sides objectively consider South Africa’s difficult past, the complexity of the situation and the common need for a prosperous future, everyone will realize that in fact they should instead be happy with a solution that attempts to seek the middle ground.
What should be done with the land?
The EFF’s proposal for the government to retain all the land it expropriates, is outright brainless. It is essential to maintain strong property rights and let the people of the country own the land. Distributing the land to the people along predetermined guidelines would be absolutely vital to a prosperous future. What these guidelines would be, is an entirely new discussion. If the individuals now become property owners, they may for the first time be able to tap credit markets as they are able to provide collateral. This means that individuals would be in the position to start new businesses and South Africa may see one of the greatest entrepreneurship booms in history.
Further, if we successfully avoid uncompensated land expropriation, it would hopefully encourage the farmers that remain to engage in knowledge sharing platforms. This would ensure that first time landowners contribute to the agricultural output within the near future. Farming schools could be set up in predetermined ‘farming belts’ where farmers with successful crop yields may be rewarded with additional land in order to maintain the competitiveness of South Africa’s market. It is crucial that we avoid ‘brain drain’ as the skills and knowledge of agriculture are not learned over night.
Ramaphosa’s Moment to Shine
There is a variety of issues that the nation is grappling with at the moment, but none is more important than this one. The situation is balancing on a knife edge, and interference from factually flawed Fox News and subsequently the POTUS, is not something South Africa needed. I am confident that this issue is one that may just determine South Africa’s future. I am confident in the President to find a solution.
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