A worker sprays a newly planted field of corn with Methomyl 90 SP insecticide to protect against an infestation of fall armyworms, also known as Spodoptera frugiperda, on a farm north of Pretoria, South Africa, on Friday, Feb. 10, 2017. South African banks and the wider business community have closed ranks on the ruling party's plan to amend section 25 of the constitution. Photographer: Waldo Swiegers/Bloomberg
JOHANNESBURG - South African banks and the wider business community have closed ranks on the ruling party's plan to amend section 25 of the constitution, warning that this would hurt the economy.

The Banking Association of South Africa (Basa), Business Unity South Africa (Busa) and Nedbank on Friday fiercely opposed plan to amend the constitution.

Nedbank chief executive Mike Brown said the bank does not believe a change to Section 25 of the Constitution is necessary or desirable to achieve land reform.

“As a commercial bank, we are a key role player in funding the economy and any material impact to property prices would adversely affect confidence in the banking system and could trigger a classic banking crisis with significant negative knock-on effects on the economy,” Brown said.

President Cyril Ramaphosa last month said it had become clear that that the majority of South Africans want the constitution “to be more explicit about expropriation of land without compensation…”

Tanya Cohen, the chief executive of Business Unity SA (Busa), said investors and rating agencies had voiced concerns that property rights are under siege with the governments plan to expropriate land without compensation

“When we have engaged with groups of international investors and ratings agencies, one of their top two concerns is what is happening to land expropriation and property rights in South Africa,” Cohen said. 

“We are also getting a deep sense that even our local investors are unsure of how this will pan out. In particular what we are finding is that the agricultural sector is under-performing because businesses are not sure how are they going to be affected.”

South Africa’s agriculture output plunged 29.2 percent in the second quarter and contributed -0.8 of a percentage point to gross domestic product growth. This followed a contraction of 24.2 percent in the first quarter. Statistics South Africa attributed decline was attributed to a decreased production in fields crops and horticultural products.

Basa said banks have invested about R1.6 trillion of South Africans savings, salaries and investments into property loans. 

The association also said its data showed that South Africa’s big four banks loan to commercial farmers had increased to R148 billion at the end of June 2018, from R133bn at December 2017. 

Pierre Venter, Basa's general manager for the human settlements cluster, said there was a need for crisp and clear legislation to give investors confidence.

“If you do not create that confidence in the public it has the potential to undermine property rights,” Venter said.