SONA 2015 review: Foreign land acquisition
23 February 2015
President Jacob Zuma delivered his State of the Nation Address (SONA) on 12 February 2015. 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 has raised more questions and concerns regarding South Africa's current social and economic situation than offering answers and pragmatic solutions to the country's challenges.
Within the myriad of concerning and confusing features of the SONA 2015, 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 President Zuma, 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 instead be only eligible to lease land for periods of between 30 to 50 years.
While this news was met with wild applause from certain MPs in the house, the policy may potentially have significant, adverse repercussions to the already fragile South African economy. The ruling party has clarified that the Bill will only apply to arable land, and not residential. While this may comfort some 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 may be seen in the context of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). In terms of the REIPPPP, successful IPPs 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). 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. This model 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, the Bill is likely to limit most project developers’ land tenure to leasehold.
The Bill is likely to make provision for certain exemptions, where foreign persons may still acquire land in classified areas based on developmental considerations. We will have to await a full review of the Bill before commenting on the scope and conditions of such exemptions. Regardless, project developers, miners and other foreign investors should take cognisance of the Bill and closely monitor its developments throughout the year. Furthermore, clarity on the prescribed lease period should also be sought, as a minimum leasehold of 30 years will also not be acceptable to foreign persons.
While this type of legislation has been introduced in many other developing and developed countries, the legislature needs to consider what kind of picture the Bill 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 the "plethora" of new legislation being introduced, including the Promotion and Protection of Investment Bill and Expropriation Bill, Carol O'Brien, executive director of 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".
The need to secure our limited land for food security and address land injustice is certainly noted. However, a pragmatic approach should be adopted where the country's need to keep foreign investment consistently flowing should also be a key consideration in finalising the Bill.