One major challenge that emerged this past week that directly impacts South Africa's agriculture is labour-related tensions at Transnet. The logistics utility declared a force majeure at its port operations last week, citing an illegal strike. There is a risk that disruptions could escalate this week. The weekend papers cited statements by the representatives of the South African Transport and Allied Workers Union (Satawu) and the United National Transport Union (Untu) that workers are demanding a wage increase of a minimum of 10%, slightly down from the initial demand of 13,5%. However, this is still far from the current offer by Transnet at 4%. Against this, Satawu said over the weekend that it has served Transnet with a 48-hour notice that its members will be striking from today. Disruptions to the flow of goods to and from other countries could negatively impact South Africa’s food, fibre and beverages sector, depending on its duration.

While agricultural production tends to be seasonal, South Africa has diverse agriculture, and there is large trade activity each quarter of the year. For example, exports of food, fibre and beverages in Q4 2021 amounted to $US2.8bn, 23% of the total value of exports in that year. Some of the products that dominated the export activity were citrus, maize, apples and pears, wine, grapes, nuts and berries, wool, soybean oil, apricots, cherries and peaches. Not all these exports were facilitated through Transnet. Still, the point is that the fourth quarter of each year is a high export activity quarter. Given that agricultural production has generally been resilient, we expect that there are substantial volumes of exports of various products scheduled for this month.

Similarly, South Africa imports a range of food products in the fourth quarter of the year. For example, in 2021, during this period, we saw imports of wheat, palm oil, rice, spirits, poultry meat, sunflower oil, and soybeans oilcake, amongst various products. The total imports of food, fibre and beverages in the last quarter of 2021 amounted to US$1,9 billion. In the same way, as the exports, labour-related disruptions would disrupt this import activity.

Importantly, we are not outlining these trade values to signal that this will be the direct loss if there is a strike. Instead, we are outlining the importance of trade in South Africa's food, fibre and beverages sector. Any costs would ultimately depend on the scale and timeframe of disruptions. The focus should be on supporting both parties to find common ground. Indeed, the whole logistics industry is the bloodline of South Africa's export-oriented agriculture or food, fibre and beverages sector.

In the export business, especially of high-value products, the reliability of South African suppliers is key in a highly globalized competitive world. Therefore, any potential prolonged delays would negatively impact the business activities of the South African suppliers to various markets in the world. Different agricultural groupings and commodity associations have already been vocal in the weekend newspapers about the possible negative impact of the Transnet strike on their businesses and the agricultural economy.

Aside from the immediate strike concerns, the logistics industry requires improvements, from roads, rail and ports, to support a growing agricultural sector. Road networks have deteriorated severely across South Africa over the recent past, weighing on agribusinesses and farming entities. Notably, some are using the capital resources which could have been allocated to business expansion, and thus long-term employment, to maintain and build roads. This is a public sector function and shouldn't be covered by private businesses. Similarly, there are long-standing challenges with rail and ports. Fortunately, on this part, Transnet has been working closely with agribusinesses, commodity associations and farmer groupings to refine their agricultural strategy that responds to the sector's needs and devise a long-term solution. This is crucial as South Africa already exports half of its agricultural produce. Any improvements in production going forward will have to be linked to potential export markets, and the logistics industry will be at the heart of this process.

In sum, the current labour disputes at Transnet are an important risk for South Africa's food, fibre and beverages sector. The fourth quarter of the year is as busy as any other quarter in terms of trade. Therefore, stoppages would negatively affect both imports and export activities. The actual costs of it, however, will depend on the duration of the strike. We hope a solution is found quickly between Transnet and the labour unions to minimize disruptions to trade.

 Weekly highlights

SA agriculture machinery sales paint a mixed picture in September 2022

After a solid run since the start of the year, South Africa’s agricultural machinery sales painted a mixed picture in September 2022. For example, tractor sales were up by 4% year-on-year (y/y), with 777 units sold. Meanwhile, the combine harvester sales were at 17 units, down 19% from September 2021. Still, a monthly decline in the combine harvester sales does not change the fact that agricultural machinery sales have been on solid footing since the start of 2020.

These strong sales over this period indicate a primary agricultural sector still in a reasonably better financial condition and continues to invest in movable assets. As we have previously argued, when farmers have a good year, allied industries benefit from spending the financial gains or the produce of the farming businesses. Agricultural machinery is one such industry that benefited from farmers' spending in 2020, 2021 and the first nine months of 2022.

The farmers, specifically grain and oilseed producers, expanded their area planted in the past two years and maintained a decent area in 2022. Weather conditions were favourable, specifically in the past two seasons, resulting in a large harvest for two consecutive seasons.

This was also when commodity prices remained elevated, supported by global events such as dryness in South America and Indonesia and rising demand for grains and oilseeds in China. Had it not been for higher global agricultural prices, the local grain and oilseed prices would have softened due to large harvests, and that would have weighed down the profitability. Therefore, these past few years' financial gains went to agricultural equipment improvement, among other farm activities. This year, the factors above continued to support grain and oilseed prices, along with the Russia-Ukraine war, which disrupted the supplies.

Importantly, this year the reasonably higher input costs and rising interest rates did not reduce farmers’ spending on machinery as we initially anticipated. In a way, this speaks also to the farmers’ confidence about the 2022/23 production season which has recently started.

Data releases this week

As always, we start the week with a global focus. On Tuesday, the United States Department of Agriculture (USDA) will publish its Weekly US Crop Progress data. In these data, our focus is on the US crop-growing conditions as the season progresses, and the harvest has started. This data also helps us form a view of the crop quality in the US. In the previous release, in the week of 02 October 2022, about 52% of the maize crop was rated good/excellent, which is the same level as the previous week. Importantly, this is down by 7% from the same week a year ago. This general decline is mainly explained by the drier weather conditions in some States over a few couple of months.

Moreover, about 20% of the crop had already been harvested, slightly behind last year's pace of 27% in the same week. Meanwhile, about 55% of the soybean crop was rated good/excellent, also unchanged from the previous week. This is down by 3% from the previous year's rating in the same week. In terms of the harvest, about 22% of the crop had already been harvested, compared with 31% in the same week last year.

In addition, on Wednesday, the USDA will release its monthly flagship report, the World Agricultural Supply and Demand Estimates report. This report will provide an updated view of the world grains and oilseeds supply and demand conditions, and notable adjustments on it could be "market moving". The USDA will release the US Weekly Export Sales data on Thursday.

