The new bill: Transformative or troubling (summary)

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The recent adoption of the Expropriation Bill by the National Assembly means that efforts since 2008 to replace the Expropriation Act of 1975 and its amendments, are now showing early signs of coming to fruition. However, certain shortcomings in the new proposed legislation raise serious concerns about its effect on investor confidence.

ANC Chief Whip, Stone Sizani, who resigned on 2 March 2016, said the Bill [B4B-2015] was one of the most important transformative pieces of legislation since 1994. With the new proposed legislation, Government intends to speed up land reform. But concerned interest groups and some opposition parties have pointed out certain serious shortcomings, which means that its impact could be far more widespread for both local and foreign investors.

In fact, DA MP Anchen Dreyer said the Bill’s definition of property was so wide open to interpretation, that it could include residential and commercial property, taxi fleets, cattle and other movable property as well as intangible property such as intellectual rights. According to Phephelaphi Dube, Legal Officer at the Centre for Constitutional Rights, the definition of expropriation implies that the state or an organ of the state can expropriate property on behalf of a private individual of a private company. “There should be no room for property transfers to third parties through expropriation. In South Africa, with its distinct different LSM classes, this will be problematic. The question is: Who are you to say that you can make better use of someone else’s land or property?”

Dube added that the current version of the Bill also opens the door for expropriation of land for people who would like to undertake economic developments, for example low income housing developments. “In fact, the Bill encourages that.” Ben Winks, an associate at the legal company Herbert Smith Freehills South Africa, says that it is regrettable that the Portfolio Committee on Public Works did not adopt submissions regarding the need to prescribe specific time periods between giving notice of expropriation, taking ownership and taking possession. By failing to limit expropriating authorities to certain maximum and minimum periods, the Bill leaves the timing of significant events entirely to the whim of administrative officials.

This contravenes the constitutional principle of the rule of law, which requires administrators be given clear protocols to follow. Winks also acknowledges concerns by the Banking Association of South Africa (Basa) that the Bill’s provisions on mortgages property might potentially negatively affect the security of credit and private investment in general. Piere Venter, General Manager of Basa’s market conduct division, says that there is a need for policy certainty among local and foreign investors. “Prior to December 2015, when the new Protection of Investment Act was promulgated, international investors were protected by bilateral agreements between South Africa and the states they originate from. Now they will be treated the same as locals and could potentially be compensated below market value in case of expropriation.

Basa is especially concerned about the definition of “expropriation”, which leaves the door open for the state to place properties under custodianship, which does not necessitate just and equitable compensation. According to economist Dawie Roodt, South Africa is a capital-poor country that is heavily dependent on foreign investments, which makes the attack on private property rights even more concerning. Says Roodt: “There is without doubt an escalating attack on private property rights and institutions which should protect citizens against the state.”

The Head of Policy Research at the Institute for Race Relations, Anthea Jeffery, said the 2014 Agricultural Land Transformation Bill intends to subject all farm land to ministerial regulations, but it is unknown which regulations. Says Jeffery: “If land vests in the state, it will make a mockery of land reform.” She also expressed concern that the Bill could pave the way for “creeping land nationalisation” and that properties in urban areas, such as along Louis Botha Avenue in Orange Grove, Johannesburg could be expropriated for high density social housing.

FinWeek (English edition), 10 March 2016

The new bill: Transformative or troubling

By Jacques Claassen

 Summary by Armand Greyling