UBS, the world's largest wealth manager, believes expropriation of land without compensation in SA will be handled “sufficiently well” under President Cyril Ramaphosa, despite lingering market concerns.

In December the National Assembly and the National Council of Provinces (NCOP)  adopted a contentious report which calls for a constitutional amendment to make it explicit that expropriation without compensation can be used to address skewed land ownership patterns dating back to the colonial and apartheid eras.

The issue of expropriation is set to dominate the parliamentary calendar ahead of the national elections, likely to take place in May.  ANC and EFF MPs are pushing for a constitutional amendment to be finalised before the polls.

In its Investing in Emerging Markets report published last week, UBS cautions that while Ramaphosa and his team are seen as a safe pair of hands, providing the tools in the constitution for expropriation without compensation may come back to haunt SA if a less market-oriented government takes over.

“In addition, depending on the final implementation of expropriation without compensation, banks may face lower collateral values for their loan books, implying higher credit risks. The prudent management and implementation of expropriation without compensation, in combination with strong property rights, is therefore needed to avoid scaring away investors.”

However, the financial services giant said with Ramaphosa and his team of experienced ministers in charge, “we think expropriation without compensation will be handled sufficiently well, despite lingering market concerns”.

The land expropriation debate has polarised the country and spooked investors, with the proposed amendment set to be challenged in court by various stakeholders and political parties.

The matter could eventually be processed by the next parliament, which means the amendment might not happen at all if the ANC and EFF fail to secure a two-thirds majority  between them.

In its report UBS suggested that the ANC is likely to retain a majority and Ramaphosa looks set to stay in office, but the magnitude of victory will be important for the legitimacy of his reform plans and to see off factions still aligned with former president Jacob Zuma.

“So far, infrequent polling mostly shows the ANC reaching an absolute majority comfortably, but the party needs 55% to 60% of the vote to allow Ramaphosa to implement reforms and unite the ANC behind him. In our base case, we expect a strong enough vote share in the vicinity of 60%. However, Ramaphosa’s standing would be harmed if the result were significantly below the 62.2% achieved in the last general election.”

UBS noted that the DA and EFF are polling around 20% and 10%, respectively.

“Apart from the uncertainty in the political outlook, the focus on ANC unity may delay reforms ahead of and after the election, and support more populist policies, for example the initiative for land expropriation without compensation,” the firm said.

It also said the financial market outlook for SA is heavily dependent on the implementation of urgently needed structural reforms. “At this stage, UBS Global Wealth Management has a neutral credit and equity view, and expects the rand to trend broadly sideways against the US dollar.”

Ramaphosa said during the ANC’s manifesto launch in Durban on Saturday that party’s approach to land was guided by the constitution and the need to advance economic development, agricultural production and food security.

The party outlined in its manifesto elements of a plan to accelerate land reform, making use of a range of measures, including, where appropriate, expropriation without compensation.

The SA Institute of Race Relations said in its reaction to the speech that the policy, which was a “threat to private property rights” has already damaged SA’s reputation with domestic and foreign investors. “Policy uncertainty, if not outright policy aversion, is likely to be an ongoing reality,” it said.