On the domestic front, on Wednesday, SAGIS will release the Weekly Producer Deliveries data for 07 October 2022. This data will help us get insight into the size of the crop as harvesting has been recently completed in most regions of the country. In the previous release of the week of 30 September, about 13,6 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,3 million tonnes. In the same week, about 2,1 million tonnes of soybeans had already been delivered to commercial silos out of the expected harvest of 2,2 million tonnes. Moreover, 831 876 tonnes of sunflower seed had already been delivered on the same day out of the expected harvest of 845 550 tonnes.

On Thursday, SAGIS will publish the Weekly Grain Trade data for 07 October 2022. In the previous release on 30 September 2022, which was the 22nd week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 128 998 tonnes. About 37% of this went to Taiwan, 31% to Mexico, 22% to Japan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,8 million tonnes out of the seasonal export forecast of 3,5 million. This is slightly down from 4,1 million tonnes in the past season due to an expected reduction in the harvest.

South Africa is a net wheat importer, and 30 September was the 53rd week of the 2021/22 marketing year. The total imports are now 1,6 million tonnes, far surpassing the seasonal import forecast of 1,5 million tonnes (and the 2020/21 marketing year imports of 1,5 million tonnes). The major wheat suppliers are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US. As we stated in our previous notes, if one looks into South Africa's wheat imports data for the past five years, Russia was one of the major wheat suppliers, accounting for an average share of 26% yearly. Next week, the focus will be on the new marketing year of 2022/23.

October 16 marked World Food Day, commemorating the founding of the United Nations Food and Agriculture Organization in 1945. Across the world, this day offers an opportunity for countries to assess their food security conditions and efforts to boost agricultural production. One of the measures that some often use to evaluate the food security condition of each country relative to the world is The Economist's Global Food Security Index, which Corteva sponsors. This latest index ranks South Africa at 59 out of 113 countries, an improvement from the 70th position in 2021. This places South Africa as the most food-secure country in the African continent, followed by Tunisia at 62nd.

This improvement is commendable. When looking at the index scoring's technical position, it becomes clear why South Africa's food security ranking has improved. South Africa's scoring came in at 61,4, up from 57,8 in 2021. This shows that South Africa's progress in the Global Food Security Index is not merely because other countries have regressed, particularly since the start of the Russia-Ukraine war, which increased global food prices but that there has been an actual improvement in its own underlying conditions.

The Global Food Security Index comprises four subindices, namely; (1) food affordability, (2) food availability, (3) food quality and safety, and (4) sustainability and adaption. The affordability and availability subindices carry a combined weighting of two-thirds of the total index. The affordability subindex includes the change in average food costs, agricultural trade, food safety net programs, and funding for food safety net programs. Meanwhile, the availability subindex includes the sufficiency of supply, agricultural infrastructure, and political and social barriers to food.

In 2022, South Africa experienced a mild deterioration in the food affordability subindex of 7 points. Meanwhile, the rest of the other subindices improved significantly. This decline in the affordability subindex is unsurprising as the country has witnessed a broad acceleration in consumer food price inflation since the start of the year. South Africa's consumer food price inflation averaged 8,0% y/y in the first eight months of 2022, from 6,5% over the same period in 2021. Still, what is worth emphasizing is that this challenge speaks to the rising cost of food in an environment of generally high unemployment.

Notably, the rise in food prices is a global phenomenon and not unique to South Africa. The dryness in South America, which negatively affected the crops in the 2021/22 production season, combined with growing demand for oilseeds and grains in China, and higher shipping costs, and recently, the Russia-Ukraine war, are some of the factors that have underpinned the global food price inflation surge. This, in turn, lifted prices in South Africa, despite the large domestic agricultural harvests in the past three seasons.

Nevertheless, global food prices have come off the levels we saw in the months immediately after Russia invaded Ukraine. For example, in September 2022, the FAO's Global Food Price Index was down by 1% from the previous month. This marked a sixth monthly decline and was underpinned by the deterioration in the prices of vegetable oils, sugar, meat and dairy products. This means that affordability for all countries has far improved from the third quarter of the year. Still, the current price levels are higher than in 2021. For example, the FAO's Global Food Price Index is still 6% up from September 2021. Another key point to emphasize is that food prices were already elevated in 2021 due to disruptions in the supply chains, drought in South America, and increased demand for grains in China, amongst other factors.

A major issue to keep in mind when observing global agricultural indices, such as the Global Food Security Index, is that subjectivity can never be fully eliminated from the authors' judgment. Resource constraints can hinder objective data collection on the ground in each country, and they sometimes rely on blueprint models that might not be site specific. Sources of bias can stem from inconsistency in data quality, frequency and reliability across all countries. The weightings and rankings are also tricky because they must be tailored to suit different socio-economic contexts.

Still, the key message is that South Africa is in a better place regarding food security and leading the continent. This does not mean there should be complacency. South Africa will need to continue improving food security through expansion in agricultural production and job creation in various sectors of the economy. As we have previously stated, at a technical level, the ideas of expanding agriculture and agro-processing capacity to boost growth and job creation were well established as far back as in the National Development Plan in 2012. They were again highlighted in the 2019 National Treasury paper and, most recently, in the 2022 Agriculture and Agro-processing Master Plan.

These include expanding agricultural activity in the former homelands and government land, enhancing government-commodity organizations' partnerships in extension services, investment in the network industries (water, electricity and road infrastructure), port infrastructure, and state laboratories. Some interventions are more regulation-focused and therefore do not require significant capital spending by the government, although these still need institutional capacity building. Such regulatory interventions include modernizing regulations such as the Fertilizers, Farm Feeds, Seeds and Remedies Act 36 of 1947, with which many role players in agriculture continue to express dissatisfaction. The Agricultural Product Standards Act's enforcement to ensure that the Department of Agriculture, Land Reform, and Rural Development leads the implementation and does not assign it to third parties is another critical intervention that could be explored. Regarding regional focus, Limpopo, KwaZulu-Natal and the Eastern Cape, the most food-insecure provinces, also have vast tracts of underutilized land. These provinces should be a priority in agricultural development plans. With a commercial focus where conditions permit, agriculture improvement would help job creation and household food security in South Africa.

Weekly highlights

Kenya’s decision to open the door to GM maize is a good omen

In the first week of October 2022, Kenya lifted the ban on the cultivation and importing of genetically modified (GM) white maize. This change is in response to growing food insecurity in the country. Kenya has struggled with drought in the recent past and remains a net importer of maize. Still, this adjustment doesn’t mean the borders are automatically open, there will be an assessment of each GM trait by the Kenyan Biosafety Authority before actual imports and cultivation can occur. Assuming some of this scientific legwork has already been done, we could see imports start in the next few months or a year.

