No investment without property rights
President Ramaphosa recently deployed four investment envoys with a target of raising $100bn in investments over the next five years. One of these envoys, former finance minister Trevor Manuel, said that explaining the ‘land issue’ to investors has been more difficult than expected. How could Mr Manuel not expect it to be a tough sell? If Section 25 of the Constitution is to be amended, thus doing away with property rights, why would any rational investor choose to place his or her money and property at risk by investing in South Africa?
While addressing the ANC Gauteng elective provincial conference last Friday, the President said that the goal of his investment drive is to help provinces to counter problems of “growing unemployment, poverty and inequality”. While the scourge of corruption and government inefficiency already drives away investment, the spectre of property expropriation now looms to further discourage foreign companies to invest in South Africa.
When choosing between various investment options, a company that has vast capital and resources at its disposal looking to invest in a foreign country, will choose one where its investment will yield the greatest return in the long-run. A company that chooses South Africa, may find its return turns out to be zero; and without property rights protection under the Constitution, a very real risk is that that company’s investment, in the form of buildings, time, skills development, jobs created, etc., will all be lost. There is zero reason to encourage investors to take on any risk whatsoever in this country.
The concept of protected property rights means that people can act long-range: they can build homes and communities, and entrepreneurs can take a risk and start a business, and, if the business is successful, they know that it will be secure, protected as their property under the Constitution. High crime rates and corruption already make South Africa a higher-risk proposition for investment compared to other African countries. Bearing in mind the havoc perpetrated in Zimbabwe when property rights were destroyed, will the South African government find that driving away badly needed investment in favour of winning votes in next year’s election worthwhile in the long term?
Amending section 25 means that we introduce the very real possibility of arbitrary state seizure of property, owned by both local and foreign entities; neither local people nor foreign investors would want to subject themselves to the possibility that the state can decide, at any time and for whatever reason it deems best, to seize their property. And once we amend section 25, we jettison the acknowledgement (and its implications), under the law and the government, that your property is yours.
Property up for grabs will not be restricted to large, white-owned commercial farms; urban land, houses, business buildings, white-owned or black-owned, all of it will be open to arbitrary seizure. No legal protection of property will mean very little investment, which will affect those who have always been hurt the most when the state has increased its power over the people; poor, black South Africans.
For all the hope that South Africans harboured after President Ramaphosa assumed leadership, all of his optimistic and inspiring talk amounts to nothing if it does not match up with reality. If South Africa is to attract any serious capital inflow, to achieve significant GDP growth, property rights must be absolute.
Yes, the Zuma era is over, but the socialist ideology which underpins the ANC, which chips away at individual rights, and which always aims to increase the power of the state, is ever-present – as evidenced by the drive to amend the Constitution. While South Africa’s image may look better to the international community than it did under Zuma, that image will not live up to the perceived reality if our government will not protect our rights to our property. The President can forget about enticing foreign investors to risk their money here while, at the same time, he leads the ANC (along with the EFF) in the move to amend the Constitution.
The South African people will work, they want to grow the economy, to build businesses and create jobs. Foreign investment could unlock so much potential in this country; so why not make it as easy as possible for that investment to find its way here? South Africa has a lot going for it – why undermine the whole edifice by demolishing its foundation, property rights?
Chris Hattingh is a Researcher at the Free Market Foundation