South Africa’s ruling party is forging ahead with plans to change the constitution to make it easier for the government to expropriate land without paying for it. The state hasn’t taken any property yet, but the nation’s banks are worried because they have billions of rand lent to farmers and real estate owners at stake. U.S. officials have waded in, with Secretary of State Michael Pompeo warning that expropriation would be disastrous for the economy. President Cyril Ramaphosa has given assurances that his administration isn’t planning wholesale land grabs.

1. Why is land ownership an issue?

Because anger has mounted among the black majority that racially skewed ownership patterns persist more than a quarter century after white-minority rule ended and the African National Congress took power. The problem dates back to colonial rule, when most black people were stripped of their right to own property by the South Africa’s Natives Land Act of 1913. Discrimination escalated after the National Party came to power in 1948 and implemented a system of racial segregation, known as apartheid, or apartness, that left 87% of land in the hands of whites. Today about 60% of citizens have no registered real estate rights.

2. Who owns the land?

A 2017 state-commissioned audit shows a third of rural land is owned by individuals, with 72% of that in white hands, while companies and trusts hold 43%. The race of their beneficiaries and owners is difficult to determine. A separate audit released in late 2017, by Agri Development Solutions and farm-lobby group Agri SA, found black, Indian and mixed race citizens own 27% of farmland compared with 14% in 1994. About 81% of the country’s 58.8 million people are black, 8% are white and the balance are mixed race or of Asian descent. Between 1994 and March 2018, the state acquired 8.4 million hectares — less than 10% of the commercial farmland — for land redistribution and restitution. That’s a third of what the government had targeted by 2014.

3. How did we get here?

The ANC decided in December 2017 that expropriating land without compensation was among the mechanisms needed to accelerate land reform, as long as it didn’t undermine the economy, agricultural production and food security. A year later, parliament agreed to amend section 25 of the constitution, which deals with property rights, and a committee was appointed to formulate changes. It didn’t complete its work before May 2019 elections and was reconstituted after the vote. A draft constitutional amendment bill was published in late 2019, which proposes that owners of expropriated property needn’t be compensated. The lawmakers’ panel is still considering the bill and has invited interested parties to give input at public hearings. Two-thirds of lawmakers would have to assent to change the constitution. The ANC holds 58% of the seats in parliament, while the Economic Freedom Fighters, the third-biggest political party overall, which also supports land seizures, has 11%.

4. Why are banks worried?

Because they have 1.5 trillion rand ($100 billion) in mortgages. If constitutional changes do undermine property rights, the impact could cut real estate values, weaken investor confidence and thwart economic development. In a worst-case scenario, banks and the economy wouldn’t be able to absorb the shock, according to the Banking Association of South Africa.

5. What are they proposing?

Commercial lenders have recommended that expropriation without compensation be undertaken within the confines of existing laws and urged the government to clarify its reform policy to stimulate investment. Banks have also called for a land audit to track the status of transfers to black owners and creating an ombudsman to expedite grievance resolution. They propose a blended-finance model that would entail banks and the state jointly funding land reform initiatives.

6. Is taking land without compensation legal?

Not under current law, according to several civil-rights and lobby groups. They argue that just compensation must be paid, and intend challenging the proposed constitutional amendments in court. Ramaphosa warns that a failure to accelerate land reform would perpetuate an injustice and constrain the economy. While the constitution already allows the state to take land, more clarity is needed on the circumstances under which this can be done, he says. A failure to respect property rights could result in South Africa violating conditions needed to retain its preferential access to U.S. markets, and may flaunt several international treaties the government has signed.

--With assistance from Ana Monteiro, Paul Vecchiatto and Rene Vollgraaff.

To contact the reporter on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editors responsible for this story: Paul Richardson at pmrichardson@bloomberg.net, Leah Harrison Singer

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