Institutions and Land Reform Lessons from Land Redistribution Policy in Post-Apartheid South Africa Cape Town, South Africa A Partridge March 2014

Institutions and Land Reform: Lessons from Land Redistribution Policy in Post-Apartheid South Africa Presentation Outline Background: Historical Context Institutions and the New Institutional Economics (NIE) Institutional Barriers to Effective Land Redistribution in South Africa Conclusion and Recommendations Go to Insert > Header & Footer > Enter presentation name into footer field

Background: Historical Context

Institutions and Land Reform: Lessons from Land Redistribution Policy in Post-Apartheid South Africa Presentation Outline Background: Historical Context Institutions and the New Institutional Economics (NIE) Institutional Barriers to Effective Land Redistribution in South Africa Conclusion and Recommendations Go to Insert > Header & Footer > Enter presentation name into footer field

Republic of South Africa Background: History South African Timeline Union of South Africa Republic of South Africa 1400 1500 1600 1700 1800 1900 2000 Khoisan Bantu Portuguese Settlers Dutch Settlers British Settlers Khoisan: Khoikhoi + San Bantu: From North (Zulu + Xhosa) – dominated and absorbed Khoisan Portugese Settlers: Bartholomeu Dias (1488), Vasco Da Gama (1497) -> min colonialisation interest Dutch Settlers: Jan van Riebeck (1652) British Settlers (invasion) – 1795 Union of South Africa: 1910-1960 Republic of South Africa: 1960-current Go to Insert > Header & Footer > Enter presentation name into footer field

Background: History South African Timeline Democratic Elections & the African National Congress (ANC) Natives Land Act (1913) Apartheid (1948-1994) 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Go to Insert > Header & Footer > Enter presentation name into footer field

Background: History South African Timeline Democratic Elections & the African National Congress (ANC) Natives Land Act (1913) Apartheid (1948-1994) 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Go to Insert > Header & Footer > Enter presentation name into footer field

Land Ownership in South Africa South Africa in 1994: African Population and Land Ownership Mention land being bot land NB – also say about ANC’s commitment to land reform 77% 13% Source: Stats SA, 2001 Source: Lahiff & Cousins, 2005 Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Avenues of Land Reform Land Reform in South Africa (post-1994) Redistribution Restitution Tenure Reform Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Avenues of Land Reform Land Reform in South Africa (post-1994) Redistribution Restitution Tenure Reform RDP Target: Redistribute 30% of Agricultural Land Between 1994-2014 (± 24.9 million hectares) Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Land Reform Progress Total Agricultural Land = 83 million hectares Source: Own calculations from multiple sources Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Land Reform Progress   2014 land redistribution target of 30% of agricultural land (24.9 million hectares) Source: Own calculations from multiple sources Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Land Reform Progress   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) Source: Own calculations from multiple sources Go to Insert > Header & Footer > Enter presentation name into footer field

Land Reform in Post-Apartheid South Africa Land Reform Progress Target Actual Source: Own calculations from multiple sources Go to Insert > Header & Footer > Enter presentation name into footer field

Institutions and the New Institutional Economics (NIE)

Institutions and Land Reform: Lessons from Land Redistribution Policy in Post-Apartheid South Africa Presentation Outline Background: Historical Context Institutions and the New Institutional Economics (NIE) Institutional Barriers to Effective Land Redistribution in South Africa Conclusion and Recommendations Go to Insert > Header & Footer > Enter presentation name into footer field

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: Institutions Matter 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 matter Matthews’ 2nd premise is what distinguishes the NIE NOTE: Coase challenged theory that economies are automated process governed by price mechanisms… did so by posing question of why there are firms NOTE: “Old” institutional economics criticised orthodox economics (e.g. Thorstein Veblen, John R. Commons, Wesley C. Mitchell, Clarence Ayres). NIE builds on orthodox economics NOTE: Mention Coase, Williamson and North main contributors to NIE but there are others (see Klein, 1999, p457) Go to Insert > Header & Footer > Enter presentation name into footer field

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

Institutional Analysis and Development (IAD) framework IAD Framework Overview 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] “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] Action Situation Go to Insert > Header & Footer > Enter presentation name into footer field

Institutional Analysis and Development (IAD) framework IAD Framework Overview Biophysical Conditions Attributes of Community Action Situation Interactions Outcomes Rules Evaluative Criteria Source: Adapted from Ostrom (2005) “Understanding Institutional Diversity”. p15 Go to Insert > Header & Footer > Enter presentation name into footer field

