South Africa would experience an “imminent socio-economic disaster” if expropriation without compensation (EWC) was pursued, with the anticipated decline in gross domestic product (GDP) possibly leading to a loss of more than 2.28 million jobs, according to an independent economic impact assessment of the proposed policy.
The results of the assessment pointed to extreme economic hardship for South Africa if EWC was adopted, including a downgrade of the country’s sovereign bonds to junk status, higher interest rates, a fairly sharp decline in taxation revenues and a deep recession.
“Capital, which is an indispensable prerequisite for economic growth, job creation and growth, acts just like a gazelle in the African bush. If you scare it, it runs away,” it said.
The assessment was done by independent economist Dr Roelof Botha, an adjunct faculty member at the Gordon Institute of Business Science (Gibs), assisted by Professor Ilse Botha from the University of Johannesburg.
Peer reviews of the study were conducted by Lumkile Mondi at the University of Witwatersrand, Keith Lockwood at Gibs and Wandile Sihlobo, a member of the panel of experts on agriculture recently appointed by President Cyril Ramaphosa.
A supporting literature study of countries that had pursued policies similar to EWC revealed an unequivocal trend for capital formation/GDP ratios to decline in the aftermath of such policy interventions.
Country case studies to determine a range for the degree to which capital formation/GDP ratios declined in the short- to medium-term after the implementation of policies linked to EWC yielded an average annual decline of 13.9 percent.
This was used as justification of the likely effects in South Africa if EWC was pursued, assuming two different scenarios of a 5 and a 10 percent-a-year decline in capital formation.
The study said capital formation had declined by more than 7 percent over the past 11 quarters in real terms and highlighted its importance to the well-being of the economy.
It concluded that EWC would result in an annualised nominal decline in GDP of R270.4bn in the third quarter of 2020 in the event of a 5 percent drop in EWC-induced capital formation and R454.8bn decline in GDP in the case of a 10 percent reduction in capital formation.
“The GDP impact means South Africa will enter a recession in 2018 (year-on-year basis) and remain in recession throughout the forecasting period up to the third quarter of 2020.
“Total fiscal revenues will decline over the forecasting period by R157.5bn for scenario one and R261.5bn for scenario two.”
It said the government’s budget deficit to GDP ratio would increase from a 2018/19 budget estimate of 3.8 percent to 5.3 percent under scenario one and to 6.5 percent under scenario two by the third quarter of 2020.
The government’s financing requirement would escalate by a cumulative R157.4bn under scenario one and by R261.5bn under scenario two.
“Against the background of the current high level of socio-political unrest in South Africa, the combination of a prolonged recession, higher interest rates and significantly higher unemployment will tend to aggravate the security situation in the country.
“An escalation of criminal activity can also be expected, which will encourage the emigration of highly skilled people,” it said.
