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South Africa | Government pushes expropriation policy

South Africa | Government pushes expropriation policy

The government says the proposal - which seeks to expropriate private property for public use without paying full compensation - aims to redress apartheid legacies, while the state electric company says it needs to be able to exproporate land to proceeed with infrastructure projects.

South Africa’s parliament is considering a government proposal that would allow the state to expropriate private property for public use without paying full compensation. There is strong opposition to the bill, and questions about whether it is unconstitutional. But given the ANC’s dominance of parliament, it seems likely that the bill will eventually pass in some form, albeit probably with adjustments providing greater scope for legal challenges to state expropriation attempts. We understand from several companies that expropriation is currently one of their biggest risk concerns in South Africa.

The government says the bill aims to redress Apartheid legacies and make land ownership more equitable. However, statements from the ANC and the state electricity company, Eskom, suggest that other motivations are playing a part. Eskom says that it needs to be able to expropriate land to proceed with infrastructure projects. There is a severe energy generation shortage in South Africa, with power cuts occurring on a daily basis. The IMF has said that addressing this energy shortage should be the ‘utmost priority’ for the government.

Domestic political pressure seems to be another reason for the expropriation bill. The ANC government is facing falling public support, due in large part to the deteriorating economic environment, allegations of corruption, and a widespread perception that it is doing little to help poor South Africans – its main support base. In May 2014, we assessed that the emergence of the Economic Freedom Fighters party was putting pressure on the ANC to shift policy direction to the left. This still appears to be the case, with the expropriation bill the latest sign of this.

However, we suspect that the poor economic environment as well as several domestic and external risks to future economic growth will probably make the government careful about passing legislation that would further undermine investor confidence in South Africa. Indeed, in its latest review of the South African economy, the IMF suggested that creating more certainty and predictability around government policy would help avert a more severe and sustained downturn.

Balancing domestic political support considerations with avoiding a sustained economic slowdown will be key for the government in the coming years. It is because of this that we expect that the parliament and government will try to allay concerns about arbitrary or hostile decisions by government to the detriment of private individuals or companies. Based on comments from parliament and lobby groups so far, probable amendments to the bill are increasing compensation for expropriated property from 80% of market value, and creating clearer legal channels for challenging state expropriation decisions.

Image: Creative Commons, 'President Jacob Zuma at The New Age breakfast briefing, 14 Feb 2014' by GovernmentZA

Published: 31st July 2015
Categories: Company News