Lessons from Land Redistribution Policy in Post-Apartheid South Africa Cape Town, South Africa A...

Lessons from Land Redistribution Policy in Post-Apartheid South Africa

Cape Town, South Africa A Partridge

INSTITUTIONS AND LAND REFORM

March 2014

© Western Cape Government 2012 | 2Go to Insert > Header & Footer > Enter presentation name into footer field

Institutions and Land Reform:Lessons from Land Redistribution Policy in Post-Apartheid South Africa

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Background: Historical Context

Institutions and the New Institutional Economics (NIE)

Institutional Barriers to Effective Land Redistribution in South Africa

Conclusion and Recommendations

Presentation Outline







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© Western Cape Government 2012 |

Background: History

South African Timeline

5Go to Insert > Header & Footer > Enter presentation name into footer field

1400

1500

1600

1700

1800

1900

2000KhoisanBantu

Portuguese Settlers

Dutch Settlers

British Settlers

Union of South Africa

Republic of South

Africa


Background: History



1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Natives Land Act (1913)

Apartheid(1948-1994)

Democratic Elections & the African National Congress (ANC)


Land Ownership in South Africa

South Africa in 1994: African Population and Land Ownership

African Population African Land Occu-pation

77%

13%Source: Stats SA, 2001 Source: Lahiff & Cousins,

2005


Land Reform in Post-Apartheid South Africa

Avenues of Land Reform

Land Reform inSouth Africa(post-1994)

Redistribution Restitution Tenure

Reform



Avenues of Land Reform

Land Reform inSouth Africa(post-1994)

Redistribution Restitution Tenure

Reform

RDP Target:Redistribute 30% of Agricultural Land Between 1994-2014(± 24.9 million hectares)



Land Reform Progress

South African Agricultural Land

Source: Own calculations from multiple sources

Total Agricultural Land = 83 million hectares





2014 land redistribution target of 30% of agricultural land (24.9 million hectares)






2014 land redistribution target of 30% of agricultural land (24.9 million hectares)

Actual land redistribution progress as at 31 March 2013(3.8 million hectares)





1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 20130

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000


Target

Actual

Institutions andthe New Institutional Economics (NIE)







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The New Institutional Economics (NIE)

Coase (1937) “The Nature of The Firm”Coase (1960) “The Problem of Social Costs”

Transaction Costs

Williamson (1975) “Markets and Hierachies, Analysis and Antitrust Implications”

First use of the “New Institutional Economics” term

Matthews (1986) “The Economics of Institutions and the Sources of Economic Growth”

NIE based on 2 premises:1. Institutions Matter2. Institution determinants susceptible to analysis by tools of economic theory

Williamson (2000) “The New Institutional Economics: Taking Stock, Looking Ahead”

Matthews’ 1st premise is not new → general agreement that institutions matterMatthews’ 2nd premise is what distinguishes the NIE


Institutions and The New Institutional Economics (NIE)

Defining Institutions

Douglas North (1990, p3):

“the rules of the game in a society or, more formally, are the humanly devised

constraints that shape human interaction”

Elinor Ostrom (2005, p3):

“the prescriptions that humans use to organize all forms of repetitive and

structured interactions including those within families, neighborhoods, markets,

firms, sports leagues, churches, private associations, and governments”


Institutional Analysis and Development (IAD) framework

IAD Framework Overview

Action Situati

on

“the social space where participants with diverse preferences interact, exchange goods and services, solve problems, dominate one

another, or fight”

[Ostrom (2005) “Understanding Institutional Diversity”. P14]

Examples:

• Buyers and sellers exchanging goods

in a market;

• Legislators making legislative

decisions about future laws;

• Powerful politicians bargaining over

the allocation of public support;

• Users of a common-pool resource

withdrawing resource units (such as

fish, water, or timber);

• Heads of state negotiating an

international treaty.

[Ostrom (2005) “Understanding Institutional Diversity”. p32]


Institutional Analysis and Development (IAD) framework

IAD Framework Overview

Action Situati

on

Interactions

Outcomes

Biophysical Conditions

Attributes of Community

Rules Evaluative Criteria

Source: Adapted from Ostrom (2005) “Understanding Institutional Diversity”. p15


Application to Land Redistribution

“Mechanics” of land redistribution

Linking/nesting of action situations

Broader view of how to implement change

Feasibility and binding constraints

Hausmann, Rodrik & Velasco (2005); Rodrik (2007)

• “Growth diagnostics”

• Consideration of: country-specific issues

• Practical way to influence the effectiveness of policy

Institutional Barriers to Effective Land Reform in South Africa







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Barrier 1: Willing Buyer Willing Seller (WBWS) Requirement

Under the WBWS Requirement:Must have a willing buyerSeller must have submitted formal agreement to sell at a particular pricePrice must be valuated as market-related by an independent valuator• If price > market value: Negotiations between seller and valuator• Seller option to opt out

Argument for WBWS:Cost-effective, transparent, fair and speedyProtects efficiency of agricultural sector

Argument against WBWS:State-led land reform success in Latin America and east AsiaMore effective method of distributing landMore able to meet needs of poor and marginalised


Barrier 1: Willing Buyer Willing Seller RequirementBorras (2003): Market-based Reforms in Brazil, Columbia and South Africa

Key contradictions to market assumptions

Rationality in price negotiations

Participants will enter into free and fair negotiations

Decentralisation ensures transparency, accountability and efficient policy

South Africa focus

Information Asymmetries

Asymmetries of power

2006: Proactive Land Acquisition Strategy (PLAS)


