Land Reform: Ground Up Approach On Inequality, Hunger and Unemployment

June 22, 2016

 

The Pulse is a special background brief by Shared Interest’s Executive Director, Donna Katzin, for key investors and other stakeholders on recent developments in South and Southern Africa that impact the organization’s work. 

 

 

The National Development Plan aims to eliminate poverty and reduce inequality by 2030.

 - National Development Plan – 2030        

 

 

 

Context

 

South Africa’s challenges in agriculture are not new, as the country continues to grapple with natural and man-made impediments to feeding and sustaining itself.  The land expropriation bill, recently passed by South Africa’s Parliament, and awaiting President Zuma’s signature, attempts to address some of these problems within the current economic and political context.  The bill allows government to implement compulsory buy-outs of agricultural land “in the public’s interest,” enhancing the state’s ability to provide land to “previously disenfranchised” low-income black South Africans. 

 

This is a particularly challenging time in South Africa’s economy.   On the good news front, South Africa “dodged a bullet” on June 6, when S&P Global Ratings affirmed its “credit-worthiness” and rated its securities “investment grade.” Positive considerations included government efforts to reduce fiscal deficits to 3.2 percent of GDP in 2016 and 2.4 percent in 2018; the projection that the government will stabilize general state debt (currently 45 percent of Gross Domestic Product (GDP), and forecast at 48 percent by 2019); the South African Reserve Bank’s independent monetary policy, the country’s active local currency fixed-income market, and prudent fiscal policy.  The rating may be reviewed later in 2016.

On the other hand, S&P flagged negative factors.  These included a low-growth assumption for South Africa’s GDP (0.6 percent for 2016 – down from a 1.6 percent forecast in December 2015); energy constraints; a weakened foreign exchange rate, declining international commodity prices and demand for South African products, and a drought exacerbated by El Niño.

 

Why now?

 

Despite the government’s long and carefully thought out land restitution program, pressure to accelerate land reform has continued to grow.  Over the past 22 years, 20 million acres of land have been transferred to black South Africans (on a “willing seller willing buyer basis”) – approximately 10 percent of land owned by whites in 1994.  While this is a positive result, it falls far short of the government’s promises to increase the proportion of the country’s land owned by blacks to 30 percent.

 

Food insecurity

 

Food insecurity is an issue in South Africa.  Over three years, people who do not earn enough to meet their basic food needs of 2,100 kilo-calories a day (those who live on less than $1.25 a day) increased from 20.2 percent to 21.7 percent of the population.  Those who lack sufficient resources to purchase both necessary food and non-food items (those who live below South Africa’s “food poverty line” of roughly $2.34 a day, according to Statistics South Africa) grew from 45.5 to 53.8 percent of the population.   And rising food prices, driven by recent drought and a weakened currency that elevate the cost of imports, disproportionately impact the poor.  Whereas, in March 2016, annual food price inflation was reported at 9.8 percent for the nation as a whole, food costs rose 11.8 percent for the poorest families, and 13.6 percent for rural families. 

 

Unemployment

 

Moreover, unemployment is rising.  It increased to 26.7 percent during the first quarter of 2016 (the highest level since 2005), as South Africa’s employment rate actually dropped 2.2 percent – despite the creation of 204,000 more jobs in 2015, due to the higher labor force participation rate.  Cutbacks and lay-offs were exacerbated by the decline of commodity prices on the world market.  This has meant that much of the job creation over the past seven years has been the result of public sector initiatives.   This trend may well be less affordable as the state encounters other economic pressures, such as energy insecurity and a weakened exchange rate that elevate the price of the country’s imports.

In the private sector, while manufacturing jobs have fallen between 2014 and 2015, agricultural jobs grew by 183,000 to a total of 891,000 – a 30 percent increase.  Indeed, agriculture (along with infrastructure development, which is most likely to be driven by government contracts) is seen as one of the sectors with the greatest potential to create employment.

 

Agriculture has particular potential to create jobs (and enterprises) for the growing number of young South Africans.  But that potential remains to be realized.  In 2014, Stats SA estimated that 30 percent of South Africa’s population was younger than 15 years old.  The average South African farmer’s age is 62.

