South Africa’s prospects of attracting billions of rands in desperately needed fixed investment have been severely compromised by President Cyril Ramaphosa’s announcement this week that his party will be pushing through an amendment to Section 25 of the constitution.
The manner in which the government and the African National Congress are handling the question of expropriation without compensation (EWC) is threatening South Africa’s economic and political stability and could trigger a crisis of catastrophic proportions.
In our view, the country is today facing risks greater than at any point since 1994.
Amending the constitution in the interests of EWC strikes at a core precondition for investors: the security of their assets. It remains unclear what the final regime will look like (a large enough problem on its own), but that it will grant the state greater latitude to intervene in the property rights of citizens and business is a given.
Having been willing to intrude into the Bill of Rights on this occasion, a precedent exists to do so again in future.
Our experience is that fears for property rights are high on the agenda of both foreign and local investors.
At a briefing last evening, the IRR warned that the question of EWC was turning local and foreign investor perception alike against South Africa, and that deepening anxiety over EWC was alone sufficient to preclude the possibility of an economic recovery.
Indeed, President Ramaphosa’s investment envoys have confirmed that EWC has been a point of concern for foreign investors. As former finance minister Trevor Manuel noted diplomatically: ‘Communicating this, I think, is a bigger challenge than what we thought.’
President Ramaphosa’s economic advisor, Trudi Makhaya, has said that the envoys should ‘just be frank’ in dealing with investor concerns. There is always merit in honesty, but it is hard to see how South Africa can gain and maintain sympathetic ears – to say nothing of open wallets – in international business circles when its leadership seems determined to disincentivise doing investment in the country.
For many investors, there is an additional consideration. Over the past few years, South Africa has been terminating its bilateral investment treaties (BITs) with a number of European countries. This has caused considerable discomfort among investors from these countries and their governments. (Even investors from countries which did not have BITs were reassured by the existence of this framework as an implicit guarantor of the business environment.)
South Africa’s response has been to offer the Protection of Investment Act as a replacement. Conferring on foreign investors the same protection as their South African counterparts, it explicitly guarantees them the ‘right to property in terms of section 25 of the Constitution’. It will be a matter of grave concern to foreign investors – and perhaps also ironically emblematic of the course of events – that mere weeks after having activated this piece of legislation, South Africa moved to degrade the very protection that the legislation was meant to provide.
Coupled with this is that social and political tensions are being heightened by promises and expectations that cannot possibly be met.
Already, the IRR has tracked a considerable increase in violent anti-government protest action. Significant destruction of infrastructure is taking place and the IRR anticipates further sabotage and obstruction, particularly of transport routes and infrastructure.
As IRR CEO Dr Frans Cronje said last evening: ‘Our assessment is that South Africa faces the serious prospect of widespread social and economic destabilization – and the risks are greater than at any point since 1994.
‘We see little prospect of social and economic stability being achieved in a policy environment dominated by threats to expropriate assets without compensation.’
Given the mounting risks, the IRR is encouraging South Africans to stand up to this threat to their own property rights and to the future prosperity of the country and to make their voices heard by endorsing our letter to President Cyril Ramaphosa on Expropriation without Compensation (EWC) here.
* Terence Corrigan is a project manager at the Institute of Race Relations (IRR), a think tank that promotes political and economic freedom.