Invest in the rights, not just the land

Land restitution remains a burning question in South Africa and remains an emotional, highly charged, divisive matter. Johan Fourie, associate professor in economics at Stellenbosch University, looks are countries that got it right and what we can learn from them.

 

THE GREATER OF TWO RISKS
 

We all know the arguments against expropriation without compensation and its effect on investment. When farmers realise they may lose their land, they are less likely to maintain or expand irrigation, build more storage facilities or buy new tractors or harvesters.

 

When banks realise that their clients may lose their collateral, they are less likely to extend loans. When potential foreign investors risk losing their capital investments, they are more likely to turn elsewhere. The most obvious consequence is a decline in agricultural productivity and output, which would have a hugely detrimental effect on the broader economy from increased food prices, especially on staple foods, and higher rural unemployment to a bigger balance of payments deficit.

 

Yet South African President Cyril Ramaphosa decided that not implementing land expropriation without compensation is even riskier. In doing so, he has joined a long line of politicians who had to make the same calculation.

 

A few – Robert Mugabe’s post-2000 programme in Zimbabwe is one example – are often cited as evidence of land reform’s poor track record. Although Zimbabwe, Venezuela and others did so to disastrous economical effect, there are more than enough examples of countries where such a programme paid off.

 

WHEN LAND REFORM IS DONE RIGHT
 

The reunification of Germany in October 1990 meant the end of East Germany, and for the 17 million people living there, a dramatic change to their economic institutions and way of life. This is because the period between 1933 (the emergence of the Third Reich) and 1990 (German reunification) has been described as ‘a gigantic and prolonged state-sanctioned and -inspired land grab’.

 

Huge areas of land were confiscated by the respective governments and either nationalised or given to new owners. With reunification, land and property were to be given back to the rightful owners. Less than a year after opening the process, more than a million separate claims had been received. By 1995, less than five years after the process began, half the claims had been settled.

 

Contrast this with the slow process of redress in South Africa since 1994. What allowed the Germans to transfer ownership so quickly, was because the land and property belonged to the state, not private owners. If South Africa is to learn anything from the Germany experience, it may be that land and property owned by the government can be transferred far more easily than those with private ownership. If South Africa is serious about land reform, the millions of hectares owned by the state would be the most obvious place to start.

 

COMPARING LAND REFORM IN EUROPE, RUSSIA, AND ASIA
 

After the fall of the Berlin Wall, many former communist countries, not just East Germany, had to deal with land reform. In contrast to East Germany, it was not a smooth process everywhere.

 

A 2004 Journal of Economic Literature paper on the successes and failures of land reform set out the differences between land reform in Eastern Europe, Russia, China and Vietnam. The authors conclude that ‘good property rights and the incentives they created certainly contributed to and will continue to affect countries’ performance positively’.

 

This is clearly illustrated when looking at China and Eastern Europe on the one hand and Russia, Ukraine, and Central Asia on the other.

 

Despite being incomplete, East Asia’s reforms allocated relatively strong property rights to individual plots of land.

 

Eastern Europe was not that different. There, land was either restituted to former owners or distributed to farm workers in delineated boundaries and leased as new farms. Even when they did not receive ownership, the property rights – who could work the land and who received the income – were clearly defined.

 

By contrast, land in Russia and elsewhere in Central Asia was distributed as paper shares to workers on collectives and state farms. ‘Individuals could not identify the piece of land that belonged to any given share, causing weak land rights for individuals and undermining their ability to withdraw land from the large farms and establish private farms. As a result, family farming emerged only slowly and large farms have had fewer incentives to restructure,’ writes the authors of the paper.

 

While agriculture took off in China, Vietnam and Eastern Europe, it stagnated in Russia and Central Asia. Even though many farmers in China and Vietnam often cannot buy or sell land, land reform in these countries was the establishment of clearly identified land and income rights, which was not the case in Russia and Central Asia. The key difference therefore was not ownership, but property rights.

 

ADDRESSING FEARS OF ‘ANOTHER ZIMBABWE’
 

Another example of poorly established property rights is Zimbabwe’s Fast Track Land Reform Programme. Implemented in 2000 to appease voters, the land grabs did very little to secure property rights. The results were dire: Zimbabwe’s economy collapsed, inflation spiralled and poverty deepened. A Stellenbosch PhD student, Tawanda Chingozha, recently used sophisticated satellite imagery of Zimbabwe for the period before and after land reform (1997-2003), measuring the quantity of land under cultivation and the quality of the crops.

 

His results show a remarkable decline in both the quantity and quality of outputs, not only on former white, commercial farms, but also in regions with predominantly black farmers. The negative spillover of the collapse of the economy had far more devastating effects – more expensive fertilizer imports, for example – than the potential new markets that were opened up to black farmers.

 

President Ramaphosa’s plans for land expropriation without compensation is unlikely to result in ‘another Zimbabwe,’ however. For one, agriculture makes up a much smaller component of our gross domestic product than was the case in Zimbabwe in 2000.

 

He would nonetheless do well to heed the lessons of history. Whereas much of the focus has been on the transfer of ownership of land (without compensation), post-communism land reforms around the world teach that success depends on giving ‘strong land and income rights’ to those who work the land. For the sake of efficiency and equity, let us hope for the German rather than the Zimbabwean model.

 

ENDS

 

 

 

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