Submission on the Expropriation Bill 2015

Profs. Ruth Hall and Ben CousinsInstitute for Poverty, Land and Agrarian Studies

University of the Western Cape

Parliamentary hearingsPortfolio Committee on Public Works

4 August 2015

Why a new law?1. Bring law into line with Constitution, especially

in relation to payment of compensation2. Remove the ‘veto power’ of land owners in

relation to land reform3. Ensure consistency in expropriation undertaken

by different arms of government

WE NEED A NEW EXPROPRIATION ACT

BUT IT WILL NOT RESOLVE THE PROBLEMS FACED BY LAND REFORM

Landowner’s veto• Absence of expropriation as a credible threat has

impeded the land reform process, and in particular the resolution of land restitution claims

• Land claims cannot proceed where current owners refuse to sell at prices offered by the state

• This effectively privileges the property rights of current owners over the property rights of the dispossessed

• To be a credible threat it must have been used to good effect in the past

Compensation in the Constitution

The Constitution sets out criteria for ‘just and equitable’ compensation, having regard to all relevant circumstances, including: (a) the current use of the property; (b) the history of the acquisition and use of the property; (c) the market value of the property; (d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and (e) the purpose of the expropriation

Current policies

• Policy and procedures for expropriation of land in terms of Provision of Land and Assistance Act (126) and Extension of Security of Tenure Act were adopted in 1999

• Policy sets out an approach to determining just and equitable compensation

• Draws on a formula developed by Judge Antonie Gildenhuys of the Land Claims Court

Gildenhuys formula• Compensation = C – ko(B-A) – E1*k1 – E2*k2 – E3*k3 …

• where • C is the present day market value of the property, • k0 is the inflation factor related to land acquisition, based

on the CPI• B is the market value of the property at the time of

acquisition, • A is the actual price paid at the time of acquisition, • E1, E2, E3, etc., are the historical values of infrastructure and

interest rate subsidies received, and • k1, k2, k3, etc., are the corresponding inflation factors for

these subsidies, based on the CPI.

Critique

• The formula discounts for past subsidies and other support received, but does not address the other three criteria cited in ss 25(3)(a) (b) and (e) of the Constitution

• These are not easily reducible to a value in a formula

• Rather, “having regard to all relevant circumstances”, these are to be determined case by case

• But how exactly? This remains unclear

Significance

• Expropriation may be used more often in the future

• The state will aim to use these criteria in negotiated sales as well – not only where properties are to be expropriated

• (NB: National Development Plan proposes that the costs of doing land reform be shared between state and landowners)

Significance• Office of a Valuer-General must address “the

absence of a nationwide comprehensive, reliable hub for the assessment of property values in the country”

• OVG will :– provide of fair and consistent land values for rating and

taxing– determine financial compensation following expropriation

under the Expropriation Act provide specialist valuation and property advice to government

– set standards and monitor service delivery – undertake market and sales analysis, & set guidelines, norms

and standards to validate integrity of valuation data– create and maintain a data-base on valuations

The need for clarity on ‘just and equitable’ compensation

• Lack of clear policy, guideline or formula is likely to cause a bottleneck of court cases

• Urgent need to operationalize the criteria in different types of circumstances

• A practical approach should be widely debated and, once finalised, widely publicised

• The more predictable the process of expropriation, the fewer court challenges – i.e. in the interests of everyone: claimants, landowners and the state

• Would make land reform more efficient, transparent, equitable and predictable

Will expropriation speed up land reform?

• ‘The willing buyer–willing seller has frustrated efforts to fast-track land reform, distorted the market, made land price negotiations excruciatingly prolonged and increasingly making land reform financially untenable for the state’ (Minister Nkwinti 2012)

• ‘Government will now pursue the ‘just and equitable’ principle for compensation, as set out in the Constitution instead of the ‘willing buyer, willing seller’ principle, which forces the state to pay more for land than the actual value’ (President Zuma 2013)

• The key question: how much cheaper will expropriation be?

Michael Aliber’s critique (2015)

• If expropriation reduces the expense of buying a hectare of land for land reform by 10%, a given budget will be able to acquire 11% more hectares

• If effective price per hectare reduced by 50%, then 100% more hectares can be purchased

• If effective prices are cut by 80%, the ‘purchasing power’ of a given budget increases by 500%

Michael Aliber’s critique (2015)• DRDLR has a choice: apply just and equitable

compensation to pursue modest cost savings, in which case it will not accelerate land reform much, depending on the extra administrative burdens of both performing expropriations and dealing with court challenges

• OR it can seek more substantial cost savings, which would be likely to prompt a relatively small number of conspicuous court cases, which, once again, would barely accelerate the delivery of land reform

• Is there a rationale for expropriation for land reform?

Michael Aliber’s critique (2015)• Distinguish restitution from redistribution • In restitution, current owners of claimed farms

have a qualified monopoly over this land; negotiations are skewed in favour of the owner, who can hold the deal to ransom

• Not always, but too often, the state has paid too much for this land

• A clear rationale for expropriation is to help break deadlocks over price, presenting a credible threat to land owners who attempt to veto a land claim

Michael Aliber’s critique (2015)• In redistribution, for every such project, between

2000 and 2008, there were 25 farm properties transacted in the market

• In 2006–08, redistribution land was acquired at same price per hectare as market average, whereas restitution prices were almost 3x greater

• In part because land under a restitution claim is more likely to be actively used

• Conclusion: expropriation needed in restitution; needs to be used as part of wider strategy in redistribution, but without total reliance on it.

Michael Aliber’s critique (2015)

• Only two possible ways to significantly accelerate land reform: (a) seize or expropriate white-owned land with little or no compensation, which is unilkely at present,

• or (b) significantly increase the government budget for land reform

• Current budget = 0.4% of total (1/34th of what capital infrastructure budget)

• Whether and how to use WB/WS is important, but in relative terms it’s a detail

Is the Bill constitutional?

• Yes, for the most part, BUT:(a)It does not provide for a land owner to go to

court to challenge the validity (constitutionality) of an expropriation, only to determine the amount of compensation

(b)Need to address how it will affect communal land, where people have (informal) rights to land that sometimes has minerals underneath it, who are at risk of being deprived of rights to compensation (see LRC submission)