The Great South African Land Grab
South Africa has been a country with a troubled past. For many centuries the country has been torn apart by issues such as apartheid. Also, the country has seen massive exploitation under oppressive colonialists. Hence, the fact that the South African economy is in doldrums should really come as no surprise. Even though South Africa is the most developed country on the African continent, it still has an unemployment rate of more than 27% which is amongst the highest in the world. Several cities are running out of essential supplies such as water! The South African government finds itself helpless to levy more taxes. This is vehemently opposed by the nations poor who comprise of more than 55% of the states economy.
This is the reason why President Cyril Ramaphosa has come up with a mega land grab plan. The idea is to take money from people who the government thinks do not need it. This money will then be used by the state which will help them lower taxation. This is purely a political move. The value of land is significant. However, the number of people holding this land is less than 1% of the population. Also, agriculture contributes less than 3% to the economy of South Africa. Hence, the impact on the GDP may not be significant. President Ramaphosa knows that only a handful of people will be affected. This is the reason why he is going ahead with his plan even though he knows it is oppressive in nature.
What is The Land Expropriation Policy?
The South African government has decided that it will take over the land of certain farmers. Not only will it forcibly acquire land but it will not give any compensation either. This is what makes this policy a legalized form of land grabbing. The limit has been arbitrary set at 12,000 hectares. Any farmer owning more than 12,000 acres of land must give it to the government. Predictably there has been a lot of hue and cry over this policy. This is because this policy reeks of socialistic intentions. Under this policy, the government is forcibly confiscating the hard earned money of several farmers.
The Racial Aspect
This policy has come under severe criticism from the international media. The media is calling this a form of reverse racism. This is because even though the policy has been created on economic lines, the people who are likely to be adversely affected will all be white. Several world leaders including Donald Trump have criticized this policy calling it racist. On the other hand, far-right parties in South Africa are in support of this policy since they claim it is payback for the time when the white population had exploited the native blacks. The South African government maintains that its policy is not based on racial profiling. However, this is difficult to believe since all the affected people belong to the same ethnic group.
Safety of Investments
President Ramaphosa needs to understand that he may succeed in taking away the land of the farmers. However, this will end up setting a very bad precedent. Global investors will no longer be sure about the safety of their investments in South Africa. For instance, after this policy was announced the value of the land owned by many investors became zero overnight! Since land is tied to South Africa, there is no way they can liquidate the investment. However, investors might also flee other asset classes such as stocks and bonds. This will end up being counterproductive. In the short run, the South African treasury might generate more money by confiscating land. However, in the long run, the general level of economic activity will reduce. This will also lead to a reduction in the tax collection. This land grab will end up harming all the parties involved.
The negative impact of this policy can be truly understood only when one understands that South Africa cannot really survive without foreign aid. Ramaphosa is asking the world to trust South Africa and invest $100 billion in his country. Prior to launching this policy he was somewhat successful and had obtained a commitment of over $30 billion in funding. However, seeing this policy, it is likely that his investors will renege on their decision of lending money to South Africa. Ramaphosa has just made the situation worse. Now, South Africa desperately needs foreign investment but will be unable to obtain it.
This land grab policy is likely to affect the banking sector as well. This is because many banks have given out loans against these land banks. Now, since the government is going to acquire these lands by force, it is unlikely that the recipients of the loans will pay them back. Under normal circumstances, when the loan is not repaid, the lender takes possession of the collateral. In this case, the government will seize the collateral. Hence, the banks will be left with no recourse whatsoever. Hence, this policy is capable of causing a banking crisis in South Africa! In the end, the taxpayers will have to bail out the very banks that they are now confiscating land from!
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