The South African government can now take any property and pay less than what it is worth

Political scientist Dr Frans Cronje warned that the new Expropriation Act allows the government to take any property and pay less than its market value.

He told Biznews this was the biggest threat the Expropriation Act poses and that land expropriation and nil compensation are red herrings.

President Cyril Ramaphosa signed the controversial Expropriation Bill into law last month. The legislation sets out how organs of state can expropriate land in the public interest.

The government explained that this Act aligned expropriation legislation with the Constitution and outlined how and on what basis expropriation can be conducted.

The state and most other stakeholders focussed on land expropriation with nil compensation to “promote inclusivity and access to natural resources”.

However, this is not the main threat. “You see media reports about the land reform act, referring to the Expropriation Act. It is nothing of the sort,” he said.

The new expropriation legislation will allow the state to seize any fixed or movable property for less than its market value.

“When you do that, you gravely weaken property rights. This is a big move away from the previous Act,” he said.

The previous Act compensated owners whose property was expropriated based on market value and for financial loss.

“A valuation expert would value the property, and the court would agree on how much you would be paid,” he explained.

“With the previous Act, property rights were secure because market values are an objective measure to judge compensation.”

However, the new Expropriation Act dilutes market value considerably. It adds other subjective factors, like national interest.

“Something like national interest can mean anything in the calculation on how much someone must be compensated for their property,” he said.

Under the new Expropriation Act, it is impossible to say how much a person will be paid if their property is expropriated.

“It is maddening that the discussion around the Expropriation Act is centred around land and nil compensation,” he said.

“The core problem and heart of the Expropriation Act is hardly understood across South Africa’s economy.”

New Expropriation Act’s impact on South Africa’s economy

Cronje said the Expropriation Act would, in practice, prevent South Africa from attracting the new investment it needs to raise the ratio of fixed capital formation to GDP.

Cronje added that black economic empowerment (BEE) is essentially an upfront tax on capital entering the country, further deterring foreign investment.

“In a country like South Africa, fixed investment to GDP should be between 25% and 30%. Today, it is sitting at 15%,” he said.

He said the Expropriation Act, which deteriorates property rights and BEE, means South Africa will not raise the fixed investment number to 25%.

This, in turn, will hamper economic growth, which will not reach 4% to 5% from the current rate of between 1% and 2%.

“We will not increase the rate of job creation to a point where South Africa can significantly reduce unemployment,” he said.

Cronje said when the President of the United States warns a country that their stance on property rights and BEE will make them unsuccessful, they should hear him out.

He said most South African organisations criticised President Donald Trump’s warnings instead of engaging positively with the United States.

“Many organisations turned on the United States, telling them they don’t know what they are talking about and that they are not interested in hearing them out any further,” he said.

South Africa’s Ministry of International Relations and Cooperation responded by saying that Trump’s order lacks factual accuracy.

It added that the order fails to recognise South Africa’s profound and painful history of colonialism and apartheid.

“We are concerned by what seems to be a campaign of misinformation and propaganda aimed at misrepresenting our great nation,” it said.

Cronje said these responses showed why South Africa is in a dismal economic situation, with record unemployment and poor economic growth.

South Africa’s failure to recognise the severely negative impact of things like the Expropriation Act is immensely damaging the country.