If the work can be completed in months, this could save Kenya some trouble. In the 2022/23 season, Kenya needs to import a substantial volume of maize, estimated at about 700 000 tonnes. This is roughly unchanged from the previous season, which also posted poor domestic production. In the 2021/22 season several sub-Saharan African countries, including Zambia, Tanzania, Zimbabwe and South Africa, had ample maize harvests. This made it easy for them to meet Kenya’s import needs, with Tanzania and Zambia leading the way. However, this year things are different. Tanzania’s maize harvest is down roughly 16% year on year to 5.9-million tonnes due to sparse rainfall at the start of the season combined with armyworm infestations and reduced fertiliser usage in some regions because of prohibitively high prices.

The fall in production and firmer domestic consumption mean Tanzania will have less maize to export. Tanzania’s available maize for export is about 100 000 tonnes. This is well below the previous season’s exports of 800 000 tonnes, which saved Kenya when the country was most in need of maize. The country in the region with the most abundant supply of maize at present is South Africa, whose maize exports for the 2022/23 season are forecast at 3,5-million tonnes. South Africa struggled to access the Kenyan market for many years because of its ban on imports of GM products. But this change in regulations offers a new opportunity for South African maize exporters (provided the Kenyan Biosafety Authority gets its ducks in a row soon).

In future, the liberalisation of the Kenyan seed market should benefit its farmers in the same way as in South Africa, Brazil and the US. In fact, the sentiment towards the cultivation and importation of GM crops is changing worldwide, partly because of the global food crisis and countries’ efforts to boost domestic production. For example, at the beginning of June the Chinese National Crop Variety Approval Committee released two standards that clear the path for cultivating GM crops. Now that this hurdle has been cleared, the commercialisation of GM crops in China is a real possibility. The EU is also reviewing its regulations on cultivating and importing GM crops, an essential step in a region that has long had an anti-GM stance.

South Africa was an early adopter of GM technologies. We began planting GM maize seeds in the 2001/2002 season. Before their introduction, average maize yields in South Africa were about 2,4 tonnes per hectare. This has increased to an average of 5,6 tonnes per hectare in the 2020/2021 production season. Meanwhile, the sub-Saharan African maize yields remain low, averaging below 2,0 tonnes per hectare. While yields are also influenced by improved germplasm (enabled by non-GM biotechnology) and improved low and no-till production methods (facilitated through herbicide-tolerant GM technology), other benefits include labour savings and reduced insecticide use, as well as enhanced weed and pest control. With Kenya struggling to meet its annual maize needs, using new technologies, GM seeds and other means should be an avenue to boost production in future.

Data releases this week

We start the week with a global focus, and today the United States Department of Agriculture (USDA) will publish its Weekly US Crop Progress data. In these data, our focus is on the US crop-growing conditions as the season progresses, and the harvest has started. This data also helps us form a view of the crop quality in the US. In the previous release, in the week of 09 October 2022, about 54% of the maize crop was rated good/excellent, which is the same level as the previous week. Importantly, this is down by 6% from the same week a year ago. This general decline is mainly explained by the drier weather conditions in some States over a few couple of months.

Moreover, about 31% of the crop had already been harvested, slightly behind last year's pace of 39% in the same week. Meanwhile, about 57% of the soybean crop was rated good/excellent, also unchanged from the previous week. This is down by 2% from the previous year's rating in the same week. In terms of the harvest, about 44% of the crop had already been harvested, compared with 47% in the same week last year. In addition, the USDA will release the US Weekly Export Sales data on Thursday.

On the domestic front, on Wednesday, SAGIS will release the Weekly Producer Deliveries data for 14 October 2022. This data will help us get insight into the size of the crop as harvesting has been recently completed in most regions of the country. In the previous release of the week of 07 October, about 13,7 million tonnes of maize had already been delivered to commercial silos, out of the expected harvest of 15,3 million tonnes. In the same week, about 2,1 million tonnes of soybeans had already been delivered to commercial silos out of the expected harvest of 2,2 million tonnes. Moreover, 832 610 tonnes of sunflower seed had already been delivered on the same day out of the expected harvest of 845 550 tonnes.

On Thursday, SAGIS will publish the Weekly Grain Trade data for 14 October 2022. In the previous release on 07 October 2022, which was the 23rd week of South Africa's 2022/23 maize marketing year, the weekly exports amounted to 58 514 tonnes. About 42% of this went to Japan, 40% to Taiwan, and the rest to the Southern Africa region. This brought the total 2022/23 exports to 1,9 million tonnes out of the seasonal export forecast of 3,5 million. This is slightly down from 4,1 million tonnes in the past season due to an expected reduction in the harvest.

South Africa is a net wheat importer, and 07 October was the first week of the 2022/23 marketing year. The total imports are now 44 406 tonnes, from Australia, Germany and Poland. The seasonal import forecast is 1,53 million tonnes, slightly down from 1,58 million tonnes in the previous season. In the 2021/22 season, the major wheat suppliers are Argentina, Lithuania, Brazil, Australia, Poland, Latvia and the US. As we stated in our previous notes, if one looks into South Africa's wheat imports data for the past five years, Russia was one of the major wheat suppliers, accounting for an average share of 26% yearly.

The Expropriation Bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets.

So much has been written and said regarding expropriation and the Expropriation Bill over the past number of years, and yet, there still seem to be many misconceptions about the bill and what it is trying to achieve.

The possibility of government or some organ of state taking private property against the will of the owner understandably instils fear in and resistance from individuals and companies. The state is powerful and the idea of the state targeting one’s property for expropriation leaves people feeling very vulnerable.

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Having said that, expropriation is internationally entrenched as a legitimate part of the functions of a state, and is recognised as such, even by the United Nations.

In the Encyclopaedia Britannica, “expropriation” is defined as follows: “expropriation implies legal process and just compensation for goods or property taken for public use, with judicial redress as a remedy for inadequate compensation. Expropriation is not ordinarily a method of supplying the common needs of the government but is directed toward the satisfaction of specific government objectives.”

 
Because expropriation is such a drastic intervention, its application is limited and its use qualified by international and national law. The right of the property owner to be adequately compensated for losses incurred by expropriation is recognised in international law and finds constitutional protection in many jurisdictions.

International context
Every government in the world can resort to expropriation as a means to acquire property for certain public purposes. The Food and Agricultural Organization (FAO) of the United Nations published a guide on international best practice for expropriation in 2009. In the document the FAO explains why expropriation or compulsory acquisition is important.

