A controversial Constitutional Court ruling in 2013 has paved the way for the misleadingly named Promotion and Protection of Investment Bill (the Investment Bill), which now threatens the property rights of individuals and enterprises, both local and foreign, said Martin Brassey SC and Dr Anthea Jeffery of the Institute of Race Relations (IRR) at a media briefing at the Free Market Foundation on May 14.  According to Jeffery, the Bill is in fact a sweeping new expropriation measure by another name.

Media coverage of the Investment Bill so far has focused on its role in replacing South Africa’s bilateral investment treaties with various European states and its likely impact on foreign direct investment. However, the true significance of the Investment Bill goes very much beyond this.

In South Africa, property rights are protected by the Constitution. This protection, however, depends on the courage and determination of the courts in enforcing them. But in dealing with mineral rights, in particular, “the courts have shown a decided lack of backbone”, says Brassey.

This was evident in 2013, in the context of a test case brought by Agri SA against the Government for the loss of an old-order mining right, which had ‘ceased to exist’ under the Mineral and Petroleum Resources Development Act (MPRDA) in 2005.  The case was lost on appeal to the Constitutional Court, in a landmark ruling with profound implications for property rights.

The Constitutional Court found that the owner of the mining right had suffered a ‘compulsory deprivation’, under the MPRDA, while ‘the custodianship’ of this resource was now ‘vested in the State on behalf of the people of South Africa’. However, the State had not acquired ownership of the mining right. Instead, it was simply a ‘custodian’ or ‘conduit’ through which ‘broader and equitable access to mineral resources could be realised’.

Since the deprivation of ownership from Sebenza had not been matched by the acquisition of ownership by the State, no expropriation had occurred, the court ruled. It followed that no compensation was payable.

This means, says Brassey, that if the State takes away private property and holds it as a custodian on behalf of others to be distributed at a later date, it is not “expropriation”. The original owner cannot rely on the protection of the Constitution and cannot expect to receive financial compensation.

Brassey calls this “pure logic chopping”. The owner of land previously owned the minerals; now he (or it) does not. “By the stroke of a pen, the power of acquisition and disposal of the minerals (plus water rights etc) have been acquired by the State,” he said.

In its ruling, the ConCourt stressed the need for transformation, and compensation for apartheid’s wrongs. “But why individual owners and rights holders should be required to shoulder the burden of this compensatory price was never explained,” says Brassey.

Brassey adds: “The ConCourt endorses a regime in which a private person can be licensed and empowered to enter property against the owner’s will, build access roads and set up a rig, explore for minerals and then, using the water and other materials on the property, win the minerals for his own benefit and account. The owner will not be compensated, but the State can impose taxes and demand royalties on the mining company in exchange for the permit.” He concluded, “If you believe in the importance of private property as a facet, not just of commercial well-being, but also of liberty, this is a very unhappy result.”

According to Jeffery, a key provision in the Investment Bill now echoes this ConCourt ruling in stating that various actions ‘do not amount to acts of expropriation’. Among the actions it lists are ‘measures which result in the deprivation of property, but where the State does not acquire ownership of such property’. One of two provisos must be fulfilled for this result to follow: either there must be ‘no permanent destruction of the economic value of the investment’, or ‘the investor’s ability to…use or control his investment [must not be] unduly impeded’.

If the Investment Bill becomes law, the Government could use its rules to take further measures to vest all mining land, mining equipment, and other mining assets in the State as the custodian of the nation’s mineral resources, while simultaneously inviting black South Africans, in particular, to apply to the Department of Mineral Resources for a licence to use a portion of these assets for a specified period.

In these circumstances, mining companies would be deprived of their property, but the State would acquire it as custodian rather than as owner – and there would be ‘no permanent destruction of the economic value’ of these assets, which would continue to be used by others. This means there would be no ‘act of expropriation’ under the principles established by the Investment Bill, and no compensation would be payable.

The Investment Bill could also provide a solution to the serious financial problem which the Government faces from new land claims. The Restitution of Land Rights Amendment Bill of 2013, which extends the deadline for lodging land claims to June 2019, could see the lodging of some 379 000 new claims – which could cost taxpayers as much as R 179bn to meet. But the 2014/15 budget allocates only some R3bn for land restitution, raising questions as to how this funding is to be found.

The Investment Bill could provide a politically expedient way out of an enormous financial hole. “Provided the State takes land under claim as ‘custodian’ for land claimants who can use it for agreed periods, there will be no expropriation – and hence no compensation payable”, says Jeffery.

She continues, “On this basis, the Government could gradually assume the custodianship of ever more land, while more and more South Africans will find themselves dependent on the State’s permission to occupy the land on which they live and farm”.

“Far from helping black South Africans experience the security of land ownership (from which they were barred in the apartheid era), the Investment Bill could help prevent them from acquiring this vital foundation for economic and political independence.”

The FMF is an independent, non-profit, public benefit organisation, created in 1975 by pro-free market business and civil society national bodies to work for a non-racial, free and prosperous South Africa. As a policy organisation it promotes sound economic policies and the principles of good law. As a think tank it seeks and puts forward solutions to some of the country’s most pressing problems: unemployment, poverty, growth, education, health care, electricity supply, and more. The FMF was instrumental in the post apartheid negotiations and directly influenced the Constitutional Commission to include the property rights clause: a critical cornerstone of economic freedom.