Spencer Kellogg | @TheNewTreasury
New South African President Cyril Ramaphosa has been in office for less than a month. However, his administration has already begun a massive overhaul of agricultural and economic policies aimed at turning around their struggling economy and righting injustices of the past. Currently, more than 25% of citizens are out of work and overall economic numbers are looking sluggish. To combat this, Ramaphosa favors state redistribution of white owned farmland to poor, Black South Africans.
Ramaphosa shocked many when he announced plans to take over white-owned farmland. Land ownership remains a political and cultural divide in a nation still reeling from the impact of Apartheid. In fact, the ruling ANC (African National Congress) has suggested the country’s constitution should be amended, so that the state can seize white farmland without payment.
Clearly, the race-based seizure of private property will create political and cultural uproar. However, it will also create issues in the agricultural banking and loan systems. For example, it remains unclear who would pay for the remaining loan balances on South African farms that collectively hold an estimated 125 Billion Rand of debt.
South African government recently claimed the black population owns a mere 4% of the nation’s farms (source). Today, much of the angst in South Africa is perpetuated along racial lines. As white land owners have maintained profitable businesses, many natives still live in abject poverty. Ramaphosa has attempted to downplay the talk of land seizure. To do this, he is suggesting the majority of seized land will be in currently unowned territories.
Ramaphosa recently assured Moody’s, the world’s leading bond credit rating agency, that his plan to expropriate white owned farm land would not have a negative effect on the country’s economic outlook. Markets have reacted positively to Ramaphosa’s interest in deregulating the mining industry. In fact, the Rand has gained 7% on the USD in the months since Ramaphosa took over.
Yet, some leading economic and agricultural experts aren’t so sure of South Africa’s stability. Ian Matthews‚ head of business development at Bravura‚ has suggested that food scarcity could become a problem for the country. As evidence, he pointed to the looming issue of repaying loan agreements with the banks (source).
It would be hard to imagine how the banking and finance sector would be able to overcome large-scale loan losses [that] could arise from an expropriation without financial compensation. Government may well have to step in to prop up the banks and other financial market role players. –Ian Matthews
Matthews argues that failure to repay loan agreements with FirstRand, Barclays Africa and Standard Bank could lead to bank runs. This would inevitably end in bankruptcy and a widespread economic downturn, affecting nations throughout the continent. South Africa is one of few nations to join the BRICS coalition and their financial independence and agricultural might will be important to the group’s goals.
The South African President has downplayed concern over the new policy.
Image From WikiMedia Commons