It states: “Sustainable development requires governments to provide public facilities and infrastructure that ensure safety and security, health and welfare, social and economic enhancement, and protection and restoration of the natural environment. An early step in the process of providing such facilities and infrastructure is the acquisition of appropriate land. That land may not be on sale at the time it is required. In order to obtain land when and where it is needed, governments have the power of compulsory acquisition of land: they can compel owners to sell their land in order for it to be used for specific purposes.”

Compensation and fair procedure lie at the heart of expropriation. The right not to be arbitrarily deprived of property and the right to fair compensation in the event of expropriation is protected in one form or another in international human rights instruments such as the United Nations’ Universal Declaration of Human Rights, the European Convention on Human Rights and the African Convention on Human Rights (African Charter on Human and Peoples’ Rights).

The modern approach to compensation is based on the principle of equality in the bearing of public burdens. This is a principle adopted by French, German and American law.

According to this approach, “where one or more individuals must bear a sacrifice (being the loss of property) for the common good, their individual and excessive burden should be compensated by the community (thus the State).”

The point of departure of the document is that forced acquisition of property is a necessary power for the state but that measures should be in place to prevent abuse. The guide requires, among other things, clear and transparent procedures for forced acquisition of property, and compensation that will ensure that the affected persons are not worse off after expropriation than they were before.

It further states that affected persons must not only be compensated for the loss of land but also for improvements made and for the disruption that accompanies expropriation. Subject to a few issues that have consistently been raised by Agbiz, the Expropriation Bill seems to incorporate these elements.

The South African Constitution
The Constitution deals with expropriation and compensation in section 25(3). Sections 25(2), (3) and (4) are of relevance and provide as follows:

“Property may be expropriated only in terms of law of general application–

(a) for a public purpose or in the public interest; and

(b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court.

(3) The amount of the compensation and the time and manner of payment must be just and equitable, reflecting an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances, including–

(a) the current use of the property.

(b) the history of the acquisition and use of the property.

(c) the market value of the property.

(d) the extent of direct state investment and subsidy in the acquisition and beneficial capital improvement of the property; and

(e) the purpose of the expropriation.

(4) For the purposes of this section–

(a) the public interest includes the nation’s commitment to land reform, and to reforms to bring about equitable access to all South Africa’s natural resources.”

There was a failed attempt from 2018 to 2021 to amend section 25 of the Constitution. This means that section 25 remains as it is and that all expropriations and expropriation legislation must be compliant with these provisions. This is very important, as the test in section 25(3) for compensation requires that it must be just and equitable and also requires that the court is the final arbitrator in any disputes regarding expropriation and compensation.

The Valuer-General attempted to implement regulations regarding compensation that were not completely aligned with the Constitution and as a result had to settle a dispute in the Melmoth restitution claim in KwaZulu-Natal and lost a case regarding the Moloto community restitution claim in Gauteng.

The Valuer-General tried to reduce the concept of just and equitable compensation to a fixed formula and bring in a concept of “current use value”, which in many cases reduced the compensation amount offered to the landowner drastically.

The Land Claims Court found that: “In the absence of any other information and satisfactory evidence upon which just and equitable compensation can be assessed, this Court is constrained to conclude that market value is, in the circumstances of this case, just and equitable compensation as the landowners contend.”

The courts will only consider factors in coming up with just and equitable compensation where there is proof of the quantum of such factors and if it is justifiable to take such factors into consideration. In this case there was no concrete proof that “current use value” was a relevant factor.

Businesses and property owners understandably seek to pin compensation to predefined norms such as “market value” while radical calls have been made for a discounted value to be paid, including no compensation. Neither option aligns with international standards nor our own constitutional framework.

Compensation is a normative judgment that looks at the subjective circumstances of the owner in addition to the objective value of the property itself to strike a fair balance between the public interest and the owner.

Advantages of enacting the bill
Firstly, it must be emphasised that we do have a current Expropriation Act on the statute books and in many respects the bill is an improvement on the 1975 Expropriation Act. It provides for a uniform process that must be followed when property is expropriated and remedies many of the deficiencies contained in the current act.

For instance, it provides for extensive consultation with affected parties, including financial institutions that hold bonds over the affected property and persons who have rights to the land but are not landowners. It also provides for a series of offers and counter-offers in an attempt to promote agreement between the owner, bond holder and authority on the amount of compensation. Should it be impossible to reach agreement, then compensation must be decided upon by a court of law.

It also contains many checks and balances, including a provision that there must be an attempt to settle before the state decides to expropriate and an opportunity to object to the intention to expropriate. This is absolutely vital as it cements the role of expropriation as a last resort.

In many respects, this provision allays fears that the state could go on a large-scale expropriation drive akin to Zimbabwe or Venezuela that threatened food security.

In fact, this provision calls into question any economic modelling done to try to predict the impact that the Expropriation Bill could have on property prices, investments or food security as there is simply no way to determine how often expropriation will be used.

The bill guarantees that expropriation can only be used as a last resort after all other attempts to buy the property have failed. The extent of expropriation is therefore not determined by any political party’s land reform targets but rather by the degree to which landowners and the state hold out in negotiations or choose to make a genuine attempt at reaching a fair settlement.

South Africa’s Expropriation Bill poses a threat to property rights for the future

Simply put, there is no way to accurately predict the impact that expropriation will have because there is no way to predict how often it will be used.

Challenges posed by the bill:
Nil rand compensation
One of the concerns regarding the Expropriation Bill is that it provides in clauses 12(3) and (4) for the possibility of nil rand compensation in certain circumstances. The clauses are worded as follows:

“(3) It may be just and equitable for nil compensation to be paid where land is expropriated in the public interest, having regard to all relevant circumstances, including but not limited to–

(a) where the land is not being used and the owner’s main purpose is not to develop the land or use it to generate income, but to benefit from appreciation of its market value;

(b) where an organ of state holds land that it is not using for its core functions and is not reasonably likely to require the land for its future activities in that regard, and the organ of state acquired the land for no consideration;

(c) notwithstanding registration of ownership in terms of the Deeds Registries Act, 1937 (Act No 47 of 1937), where an owner has abandoned the land by failing to exercise control over it;

(d) where the market value of the land is equivalent to, or less than the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land; and

(e) when the nature or condition of the property poses a health, safety or physical risk to persons or other property.

(4) When a court or arbitrator determines the amount of compensation in terms of section 23 of the Land Reform (Labour Tenants) Act, 1996 (Act No 3 of 1996), it may be just and equitable for nil compensation to be paid, having regard to all relevant circumstances.”

While there is certainly criticism to be levelled at this wording and some of the categories listed, it is still subject to the test of whether it is just and equitable. Awarding little or no compensation will have to be justifiable in an open and democratic society and the state will have to show exactly how and why it arrived at nil rand compensation.