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

Institutional Barriers to Effective Land Reform in South Africa

Institutions and Land Reform: Lessons from Land Redistribution Policy in Post-Apartheid South Africa Presentation Outline Background: Historical Context Institutions and the New Institutional Economics (NIE) Institutional Barriers to Effective Land Redistribution in South Africa Conclusion and Recommendations Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 1: Willing Buyer Willing Seller (WBWS) Requirement Under the WBWS Requirement: Must have a willing buyer Seller must have submitted formal agreement to sell at a particular price Price 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 speedy Protects efficiency of agricultural sector Argument against WBWS: State-led land reform success in Latin America and east Asia More effective method of distributing land More able to meet needs of poor and marginalised Market value = estimated Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 1: Willing Buyer Willing Seller Requirement Borras (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) Free anf fair – NB!!! Mention that you are always going to have assymetries of power… if you didn’t wouldn’t be any need for a redistribution programme Right of first refusal Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 2: Conflicting Agendas Lahiff (2007) Status Quo Free Markets Radical Reform 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) MOST NB! Lack of synergies The Landless Peoples Movement -> ““a product of a combination of the ravages of a capitalist system on the poorest and most marginalised sections of the population globally and in South Africa, and the resultant resistance that this has thrown up historically” (Greenberg, 2004, p. 34). Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 2: Conflicting Agendas Lahiff (2007) Status Quo Free Markets Radical Reform 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) Land reform beneficiaries and small-scale farmers??? Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 3: Monetary Instability South Africa’s Annual Inflation Rate (Consumer Prices), 1994-2012 Inflation Tageting: Since 2002 (beginning of 21st century) Data Source: World Bank, World Development Indicators Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 3: Monetary Instability High & unstable inflation → High Interest Rates Hostile to new entrants Less incentive to take up farming Whilst may be unable to influence inflation rate, can mitigate against impact Diminishing interest rate subsidy Case 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) Cant change inflation rate Go to Insert > Header & Footer > Enter presentation name into footer field

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 happening Financial cost, time & uncertainty Justification ? Prevent farms decreasing below a “viable” size Origin: Apartheid Land redistribution loans < amount needed to purchase a “viable” piece of land Beneficiaries need to pool finances together Ineffective production Overcrowding Disincentivising farming Transaction costs Pooling – strangers -> “rent-a-crowd” Solution Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 4: Restrictions on Subdivision Solution û Subdivision of Agricultural Land Act (1970) Alternative: Streamline the process of obtaining State approval Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 5: Lack of Post-Transfer Support Hall & Aliber (2010): Funding / households: R5 700 per annum (2008/2009) More than typical farming household spends Distributional problem Reach of main funding channels between 2005/2006 & 2008/2009: Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 5: Lack of Post-Transfer Support Comprehensive Agricultural Support Programme (CASP) Launched in 2004 To “make provision for agricultural support to targeted beneficiaries of the land reform and agrarian reform programme” (NDA, 2004, p7) Biggest channel for post-transfer support Funding distributional issues… 80% 20% funding beneficiaries 51% 2.6% funding beneficiaries CASP budget substantial Not comprehensive Source: Hall & Aliber (2010) Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 5: Lack of Post-Transfer Support Inefficient Implementation “Demand-led” / “Application-based” Onus on beneficiaries to apply for support Issues with knowledge and access to information Original development of support services Aimed at large commercial farming Push to spend budgets Under expenditure in 1st 2 years of CASP Pressure on Departments to utilize budgets Easiest way to fill budget: Spend lots on a few projects No cap on budgets Mismatch between land redistribution programmes and support services PLAS: 3 year loan CASP & MAFISA: requires 5 years of tenure Going from 1st to 2nd point: 2nd point at a more general level Go to Insert > Header & Footer > Enter presentation name into footer field

Barrier 5: Lack of Post-Transfer Support 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 Gdont want to be completely reliant on State support Go to Insert > Header & Footer > Enter presentation name into footer field

Conclusions and Recommendations

Institutions and Land Reform: Lessons from Land Redistribution Policy in Post-Apartheid South Africa Presentation Outline Background: Historical Context Institutions and the New Institutional Economics (NIE) Institutional Barriers to Effective Land Redistribution in South Africa Conclusion and Recommendations Go to Insert > Header & Footer > Enter presentation name into footer field

Conclusion South Africa’s main institutional barriers to effective land reform: WBWS requirement with ill-functioning markets Conflicting agendas Monetary instability Restrictions on subdivision of land Lack of post-transfer support Purpose of paper Provide an institutional analysis of land redistribution policy in South Africa Highlight lessons for South Africa going forward Highlight lessons for the rest of the world Encourage a way of doing policy analysis and implementing reform Go to Insert > Header & Footer > Enter presentation name into footer field

Conclusion South Africa’s main institutional barriers to effective land reform: WBWS requirement with ill-functioning markets Conflicting agendas Monetary instability Restrictions on subdivision of land Lack of post-transfer support Purpose of paper Provide an institutional analysis of land redistribution policy in South Africa Highlight lessons for South Africa going forward Highlight lessons for the rest of the world Encourage a way of doing policy analysis and implementing reform Go to Insert > Header & Footer > Enter presentation name into footer field

Andrew Partridge Macro & Resource Economics +27 21 808 7633 +27 21 808 5210 andrewp@elsenburg.com