The move towards land expropriation without compensation in South Africa has prompted fears of a Zimbabwe-style ‘land grab’. But examples from Asia show that land reform can be a success, says London-based Capital Economics.
Last week, SA’s parliament officially called for a constitutional amendment allowing the expropriation of land without compensation. The policy aims to accelerate the transfer of land to black South Africans; the existing “willing buyer, willing seller” policy had failed to reach the government’s target of redistributing 30% of land by 2014. Given that the majority of parties support the bill, including the ruling ANC and the far-left EFF, an amendment will almost certainly be passed. This will be a key issue in 2019’s election race.
“Even with a constitutional change, though, we retain the view that land redistribution will have a limited effect on the overall economy,” says Capital Economics. “Indeed, President Cyril Ramaphosa has repeatedly reassured investors that there will be no ‘land grab’ and that the process will be gradual. Based on previous statements from Mr Ramaphosa, we think that redistribution schemes will target unused arable land and land that is held by community trusts – both of which will be split into plots and transferred to individual ownership.Urban land that is held for speculative purposes may also be subject to expropriation. Like existing schemes this will only affect a small number of properties.”
Even in the event of a more drastic approach, the direct effect on economic growth will be limited. The agricultural sector is relatively small – its output is equivalent to around 2% of GDP. But a key risk is that a more radical approach would hit investor sentiment which is already weak in South Africa.
Land expropriation without compensation often sparks concerns of a Zimbabwe-style land grab. Violent seizures of white-owned farms in 2000 caused a sharp drop in agricultural production and the imposition of Western sanctions. But this scenario is unlikely to play out in South Africa.Given the extent of the negative economic impact in Zimbabwe, South African policymakers are unlikely to tread the same path. Indeed, Cyril Ramaphosa often stresses that land reform must not jeopardise economic growth. And the political situation is, of course, very different. While the constitutional amendment is controversial it highlights that the South African government will proceed in a gradual and legal manner. Whatever policy that the government eventually adopts will be scrutinised by parliament and a free press.
And it’s worth remembering that, beyond Zimbabwe, there have been a number of instances where land redistribution policies have been a success. A number of Asian countries – including Korea and Taiwan – implemented land reform policies that redistributed land to small-scale farmers in the 1940s and 1950s. Evidence from Taiwan shows that rice production rose by 46% in the four years following the land reform act in 1949. Indeed, land reform is often considered to have laid the foundation for economic growth.
In India, state governments were given the power to implement land redistribution policies in the 1950s. This included, but was not limited to, a ceiling on land holdings with an aim to redistribute the land to the landless. While success differed across states, evidence suggests that the smaller farms were actually more productive following land redistribution.
It seems then that there are several key aspects of a“successful” land reform policy. First, as in Korea and Taiwan, the policy is more successful when the land is transferred directly to skilled individuals or groups who, in the majority of cases, already farm the land. Strong state institutions and policy support for those who acquire the land are also essential. Korea’s relative success was largely due to financial support,increased access to fertilisers, and help with marketing from the state. And in Madagascar, the accountability of local institutions has prevented land disputes and has promoted active participation of the community.
The key difference, though, between the relative successes in Asia and the disruptive policies in Zimbabwe is that the process was undertaken within the context of the law. Whether under a democratic government in India, or in one-party states in Taiwan and Korea, the systematic process was paramount in reducing uncertainty and preventing so-called “land grabs”. Land reform in South Africa is far more likely to resemble piecemeal Indian reforms than a Zimbabwe-style seizure.