It remains unclear what the impact will be of listed specific circumstances on compensation, but many of the country’s best legal minds have consistently argued that it is unnecessary and short sighted to list specific circumstances in a framework bill that will have wide application.

Any attempt to award nil compensation will have to be justified and a calculation would need to be made using the values afforded to all relevant factors to show how a nil rand value was arrived at.

The definition of expropriation
Constitutionally speaking, there are two concepts that are relevant when it comes to the taking of property, namely deprivation and expropriation. Deprivation is the wider concept, expropriation is a form of deprivation. Only expropriation attracts compensation. That is why the definition of expropriation is so important – if an action by government that has an impact on property falls outside the definition of expropriation, it will be regarded as a deprivation and no compensation will be payable.

The definition in the Expropriation Bill is very narrow and has a strong focus on the acquisition of the property by the state. It does not consider the loss that the property owner suffers. The definition reads as follows:

“‘Expropriation’ means the compulsory acquisition of property by an expropriating authority or an organ of state upon request to an expropriating authority, and ‘expropriate’ has a corresponding meaning.”

This definition may have the effect of excluding all instances where the state does not acquire the property but nevertheless limits the owners’ rights to such an extent that it becomes of no value. It opens up the possibility of all sorts of regulatory limitations on property with no compensation and of the state acquiring property on behalf of third parties, while now acquiring the property for itself.

It should be noted that this cannot be done at the discretion of an official but only through the enactment of laws or the implementation of a law that places limitations on the use and enjoyment of property by an owner.

Internationally, the concept of “expropriation” has been developed by the courts on a case-by-case basis over a considerable length of time. The majority of these jurisdictions have opted for the courts to retain the discretion as to when government action which encroaches upon an owner’s right to use and enjoy the property will amount to an expropriation. Ideally this should also be the case in South Africa.

The definition of expropriation should be scrapped from the bill to allow our courts to consider each case that comes before them on its own merits and decide whether the deprivation amounts to an expropriation or not.

Conclusion: the bill on balance
There is no doubt that South Africa needs a new Expropriation Act. It is important to note that the Expropriation Bill is merely a procedural bill, it grants no powers of expropriation to anyone other than the minister of public works and infrastructure and only for purposes connected to his/her mandate.

Powers to expropriate for various purposes already exist in more than 200 other pieces of legislation and these powers may be extended by legislation such as the proposed Redistribution Bill. Stopping this bill will not take away the state’s powers to expropriation as this originates directly from the Constitution. Should the bill fail to pass, the powers of expropriation will still exist but the processes, checks and balances in this bill will fall by the wayside.

It is very likely that there will be a lot of litigation over the nil rand compensation clauses and eventually jurisprudence will hopefully develop regarding what is just and equitable in this regard and what is not.

The definition of “expropriation” and how that will be applied and interpreted does remain a cause for concern. 

Annelize Crosby is Head of Legal Intelligence at Agbiz.

Earlier this year, Nick Serfontein wrote an open letter to South African President Cyril Ramaphosa asking him to take the views of white farmers on board as the government considers expropriating land without compensation to reduce rural poverty.

I am sure many will agree that this has been an eventful year for the South African sugar industry, particularly from a trade perspective. A few months ago, hardly a week would go by without seeing stories of sugar imports threatening the local industry.

American think-tank, the Cato Institute, recently published a warning of the possible effects that expropriating privately-owned farmland may have on South Africa.

There is a lot of good going for the South African agricultural industry, which often gets overshadowed by policy discussions.

A tiny tree-killing beetle with the awkwardly long name of Polyphagous Shothole Borer was detected in South Africa for the first time last year. It’s now attacking and inserting its deadly fungal ally, Fusarium euwallaceae, in a wider array of tree species across a much wider geographical area.

The South African cherry export season has got off to a positive start, following some reports of various weather-related challenges around the country.

In less than eight years, white sharks in South Africa have all but disappeared from their historical hotspots in False Bay and Gansbaai, on the Western Cape coast. These areas were once known as the “white shark capital of the world” and were home to a flourishing ecotourism industry. One possible explanation for this change would be a declining white shark population.

We are part of an international research team with expertise in shark ecology, genetics, fisheries and conservation, researching sharks for more than 20 years. This has included tagging sharks and monitoring their activities in the area.

We have published numerous papers on the species. These have included research into conservation plans for sharks in South Africa, white shark cage diving, and the importance of coastal reef habitats for white sharks.

Our most recent tracking data on white sharks tells a worrying story: 18 of 21 white sharks tagged since 2019 with internal 10-year transmitters in Mossel Bay by the Oceans Research Institute have disappeared. This represents the loss of nearly 90% of the tracked white sharks in less than four years. They have not been detected moving to the Eastern Cape or elsewhere: they vanished.

Furthermore, nowadays, white sharks larger than 4 metres in length, the big breeders, are rarely sighted. Combined with the known low genetic diversity of this population, it is an indication that the white shark population is likely not stable in South Africa.

Based on this, we urge the South African government to take a precautionary approach to white shark conservation. Otherwise, South Africa could go down in history not only as the first country to protect white sharks, but also the first country to knowingly lose its white sharks.

  Great white vanishing act: where have South Africa's famous sharks gone?

What’s known
As far back as 2011, between 500 and 1,000 individual white sharks were estimated to be left in South Africa. Today, we barely see any larger white sharks. This in itself is a sign of a population not doing well, because the fewer adult sharks there are, the greater the decline will be.

Although white sharks have been a protected species since 1991, large numbers are legally killed every year by shark nets and drumlines (anchored hooks with large baits) operated by the KwaZulu Natal Sharks Board. This is based on an outdated 70-year-old idea that sharks should be culled to reduce the chances of encounters with humans.

Between 1978 and 2018, drumlines and shark nets captured 1,317 white sharks, of which 1,108 died. So, on average, 28 white sharks were killed every single year for the last 40 years.

We have estimated that even if tens of white sharks were killed per year, this would drive the white shark population into decline.

White sharks have also been affected by the demersal shark longline fishery. Boats use fishing lines fitted with thousands of hooks that can be kilometres long. The fishery is permitted to target and kill endangered and critically endangered small sharks. But as the smaller sharks get caught on the lines, so do larger predators chasing them, including white sharks.

This fishery is conservatively estimated to have killed an average of 40 white sharks a year, mainly from 2008 to 2019. Photographer Oliver Godfrey observed three white sharks being caught and killed by this fishery while he was on one of their boats. He confirmed dead white sharks were discarded at sea and not reported to authorities. Three white sharks killed in 10 weeks by one vessel equates to 40 white sharks killed by an average of 4 vessels operating for only 3 weeks per month, 10 months of a year (all conservative figures).