 

Political Pressures 

 

There may also be strong political reasons for land reform.  With the country’s municipal elections scheduled for August 3, the governing African National Congress (ANC) is working to weather corruption scandals (such as the illegality of the President’s allocation of funds to improving his home at Nkandla), allegations in March of “state capture” by the Gupta family, known to be close to the President, and lingering charges of illegal proceeding and private benefit from the state arms deal in 1999, the ANC is facing an erosion of its popular support. 

 

The ANC is encountering heightened competition from its two largest contenders:  (1) Its traditional opposition party, the Democratic Alliance (DA) (evolved from the former Nationalist Party), and (2) the Economic Freedom Front (EFF) – a three- year old populist formation headed by Julius Malema that is  winning rising support from disaffected, primarily young, urban South Africans. 

 

Youth constitute a growing percentage of new voter registrations, which have risen to 2.6 million more than in the last general election.  Youth have helped to swell the voter rolls, with a record 26.3 million people now eligible to vote – 11 percent more than for the previous municipal elections, and 42.5 percent more than in the year 2000.  Forty-eight percent are under the age of 40.  Given this reality, while keeping its core constituency, the ANC must effectively address young black voters’ concerns that it needs to do more to feed and employ its people.  A new class of election participants is emerging.  They are “born frees.”  And they want jobs.

 

The Expropriation Bill

 

The Expropriation Bill, recently passed by South Africa’s National Assembly (and still awaiting President Zuma’s signature) replaces its predecessor, the Expropriation Act 63 of 1975 (known as the 1975 Act).  It builds on the earlier act’s foundation, which entitles the state to expropriate property only for a public purpose (think roads, hospitals, airports, etc.) and in the public interest (including land reform).  Like its predecessor, the new act establishes a procedure by which government may expropriate property.  In fact, it provides greater protection to property holders than the 1975 Act, and requires government to try first to acquire the property by means of agreement on reasonable terms. Only in the event that such an agreement is not achieved would the expropriation proceed, with the requirement that owners are paid just and equitable compensation.  Such compensation is stipulated to achieve a balance between the interests of the owner and the public.

 

The new act would go further than the earlier legislation, which only authorizes expropriation for public purposes, including the state’s social and economic reforms.  The new act entitles a state agency to request expropriation for land reform purposes – in compliance with the public interest requirement.   For this reason it appears that the act is intended to help uphold the government’s commitment to accelerating land reform.

In the current context, the policy walks a political tightrope between those who fear that such appropriation would unleash a Zimbabwe-style “February 2000 Fast Track Land Reform Program,” and at best would make “inefficient use” of the nationalized lands.

 

What next?  Making the land reform work 

 

However successful the bill, when signed, is in redistributing land to low-income black families, it is unlikely to overcome difficulties South Africa’s land restitution has already encountered, mirrored by experiences in Peru and elsewhere.  Without technical support and access to capital, emerging farmers are not likely to succeed on even the best of land.   Allocating land without technical assistance and money for inputs is like giving someone a car without driving lessons or gas for the tank.

 

The South African government is already launching significant initiatives, such as Women-in-Maize (together with South African Breweries and the Agricultural Research Council in eKangala), which provide training in business skills and cooperative governance.  In early June, it convened its Vision 2030 Summit with the private sector leaders to heighten its engagement in the implementation of the National Development Plan.

Shared Interest is demonstrating the power of guarantees to unlock local finance and create jobs for small-holder farmers and their communities.  This is particularly true in the case of traditional communities that own their land collectively.  This practice is often a barrier to bank loans, and commercial lenders are prohibited by South African law from utilizing such land as collateral.  Shared Interest’s guarantees for loans to indigenous communities such as the Lambasi are a bridge between lenders’ concerns about risk and communities’ tremendous potential to farm effectively at scale.

 

In August, Shared Interest will take a delegation to South Africa for an in-depth look at agricultural developments and communities with which Shared Interest and its partner, Thembani, are currently working.  As we continue to deepen our understanding, improve our practices and strengthen our partnerships, we build on our ongoing commitment to some of the country’s most pressing priorities:  addressing inequality, hunger and unemployment – from the ground up.

 

 

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