Land redistribution is way overdue, but the way that it’s distributed could affect its success.

The government doesn’t have the best track record when it comes to acting in the best interests of the people, and the methods proposed for land redistribution could cause more harm than good.

An academic paper, written by University of Pretoria Gordon Institute of Business Science (Gibs) academic Roelof Botha and University of Johannesburg Professor Ilse Botha, predicts that land expropriation without compensation could have “drastic implications” for the South African economy.

The paper – a macroeconomic impact assessment of the policy of land expropriation without compensation – was submitted to parliament’s joint constitutional review committee, reports Business Day.

“The results of the economic impact assessment point to extreme economic hardship for SA, should expropriation without compensation be adopted, including a downgrade of the country’s sovereign bonds to junk status, higher interest rates, a fairly sharp decline in taxation revenues and a deep recession,” the academics argue.

“It makes no sense to attempt the implementation of land reform policies that have proven over and over again to exercise a destructive influence on the economy and threaten the livelihoods of the most vulnerable members of society — those that cannot sell their skills in other jurisdictions.

The study drew its conclusions by looking at other countries that implemented a similar plan for land redistribution, such as Portugal, Spain, Romania, Vietnam, Venezuela, Ethiopia and Zimbabwe.

The findings confirm socio-economic disaster for South Africa in the event of land expropriation without compensation.

They found that the ratio of capital formation/GDP in these countries declined annually by an average 13.9% after the implementation of such policies and noted that the public debate about land expropriation without compensation in SA had already precipitated a decline in real terms of capital formation by more than 7% over the past eleven quarters.

The authors describe two scenarios based on conservatively estimated declines in capital formation of 5% and 10% a year respectively.

In the first, annualised nominal GDP in quarter three of 2020 will be R270.4bn less in the event of a 5% decline in capital formation induced by expropriation without compensation compared to an absence of the policy.

With the second, in the case of a 10% decline in capital formation, the decline in GDP amounts to R454.8bn.

According to the study, the GDP impact means that South Africa would enter into a recession in 2018 (we have) which could continue until 2020.

This holds for real GDP growth trends for both scenarios one and two. Total fiscal revenues will decline over the forecasting period by R157.5bn for scenario one and by R261.5bn for scenario two.

Government’s budget deficit/GDP ratio will increase from a 2018/19 budget estimate of 3.8% to 5.3% for scenario one and to 6.5% for scenario two by the third quarter of 2020.

On the back of a recession and fiscal instability, SA’s sovereign bonds will in all likelihood be downgraded to junk status by Moody’s Investor Services.

Over the 10-quarter forecasting period, government’s financing requirement will escalate by a cumulative R157.4bn under scenario one and by R261.5bn under scenario two. The authors say that this will inevitably lead to higher money market and capital market interest rates and a higher cost of servicing public debt.

This will effectively limit the government’s ability to spend funds on basic services like education, health, infrastructure and poverty alleviation.

South Africa is facing a socio-political climate of unrest. Add a prolonged recession, higher interest rates, and higher rates of unemployment into the mix and the security of the country could be drastically compromised.

We’ve already seen an escalation in crime – something which the study predicts could get even worse under these circumstances.

The answer? An inclusive process of negotiation, and a sensible plan for redistribution that takes into account all facets of society and all possible outcomes.

[source:businessday]