Nevertheless, South Africa’s Department of Forestry, Fisheries and Environment has no official records of any of those because it relies only on the records supplied by the same fishery. The lack of records should raise concerns within the department as it knows that during a test run of this fishery, its scientists set three longlines, caught two white sharks and killed one.

What’s in dispute
A recent study claimed that the population of white sharks in South Africa was stable. The study suggested that the sharks had simply relocated eastward, fleeing from a pair of shark-eating orcas. According to the authors of the study, the stability of the white shark population was “encouraging” and “reassuring”.

But our review of that study found that their results could not demonstrate a stable white shark population, nor that the sharks had relocated. Our analysis found several discrepancies between the results and conclusions.

The main discrepancies included the fact that the declines of white sharks in the Western Cape began before the appearance of the shark-eating orcas in 2015 as reported. And at present there is no evidence of any location with the same large numbers of white shark comparable to the numbers found 10-15 years ago in the Western Cape. If the sharks had only relocated, their numbers should be found elsewhere.

There have been only eight confirmed white shark deaths by orcas since 2017 but possibly a few more unrecorded. Nevertheless, the permitted nets, drumline and longline fishery have together probably been responsible for at least eight times more white shark deaths, every single year.

Next steps
South Africa is still permitting unsustainable shark fishing operations in its waters. This ought to stop.

We also advocate for a discussion on new approaches to bather safety that don’t kill sharks, as also advocated in Australia. Tethered drones, shark spotters

, and “smart drumlines” that send alerts to quick response teams when sharks are caught are among available technologies to protect swimmers and surfers without culling sharks.

The South African agricultural industry is in a good place, which often gets overshadowed by broader policy discussions.

Owners of small shops in South Africa – in most cases foreigners – have been accused of stocking counterfeit food and food that’s past its sell-by date. The issue has been caught up in xenophobic violence, with shop owners targeted by South Africans . There is very little hard data about what’s referred to as “fake food” in both the formal and informal sectors. 

The current heated debate on land reform is fuelled by bold pronouncements about how white-owned land should be secured for African people.

Minimum wage policies are typically aimed at reducing poverty. Yet there is little direct evidence of this effect, especially in developing countries. And none for South Africa.

In a recent paper, we consider the income, employment and poverty effects of the largest minimum wage increase South Africa has ever seen. In 2013 the agricultural minimum wage increased by about 50%, affecting nearly all workers in the sector.

South Africa’s agricultural sector is a low-wage industry contributing about 2% of GDP. Over the last four decades the sector has shed jobs, and relied increasingly on casual labour. Farmworkers have among the lowest average wages in the country, with poor living and working conditions. While farmworkers account for less than 5% of all employment, they comprise about half of employment in rural formal areas.

The agricultural minimum wage was first introduced in 2003, and has been adjusted annually in line with inflation. In November 2012 in the Western Cape province, worker protests quickly spread, with the demand for a wage of R150 a day. South Africa’s labour minister compromised by increasing the minimum wage from R69 to R105 a day in March 2013 (from $7.15 to $10.88 in 2013).

Such a large increase might have been expected to lead to job losses, with devastating consequences. This is what employers warned at the time – that the higher wages would need to come from existing profit margins.

But there weren’t in fact big job losses. And we found that household income and poverty rates strongly benefited in the short run. At the same time, our results also indicated low minimum wage compliance among the lowest paid workers – employers did not comply with the new minimum wage. This undermines the policy.

It may also have lessened its negative effects because employers who didn’t comply may have been the employers with the lowest profit margins. If they had complied, they might have had to fire a lot of workers.

Our study provides reason for optimism about the effects of minimum wage policies on poverty, while keeping in mind the complex relationship of these policies with compliance and institutional enforcement.

The 2013 hike

In our paper we document the implementation of the new minimum wage.

Average hourly wages increased sharply from around R7.50 in 2012 to R9.70 in 2013 after the minimum wage implementation, which shows the policy had a clear impact on workers’ wages.

However, agricultural employment declined over the same period. Despite the employment loss, poverty dropped substantially, and the total wage payments to workers (the wage bill) rose.

Nevertheless, these trends may not reflect causal effects of the minimum wage. This is because there are a number of features of agriculture that complicate the story.

Firstly, an important feature of agriculture is the volatility of economic and agricultural conditions, including sensitivity to weather. Table 1 shows that much of the employment decline between 2012 and 2013 appears to be driven by an unusual spike in employment in 2012, perhaps reflecting such volatility.

Secondly, while average wages increased, they were still well below the new minimum wage. Research done in 2012 documented low compliance with minimum wages in South Africa, especially in the agricultural sector.

Thirdly, the average change in the poverty rate (the proportion of people who are poor) depends on who is classified as poor. For example, there was a decrease of only 4 percentage points in the poverty rate when classifying those with monthly income below R1,042 (US$110 in 2013) as poor (compared to a decrease of 10 percentage points when using a higher amount).

Overall, despite the large increase in average hourly wages and total wage bill presented in Table 1, these features of the agricultural sector make causal claims tricky.

 The Effect Of Higher Wages On Production Cost And Mechanization:

Measuring the causal effect

To better understand the effects of the new minimum wage, we used data from the Quarterly Labour Force Surveys, which is the official source of labour market data.

We tracked a representative rotating panel of about a thousand workers who were paid below the new minimum wage just before the policy was implemented, and compared their income and employment to just after.

A worker who used to be paid a lot less than the new minimum wage would need to be paid a lot more for the employer to be compliant with the new minimum wage. We assessed the extent to which the changes in incomes and employment coincided with the gap between a worker’s previous wage and the new minimum wage.

On average across all workers, we estimated that the minimum wage increased hourly wages by 5.6%, increased the chance that a worker stayed employed, increased household income by about 6.3%, and decreased the poverty rate.

However, these effects varied by how much workers were paid before the new minimum wage. Workers paid just below the new minimum had the biggest wage gains, while, counterintuitively, those who were initially the lowest paid workers had the smallest wage gains.

These lower-paid workers on average had the most positive employment effects though, such that their wage and employment effects offset each other. That is, lower paid workers were more likely to keep their jobs. Together then, workers across different levels of income had similarly large positive effects on household income and poverty.

Where this leaves the debate

Small wage gains for the lowest-paid workers means that minimum wage compliance was lowest where it mattered the most.

Why could this have happened?

One possibility is what economists call “endogenous compliance”, which would reduce unemployment effects. Workers, bosses, and enforcement authorities may “turn a blind eye” to minimum wage violations when they’re worried that strict enforcement would cause unemployment.

