Short sighted view of long-term needs
President Jacob Zuma delivered his State of the Nation Address (SONA) on 12 February. The evening was marred by controversial events, ranging from opposition MPs being forcibly removed from parliament to cell phone signals within the building being jammed. There is no doubt that the SONA 2015 raised more questions and concerns regarding South Africa's current social and economic climate than it offered reassurance to citizens and investors that pragmatic solutions to the country's challenges are being implemented.
Within the myriad of concerning and contusing features of the address, President Zuma stated that, going forward, foreign persons would not be entitled to own land in South Africa. The Regulation of Land Holdings Bill (Bill), according to the President, will be submitted to parliament this year. According to the proposed policy, "foreign nationals and juristic persons, whose dominant shareholder or controller is a foreign controlled enterprise, entity or interest" will be prohibited from owning land in freehold and will instead only eligible to lease land for periods of between 30 to 50 years.
While this news was met with wild applause from certain parts of the House, the policy may have significant adverse repercussions for the already fragile South African economy. The ruling party has clarified that the Bill will only apply to arable land, and not residential. Although this clarification may offer some relief to foreign nationals in their personal capacity, the Bill still has the potential to have widespread effects on the country's mining, energy and agricultural sectors.
An example of such an effect can be seen in the context of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). In terms of the REIPPPP, successful independent power producers are able to secure their project's land rights through transfer of title (land acquisition) or through a registered long-term lease (usually north of 25 years). More often than not, these types of projects are located on agriculturally zoned land with portions of the farm lands being rezoned by developers as required.
To date, almost all of the 64 successful projects have a dominant or controlling foreign shareholder. While the programme has certainly seen a preference by developers for leasehold structures, the acquisition of full title to land is still considered as a viable option by many projects. Furthermore, many large scale projects, particularly in the CSP sector, have tended to utilise structured leases, which may come under scrutiny in terms of the Bill. Although the proposed policy recognises that the land reform cannot apply retrospectively without grave constitutional infringements, in future the Bill is likely to limit most project developer's land tenure to leasehold.
It should be noted that certain exemptions to the Bill's application, relating to classified areas based on developmental considerations, may be provided for. Regardless, project developers, miners and other foreign investors should take cognisance of the Bill and closely monitor its developments throughout the year. This article does not purport to comment on the legal technicalities and ramifications of the Bill. That will have to wait until a copy is published for public comment. The intention is to draw the Legislature's attention to a growing concern among foreign investors over the plethora of legislation that is being developed within South Africa, and which, either directly or indirectly, limits these investors' rights in the country. Examples include the Bill, the Promotion and Protection of Investment Bill, which will replace all bilateral treaties entered into by the South African government to regulate trade relations, and the Expropriation Bill, which does not require expropriation to be compensated at full market value.
While it is accepted that these regulations are not new to both developing and developed countries, and are certainly important to redress the historic inequalities that persist in South Africa, the Legislature needs to consider what kind of picture this is painting for foreign direct investment. Are investors' interests in South Africa, the appeal of which is already stretched, further diminished by such protectionist laws? While commenting on this growing concern, Carol O'Brien, executive director of the American Chamber of Commerce in SA, is quoted as saying "It is one [piece of] legislation after another hitting you and you are beginning to wonder whether foreign investment is welcome in SA".
Again, the need to secure the country's limited land for food security and address land injustice is understood and accepted. However, a pragmatic and balanced approach must be adopted where the country's need to keep foreign investment consistently flowing should also be a key consideration in finalising the Bill.