Expropriation without compensation is damaging South Africa

While the Expropriation Act is intended to redress injustices of South Africa’s past, it can carry unintended negative implications for the country’s economy.

The Act, which was quietly signed into law by President Cyril Ramaphosa on 23 January 2025, has been touted as something which would best serve the public interest.

However, Aluma Capital chief economist Frederick Mitchell recently outlined how the Act’s broad scope could impede economic progress in South Africa.

Firstly, Mitchell pointed out that the widespread belief that the Act exclusively addresses land reform is a misconception.

“A rigorous legal examination reveals a far more alarming reality,” Mitchell said. “Section 1 of the Act explicitly adopts the constitutional definition of ‘property’.”

“This extends statutory expropriation mechanisms far beyond real estate and commercial farmland. Under the current wording, the scope of ‘property’ encompasses three vast tiers of wealth.”

The first of these three tiers is immovable property, which includes land, commercial buildings, residential homes, and industrial developments.

The second is movable property, which includes capital machinery, vehicles, agricultural livestock, and operational equipment.

Finally, the intangible property tier involves all non-physical commercial assets, including water rights, mining rights, and licenses.

The final tier also covers things like intellectual property, corporate equity, contractual claims, and institutional investment holdings.

Instead of clarifying this long-standing issue, Mitchell argued that the statutory language in this broad definition threatened the economic freedom of South Africans.

“When this broad definition is paired with statutory power to expropriate under the nebulous banner of ‘public interest’ for zero compensation, it creates immediate fear of administrative overreach,” Mitchell said.

“Even if current political leadership promises restraint, placing a statutory loaded gun on the law books grants future state actors the legal authority to target private assets, financial instruments, and commercial rights at will.”

The damage is already being done

The ambiguous nature of the Expropriation Act creates uncertainty, which Mitchell explained was a factor in South Africa’s rising country risk premium.

As this grows higher, investor confidence in the country declines, discouraging domestic capital deployment and deterring direct foreign investment in South Africa.

According to Mitchell, the effects of this have already begun to take shape across multiple sectors of South Africa’s economy, such as agriculture and mining.

“Agricultural development is inherently long-term,” Mitchell explained. “Farming relies not only on land, but on guaranteed access to water rights.”

Mitchell explained that if these rights could suddenly be expropriated without compensation, farmers may suspend operations, threatening national food security and rural employment.

The mining sector, on the other hand, requires tens of billions of rands in upfront capital expenditure and relies on bankable mining rights and operating licenses.

“Reclassifying these operational rights as appropriable property under uncertain valuation frameworks starves the resource sector of critical capex, reducing mineral exports and state royalty revenues,” Mitchell said.

The consequences of the Act extend beyond South Africa’s borders, potentially affecting the country’s international trade relations.

The United States, one of South Africa’s biggest trading partners, has frequently flagged the Expropriation Act as a primary policy concern.

This could threaten South Africa’s continued access to beneficial trade agreements such as the African Growth and Opportunity Act, as well as tariff preferences in US markets.

Mitchell warned that this would be devastating to South Africa’s export-oriented industries, such as citrus, wine, and steel, at a time when the country needs export revenues to stabilise public debt.

“To restore investor confidence, lower our country’s risk premium, and safeguard our export corridors, an immediate revision of the Expropriation Act’s statutory wording is non-negotiable,” Mitchell said.

“Parliament must explicitly restrict the scope of expropriation, remove the open-ended ambiguity surrounding nil compensation, and provide ironclad constitutional guarantees for all forms of property.”