[Letter] Expropriation Act could be a killer blow

By signing the Expropriation Bill into law President Cyril Ramaphosa made SA’s higher growth and investment case even more difficult to sell. By increasing the country’s investment risk premium in the context of a globally investment-skittish environment, the government of national unity’s twin goals of higher GDP growth rates and lower unemployment rates might just have been dealt a mortal blow.

Gross fixed capital formation as a percentage of GDP is a useful leading indicator of future growth rates. The National Development Plan set SA’s target at 30%. The highest point reached (since 1994) was 21.6%, in 2008/09. Apart from that, the yearly performance hovers between 12% and 15%.

Such relatively low rates of investment in real, heavy machinery, assets and infrastructure are indicative of a policy and operational environment that business and investors (local and foreign) aren’t overly keen on. When you are unsure of a country’s future growth prospects it’s easier to make the case against more investments in assets you can’t necessarily withdraw overnight — such as when property is threatened.

Regardless of how expropriation without compensation is pursued, that its course has been furthered adds another entry on a list of country policy and risk factors that investors would consider when exploring opportunities. For a country such as SA, with numerous demographic, geographical, mineral and other factors counting in its favour, its case for investment and business growth should be an easy sell.

Yet the government has with uncanny regularity managed to almost perfect the art of the own goal. Diluting property rights is arguably one of the greatest own goals.

Letter originally appeared here.