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

2. 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
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3. Background: Historical Context

4. 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
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5. 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:
Republic of South Africa: 1960-current
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6. Background: History South African Timeline
Democratic Elections & the African National Congress (ANC)
Natives Land Act (1913)
Apartheid
( )
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
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7. Background: History South African Timeline
Democratic Elections & the African National Congress (ANC)
Natives Land Act (1913)
Apartheid
( )
1900
1910
1920
1930
1940
1950
1960
1970
1980
1990
2000
2010
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8. 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
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9. Land Reform in Post-Apartheid South Africa
Avenues of Land Reform
Land Reform in
South Africa
(post-1994)
Redistribution
Restitution
Tenure Reform
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10. 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
(± 24.9 million hectares)
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11. Land Reform in Post-Apartheid South Africa
Land Reform Progress
Total Agricultural Land = 83 million hectares
Source: Own calculations from multiple sources
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12. 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
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13. 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
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14. Land Reform in Post-Apartheid South Africa
Land Reform Progress
Target
Actual
Source: Own calculations from multiple sources
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15. Institutions and
the New Institutional Economics (NIE)

16. 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
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17. 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)
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18. 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”
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19. 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
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20. 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
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21. 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
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22. Institutional Barriers to Effective Land Reform in South Africa

23. 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
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24. 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
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25. 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
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26. 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).
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27. 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???
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28. Barrier 3: Monetary Instability
South Africa’s Annual Inflation Rate (Consumer Prices),
Inflation Tageting: Since 2002 (beginning of 21st century)
Data Source: World Bank, World Development Indicators
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29. 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
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30. 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
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31. Barrier 4: Restrictions on Subdivision
Solution û
Subdivision of Agricultural Land Act (1970)
Alternative:
Streamline the process of obtaining State approval
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32. 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:
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33. 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)
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34. 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
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35. 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
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36. Conclusions and Recommendations

37. 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
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38. 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
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39. 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
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41. Andrew Partridge Macro & Resource Economics +27 21 808 7633