Barrier 2: Conflicting Agendas

Lahiff (2007)

- Argue for the

preservation of

current farming

sector

- Accept to an extent

that intervention is

necessary to increase

participation of

African farmers and

supress social

tensions

Includes:

- Landowners

- Business interest

groups

- Elements within

government

- Promoters of land

reform through the

market

- Current inefficiency

stems from

protection

- African farmers

should be assisted to

gain entry

Includes:

- World Bank

- Academics (domestic

& international)

- Proponents of BEE

- Push for a more

radical reform

process

- Direct role for State

- Minimum or no

compensation

Includes:

- Mass popular

movement against

apartheid (EFF)

- Organizations of poor

and landless (The

Landless Peoples

Movement)

- Grassroots ANC

members (ANCYL)

Status Quo Free Markets Radical Reform


Barrier 2: Conflicting Agendas

Lahiff (2007)

Includes:

- Landowners

- Business interest

groups

- Elements within

government

Includes:

- World Bank

- Academics (domestic

& international)

- Proponents of BEE

Includes:

- Mass popular

movement against

apartheid (EFF)

- Organizations of poor

and landless (The

Landless Peoples

Movement)

- Grassroots ANC

members (ANCYL)

Status Quo Free Markets Radical Reform

Land reform beneficiaries and small-scale farmers???


Barrier 3: Monetary Instability

South Africa’s Annual Inflation Rate (Consumer Prices), 1994-2012

Data Source: World Bank, World Development Indicators

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

0

1

2

3

4

5

6

7

8

9

10

11

12

Year

%


Barrier 3: Monetary Instability

High & unstable inflation → High Interest RatesHostile to new entrantsLess incentive to take up farming

Whilst may be unable to influence inflation rate, can mitigate against impact

Diminishing interest rate subsidyCase study: Kwa-Zulu Natal sugar millers & Ithala Bank• 18% of purchase price of land paid to Ithala Bank• Used to decrease interest on mortgage loans for land purchase• Subsidy phased out over 6 years• Led to the redistribution of over R100 million of land to small growers• Positive feedback from farmers (Simms, 1997)• More info: Niewoudt et al (1993), Niewoudt & Vink (1995), Niewoudt (2004)


Barrier 4: Restrictions on Subdivision

Subdivision of Agricultural Land Act (1970)Legally prevented from subdividing land without State approval

Minimal evidence of State approval actually happeningFinancial cost, time & uncertainty

Justification ?Prevent farms decreasing below a “viable” sizeOrigin: Apartheid

Land redistribution loans < amount needed to purchase a “viable” piece of land

Beneficiaries need to pool finances together• Ineffective production• Overcrowding• Disincentivising farming


Barrier 4: Restrictions on Subdivision

Solution

Subdivision of Agricultural Land Act

(1970)û Alternative:Streamline the process of obtaining State approval


Barrier 5: Lack of Post-Transfer Support

Hall & Aliber (2010):

Funding / households: R5 700 per annum (2008/2009)More than typical farming household spendsDistributional problem

2.65 million black farming households

Received Support: 350 000 households (13%)

Reach of main funding channels between 2005/2006 &2008/2009:



Comprehensive Agricultural Support Programme (CASP)

Launched in 2004To “make provision for agricultural support to targeted beneficiaries of the land reform and agrarian reform programme” (NDA, 2004, p7)Biggest channel for post-transfer supportFunding distributional issues…

80%

51%

funding

funding

20%

2.6%

beneficiaries

beneficiaries

Source: Hall & Aliber (2010)



Inefficient Implementation

“Demand-led” / “Application-based”Onus on beneficiaries to apply for supportIssues with knowledge and access to information

Original development of support servicesAimed at large commercial farming

Push to spend budgetsUnder expenditure in 1st 2 years of CASPPressure on Departments to utilize budgetsEasiest way to fill budget: Spend lots on a few projectsNo cap on budgets

Mismatch between land redistribution programmes and support servicesPLAS: 3 year loanCASP & MAFISA: requires 5 years of tenure



Other Considerations

Lack of private support services

Well developed support services for large commercial farmers

Not the case for small-scale land reform beneficiaries

Support is primarily a responsibility of provincial government

Performance not consistent amongst the different provinces

• Jacobs (2003)

Post-transfer support is not just about improving productivity and

assisting with rural development and poverty alleviation. Has significant

implications for the incentives to go into small-scale farming which will

influence the pace of land redistribution

Conclusions and Recommendations







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Conclusion

South Africa’s main institutional barriers to effective land reform:WBWS requirement with ill-functioning marketsConflicting agendasMonetary instabilityRestrictions on subdivision of landLack of post-transfer support

Purpose of paperProvide an institutional analysis of land redistribution policy in South AfricaHighlight lessons for South Africa going forwardHighlight lessons for the rest of the worldEncourage a way of doing policy analysis and implementing reform


Conclusion

South Africa’s main institutional barriers to effective land reform:WBWS requirement with ill-functioning marketsConflicting agendasMonetary instabilityRestrictions on subdivision of landLack of post-transfer support

Purpose of paperProvide an institutional analysis of land redistribution policy in South AfricaHighlight lessons for South Africa going forwardHighlight lessons for the rest of the world

Encourage a way of doing policy analysis and implementing reform

Thank you

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Andrew PartridgeMacro & Resource Economics

+27 21 808 7633 +27 21 808 5210

[email protected]

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