Economists warn of 'economic meltdown' over land expropriation
JOHANNESBURG – The JSE’S banking index slid nearly 2 percent after Parliament's Constitutional Review Committee on Thursday recommended that the Constitution be amended to explicitly provide for the expropriation of land without compensation.
Economists warned the move would lead to investment flight and an “economic meltdown”.
The bank index fell 1.7 percent with FirstRand dropping 2.2 percent, Standard Bank weakened 1.1 percent, Absa was 0.8 percent lower and Nedbank declined 0.6 percent.
Later in the day, the banking index recovered and closed above the 9 000 points mark.
The National Assembly adopted the Economic Freedom Fighters motion endorsing the land expropriation without compensation despite strong warnings of an economic meltdown.
Responding to the decision by the Constitutional Review Committee, the Banking Association of South Africa (Basa) urged the government to expedite crisp, clear policy and legislative frameworks in respect of expropriation without compensation, as soon as possible.
“Care must be taken to ensure that any amendment to the Constitution does not weaken or reduce property rights in South Africa.
"An amendment that leaves all property or specific classes of property – homes, assets, intellectual property, productive agricultural property, among others – vulnerable to expropriation without compensation, would be a real risk to banks and the country's ability to attract both local and international investment, grow an inclusive economy and create jobs,” Basa said.
Ian Cruickshanks, the chief economist at the Institute of Race Relations, said the decision was detrimental to prospects of the country's economic recovery.
“It is going to halt any investment into the country and bring the low growth environment that we have to a halt,” he said.
South Africa is grappling a technical recession following two-quarters of negative growth. It contracted by 0.7 percent in the second quarter in quarter-on-quarter terms, after a revised 2.6 percent contraction in the first quarter.
“It means that no investment is safe.
"This is a major setback for fixed investment and most importantly it could have a serious impact on the agricultural sector,” commented Cruickshanks.
The committee's decision comes two days after the report indicating that South Africa would experience “imminent socio-economic disaster” if expropriation of land without compensation is pursued.
The independent economic impact assessment on the policy report anticipated a decline in a gross domestic product that adopting the policy would lead to a possible loss of 2.28 million jobs.
The report, which was done by independent economist Dr Roelef Botha, also warned of a downgrade to the country's sovereign bonds to junk status, higher interest rate and a sharp decline in taxation revenues.
Yesterday, 12 members of the committee voted in support of the amendment of the Constitution to expropriate land without compensation.
Their decisions followed after months of public consultations and written submissions.