MAIN IMAGE: Dawie Roodt, chief economist at The Efficient Group
Kerry Dimmer
Expropriation and the future of SA property in the wake of the new US Trump administration has created havoc, but does the rest of the world care, and how much could our property market be affected? These are some of the questions we presented to Dawie Roodt, chief economist at The Efficient Group.
Background
The new Expropriation Bill was signed into law by President Ramaphosa on 24 January. On review, the Democratic Alliance (DA) filed papers in the High Court to challenge it on the grounds of it being unconstitutional, “both substantively and procedurally’, but what should also be noted is the vagueness and contradictions contained therein. This ‘vagueness’, particularly around ‘expropriation without compensation’ is of concern.
What has further exacerbated the Bill’s controversies is the response by the US government, under its new leader, President Donald Trump, who highlighted that South Africa’s is guilty of human rights violations and a land grab. He said (albeit incorrectly) that the country had been ‘confiscating land’ and that our ‘leadership is doing some terrible things’. He then withdrew US aid funding to SA, setting a wave of catastrophic consequences in motion.
The amount withdrawn is somewhere in the region of R8.2-R8.5-billion under PEPFAR (US President’s Emergency Plan for AIDS Relief) and some US$60-million from USAID. The SA government needs to plug those gaps, and some believe that this is the motivation behind the government’s proposed 2% hike in VAT.
The truth is that the Budget is drafted months ahead of time, and the VAT increase debate would have taken place long before the US withdrew its funding. It is just a matter of unfortunate timing, although the US withdrawal of funds has raised red flags among the Government of National Unity parties. The now controversial VAT hike resulted in the February Budget Speech being delayed until sometime in March while the governing political parties iron out details.
Is the Bill as controversial as Trump believes it is?
Without a doubt, Trump has identified a significant problem in SA, and that has to do with how our government operates. We have an ideologically stuck government. They call themselves developmental, but they believe in the intervention of the State in everything, and these factors apply equally to expropriation. They believe, more so than the ANC, that the government is better able to manage its resources and the economy than the private sector.
Many South Africans are concerned about land grabs, such as what happened in Zimbabwe. Is this valid?
Firstly it is highly unlikely that residential properties will or could be taken. This did not happen in Zimbabwe, other than a handful, but certainly land was taken. However, this land was expropriated by mob forces and not under the government’s directive. The then President, Robert Mugabe, simply allowed the land invasions to happen.
“There is a bigger danger of mob land grabs happening in South Africa than our State stealing property or doing nothing to ensure that law and order is maintained. This does not mean the State won’t take land, and that is why it is important that the media track any such occurrences and headline those. Ultimately, however, it is highly unlikely that residential properties will be taken.
How seriously do you think the rest of the world views Trump’s decision, and will that affect foreign property investment?
South Africa is really irrelevant to the rest of the world. We have a small economy, and it’s not growing. Our economy is .2% of the world’s economy vs. America’s 20%. Trump is a derisive figure who gets a lot of attention. Like him or not, the fact that he is pointing out that SA has all these silly laws puts the spotlight on our country.
I think foreigners will think twice now about buying property in SA, but bear in mind that many countries have some agreement around this. For example, in Mauritius, if a Mauritian buys property in SA, our government cannot ‘steal’ it. The same applies to all countries with which SA has such agreements.
How do you expect SA’s economy to perform with Trump’s focus on SA?
Our economy will probably perform worse now because of Trump. It was already doing badly because of incompetence and mismanagement, so economic growth is expected to decline further. But in some ways, this is a silver lining because it is a wake-up call. If there was the intention to steal property through expropriation, then all this noise would make the State hesitate.
Trump could harm us substantially, though, for example, if he imposed sanctions, which, alongside our poor economic performance, would put the country in deep trouble.
Rand performance, inflation expectations?
I’m very surprised to see the Rand has doing better than I thought, given all the negatives in play. Our inflation currently is mostly domestic, more of an internal issue through increases such as electricity hikes. However, if financial sanctions are imposed, our Rand will bomb out.
We will not be able, for example, to depend on China to fund our fiscal deficits regardless of the relatively good relationship we have with that nation.
Could SA’s membership of BRICS be a saviour if the US imposes sanctions on us?
Some of our losses could be mitigated through alliances with BRICS nations should the US impose sanctions or tariffs on SA. However, we cannot look at it from merely a trade perspective. Capital flows, for example, and fiscal deficits need to be factored in. Even China, having the largest economy in the BRICS, is not going to pick up the slack in SA that sanctions or tariffs would cause. Remember that China likes to do business with you but does not like to lend you money. Anyway, the US and Europe are the biggest lenders to SA.
From the housing market perspective, I also don’t see BRICS members buying large amounts of residential properties. Maybe corporations are buying large tracts of agricultural land, but Chinese citizens are not going to be rushing to buy houses in Hermanus. The Europeans, yes, but even that region is falling apart given its lack of strong political leadership, and many of its countries are in a recession.
We can and should strengthen our alliances within BRICS but must remain neutral on global politics.