Consistent with this, we found much weaker compliance in small firms, where we would otherwise expect the most negative effects on employment.

Another explanation is that the lowest paid workers were the workers least able to force employers to comply, and these employers were more likely to keep them employed as a result.

Overall then, the effects of the minimum wage were strongly positive. The biggest limitation of our study is that we considered only the short run. And while we found similar effects two quarters out, we left estimates of medium and longer run adjustments to future work.

These positive short-run effects of such a large policy change provide some optimism that there is institutional space to substantially improve the lives of poorly paid workers, while being cognisant of those left behind in the process.

The recent heat wave in the Western Cape that started around 22 October has given way to more temperate temperatures. The full effect of the high temperatures – some areas edging past 40°C – on fruit crops will become clear over the next few weeks, but overall the prospect for the season looks far more favourable than last year.

South African fine wine is gaining momentum as an alternative investment class. Intrinsic wine quality is at an all-time high as the we enter a new era of industry-wide, quality-focused winemaking.

Onion producers in the Koue Bokkeveld region of the Western Cape are in a favourable position to respond to the shortage of onions in Europe, after adequate rain this past season.

Turning South Africa into one big construction site is the expressed ideal of ministers from the ANC and the DA. What is the state of play, and what are the prospects?

Two sectors: public and private

In 2023, total investment in the country amounted to just over R1 trillion. Total GDP was just over R7 trillion, which means investment came to 15% of GDP.

It is way below the 25% of the (now-defunct) National Development Plan's ambition but still an enormous number. It comes to R114 million per hour, every hour of each of the 365 days of the year!

(Some context on numbers of this size: If one counts at a speed of one digit every second, it will take five seconds to get to five and 10 seconds to get to 10. To get to 1 million will take 11.5 years; 1 billion 31.7 years; and 1 trillion 31 709 years.)

Table supplied

Traditionally, fixed investment in South Africa comprised about two-thirds from the private sector and one-third from the public sector. In recent years, the private sector share has risen, and the public sector share has declined. By 2023, the numbers came to 72% and 28%, respectively. The private sector is becoming ever more important.

A new UNU-WIDER working paper by Prof. Philippe Burger from the University of the Free State found that a one percentage point increase in the private-investment-to-GDP ratio can increase economic growth by 0.675% per annum. That is a spectacular dividend. He also found that an increase in both government and public corporation investment in GDP is statistically insignificant (his emphasis). That is also a spectacular finding, which, nevertheless, resonates with common sense (compare the cost and returns from building Kusile and Medupi to the cost and returns from building solar plants).

Even so, public-sector investment fulfils an important social role and often acts as a catalyst for private-sector investment. It is needed.

Public sector

A total of R943.8 billion is budgeted for public-sector infrastructure spending over the three years from 2024 to 2027. This is 29% higher than in the previous three-year spending cycle. The increase defies the often-stated truism that capital expenditure is the first to be cut when budget austerity occurs. It reflects political priorities and political will.

Who spends the money?

State-owned enterprises (SOEs) are the biggest players (40%), followed by municipalities (23%), provinces (20%), national departments and their agencies (16%), and public-private partnerships (PPPs) (2%). One can expect the SOE share to decline over the coming years and PPPs to increase. Medupi and Kusile are nearing completion, and both Eskom and Transnet will rely more on private capital for further projects.

Though public investment is going up, the total is still only equal to about 4% of the expected GDP for the three years. Using more private-sector money is indispensable if we want to increase public investment.

Of course, these numbers tell us nothing about the quality of spending. There is corruption, poor planning and budgeting, and faulty execution.

Public-private partnerships

Although PPPs form only about 2% of the R943 billion budgeted for infrastructure, they punch above their weight with regard to delivering good-quality outcomes. Toll roads are a good example - we all know the difference between driving on a toll road and driving on a provincial road.

The range of PPPs is now being expanded to include projects like the redevelopment of 1 Military Hospital in Tshwane and Tygerberg Hospital in the Western Cape, as well as the upgrade of six border posts between South Africa and its neighbours.

A small but unique PPP was concluded earlier this year between the Mpumalanga Tourism and Parks Agency and the British Aspinall Foundation to redevelop the Loskop Dam Nature Reserve. The partnership will upgrade infrastructure like roads, fences, staff accommodation and field ranger facilities. The agreement will run for 25 years and will unlock R120 million in investment. The ambition is to expand the 23 500 ha reserve to 100 000 ha by incorporating community- and privately owned land. That will make it bigger than Pilanesberg.

Budget Facility for Infrastructure (BFI)

A step to ensure better quality spending was taken back in 2016 when the Treasury created the Budget Facility for Infrastructure (BFI). It requires public sector projects to do rigorous planning and technical preparatory work before they will be considered for budget finance.

Up to now, the BFI has operated by way of an annual bid window, when public institutions could bid to have their projects included in the budget. The seventh bid window was run this year. In October, the Minister of Finance announced that the bid windows will now be run on a continuous basis to evaluate projects rather than just once a year. That should throw the quality net a bit more widely.

 To save the world, the global financial system will have to change

Apart from quality control, the BFI also increases access to funding by hooking up public projects with private funding where appropriate.

Some 14 projects totalling R66.9 billion are financed through the BFI, an increase of 7% from last year. (Again, these increases are telling in the context of budget austerity.) About 38% or R25.7 billion comes from the budget, 52% or R34.5 billion from the private sector and 10% or R6.7 billion from third-party grants and equity. Examples of projects include social housing (some 14 000 units), five water and sanitation schemes, the revamping of six border posts, and student housing projects on four different campuses involving some 10 000 units.

Graphic supplied

Infrastructure Fund and Infrastructure SA

An important step change occurred in 2018 when President Cyril Ramaphosa took office. He launched the Infrastructure Fund with the intention of blending public and private funds and increasing the pot of money available for infrastructure. The fund became operational in 2020. (Things take time in the public sector).

To strengthen planning, budgeting and execution abilities, Infrastructure SA was created to work alongside the Infrastructure Fund on all projects of more than R1 billion. It is a one-stop shop for large infrastructure projects with a team of professionals to help unlock projects. In this year's budget, R600 million was allocated to Infrastructure SA for technical and professional skills to prepare, manage and execute projects. Grand plans require grand skills.

Currently, there are 31 projects under preparation by Infrastructure SA, among them schools in the Northern Cape and Eastern Cape and four hospitals in Mpumalanga and the Free State.

Water and sanitation

Water is an ever-more present worry for many South Africans. It is also a focus of the infrastructure plan.

