What impact land reform will have on a South African bank

Land reform appears to be coalescing around the issue of compensation for expropriated land under section 25 of the Constitution, and made manifest with the Expropriation Bill of 2020. 

This aims to introduce cases of expropriation with “nil compensation” for property expropriated in the “public interest”. Whether the bill could or would be used to expropriate rural land, urban land or other forms of private property are worryingly unclear. How land reform plays out will pose significant risks and opportunities for the financial sector.

To this end, Genesis Analytics was commissioned by a prominent bank to specifically, i) advise on the various scenarios of land reform in South Africa; ii) help the bank assess the impact of these scenarios; and iii) guide the bank’s strategic position.

On the scenarios of land reform, the study found that:

• An amendment to section 25 of the Constitution is unlikely.
• Expropriation without compensation is implicit in the Constitution.
• The Expropriation Bill 2020, currently before Parliament, identifies circumstances where the implicit ability to expropriate without compensation may be just and equitable. The bill is likely to be passed by Parliament in 2022.
• The Expropriation Bill effectively introduces a “use it or lose it” principle and if managed and communicated well, could unlock value in the economy.

By mapping the possibly affected portfolios Genesis found that the direct risk to the bank is limited. The impact of these developments on investor confidence may, however, have a significant indirect impact on the bank. Genesis therefore advised on a proactive approach to manage external communications and existing client relations.