With regard to bulk supply, the government has prioritised 11 projects across seven provinces totalling about R139 billion (included in the above numbers for the public sector). Some examples:

• The biggest single project at R42 billion is the Lesotho Highlands phase 2 project, for delivering water to Gauteng (completion date 2028).
• KZN will benefit from three different projects totalling about R46 billion, which will bring much-needed relief to the province, particularly the South Coast (completion dates 2027 to 2032).
• An interesting one is the Olifants River project in Mpumalanga, a joint effort between Glencore, Amplats and the government. It will involve 400 km of pipelines and provide 250 million litres per day - equal to about one-third of Cape Town's usage. Ten local and international banks are involved in the financing (completion date 2030).

However, water is not just about bulk supply. Municipalities distribute it, and that is where there is many a slip between the reservoir and the tap.

Leaks and non-revenue water

Following the template developed for renewable energy, the government has set up the Water Partnership Office (WPO) in the Development Bank to help municipalities raise private sector finance to fix their creaking water systems.

The WPO has begun to mobilise private sector financing for water projects in eThekwini, Mangaung, Buffalo City, Nelson Mandela Bay and Tshwane for the replacement of leaking municipal water distribution pipes, which are resulting in high levels of non-revenue water, says Johann Lubbe, Head of the Water Office. However, he warns: 'But it takes time. It's not something that happens overnight. For the larger projects, it takes 12 to 18 months to structure the project properly. You also don't want to rush through something and put it out to the market, and then the private sector shoots it full of holes.

Bringing private and public sectors together should instil some discipline and proper management in local water administration and ensure better quality. Last week, Treasury agreed to withhold municipalities' equitable share (their transfers from the budget) where they owe money to water boards. This will ruffle a few feathers. It is also a feather in the cap of the Department of Water, which lobbied the Treasury for this decision. (Now imagine if the same arrangement can be made for municipalities not paying their electricity bills.)

Private sector

One surprise in the Reserve Bank data on investment in 2023 is an astonishing 86% increase in investment in the agriculture, forestry and fisheries sector when compared with investment in the previous highest year (pre-Covid 2019). It is the biggest percentage increase of all sectors. Despite all the noise around expropriation, people invest in land and agriculture.

Another surprise is that mining is the second biggest investment sector in SA at R145.8 billion for 2023, a respectable increase of 35% on the 2019 number, certainly higher than inflation. As with agriculture, one hears alarmist reports suggesting no investment in mining. Turns out the data is different.

The construction sector showed a more modest 29% increase in 2019, above inflation, but not quite enough for that 'construction site' ambition.

The sectors with the biggest investment are financial services, insurance, real estate and business services (all grouped as one). Over the years, this sector has replaced mining as the biggest sector in South Africa. Banks now play the role in society that big mining companies once played.

Energy

Like mining was a hundred years ago, energy is now the investment frontier in South Africa. I count it all as part of 'private sector', because even the public procurement projects in electricity are all built with private capital, although with a public sector guarantee. (That must change but is not a topic for this note.)

Generation

Six bid windows have been run to date, resulting in agreements for 8 000MW of new generation capacity (all renewable) for a total investment of R270 billion. Bid Window 7 for 5 000MW is currently in the market. Investors are clearly keen: Bids for 8 526MW have been received; a final decision on the winning bids should be made by the end of November. Also in the market is a bid window for another 615MW of battery storage and 2 000MW of gas-to-power. These projects are estimated to involve R180 billion investment between 2026 and 2029.

Graphic supplied

However, the bigger action is outside the bid windows. An important shift away from public procurement has occurred since President Ramaphosa opened up the market in 2022. A whole new energy system is now being developed, all of it with private capital (without government guarantees).

More and more companies are making their own arrangements on power: some are building their own facilities, some are concluding power purchase agreements with renewable facilities, some deal with energy traders who buy and sell power, some contract with energy aggregators who buy power from different generators and sell it to a range of customers, and so on.

Private power is no longer about load shedding. It is now about the ever-rising cost of Eskom tariffs; having a green footprint to limit carbon taxes; and environmental, social and governance (ESG) considerations. The game has changed profoundly since 2022.

According to Operation Vulindlela data, 22 500MW of private sector projects are currently in the pipeline, with an estimated investment of R390 billion. Even if we assume that not all of it will come to fruition, it is still a healthy dose of investment.

An often-forgotten fact is that even with recent postponements granted to some Eskom power stations, eight of the 14 Eskom coal-fired power stations are going to close down over the next decade. Simply replacing that capacity will require significant investment.

Transmission

As is generally known, the transmission grid is a constraint and needs to be upgraded. The numbers required vary between R200 billion and R390 billion, depending on the time frames used by the forecaster.

The National Transmission Company of SA (NCTSA) has R112 billion earmarked over the next five years to build transmission capacity. To unlock further funds, the government has authorised the Independent Power Producers Office (IPP Office) to run a pilot programme to procure SA's first independent transmission project. It will be a build-operate-and-transfer project running over 25 years. A new credit guarantee vehicle, developed with the World Bank's help, will support the project so that private investors have some guarantee, but the government is not on the hook for 100% of the project.

Graphic supplied

NCTSA projects that 56 000MW of new generation capacity will be integrated into the grid over the 10 years between 2025 and 2034. A total of 31 projects are currently under construction, which will connect 16 000MW of capacity by 2028. A further 30 projects will enable 40 000MW by 2034. That 56 000MW can indeed be reached.

The overall trend on energy is clear: over the next five to six years, R1.5 trillion is needed for the energy transition, and in the 10 years after that, a further R3 trillion. That will surely take energy beyond mining and the finance, insurance  and real estate sector as the biggest investment sector in the country. It will also transform the electricity, gas and water sector from one of the smallest sectors in the economy to one of the biggest.

So what?

• The trick in making SA 1 big construction site lies in how private money can be mobilised for infrastructure. The current 15% of GDP is insufficient to make that construction site a reality.
• One of the consequences of state capture is that SOEs, once the engine of public investment, have suffered a severe decline, necessitating the use of more private funds for public infrastructure.
• Since 2018, the political climate on public-private partnerships and using private capital in the public space has changed significantly. There has been a distinct move from prescribed assets to a more modern approach of using the capital markets to finance investment.
• For that, one needs a pipeline of credible projects. The institutional architecture for that has been built since 2016, and the pipelines are getting bigger.
• More stringent project requirements and the use of more private capital will simultaneously improve the quality of spend and increase the pot of money.
• Ironically, load-shedding and water-shedding are driving these changes ever more forcefully.

JP Landman is an independent political and economic analyst.