The feasibility of Nationalising South African Mines

Lionel Musa Dhlamini University of Cape Town Student

As of late, the political atmosphere has been clouded with varying judgements on the great issue of whether South African mines should be nationalised or not. The camp in favour of nationalisation, Julius Malema and the ANC Youth League, echo the words of the Freedom Charter in that The National Wealth of our country the mineral wealth beneath the soil, the banks and the monopoly industry shall be transferred to the ownership of the people as a whole. The camp not in favour sees this vision in a different light. Nonetheless, this essay investigates the feasibility of nationalising the countrys mining sector from both a theoretical and empirical standpoint. Nationalisation of mines has been called for in order to give back to the country as the government will have direct control over the sector. This, they believe, will present more employment opportunities, better working conditions for miners, a more efficient distribution of income and overall improvement in service delivery. Julius Malema (the main instigator behind the call for nationalisation), proposes that the state take a controlling share of 60% in all private mines, all which will be managed by a state owned mining firm (Leadership Online, n.d). Malema further argues that nationalisation is ANC policy because the Freedom Charter is a strategic objective of the ANC (Leadership Online, n.d). He is confident that nationalisation will achieve the following: Increase the States budget for social development objectives; Be a basis from which the countrys minerals are locally beneficiated and industrialised; Establish other economic centres of development other than Durban, Johannesburg and Cape Town; Reconfigure the South African economy from over-dependence on export of raw natural resources and the import of finished goods and services; and Improve the pay and working conditions of current mineworkers (Leadership Online, n.d). The notion of nationalisation, however, is not a new or adolescent one on the global field. Many countries have attempted to nationalise and take public ownership of various industries, with both political and economic motives. Venezuela nationalised some of its telecommunications, steel, electricity, and major oil companies. In 1945, France nationalised most of its important banks, in 1946, the United Kingdom nationalised the coal industry and

in 2006, President Evo Morales of Bolivia announced plans to nationalise the nations natural gas industry (Wikipedia, n.d). More relevant, countries that have pursued mine nationalisation include Chile (1972), Sweden (1957), Sri-Lanka (1971), Zambia (1970s) and Botswana. Investigating some of the above countries may allow us to learn from international experience and improve our judgement. President Hugo Chaves of Venezuela pledged to nationalise the country and convert it into a social state and later kept his promise by nationalising a few major oil companies along with the telecommunications, steel and electricity companies (Ingham, 2009). However, there was no real problem in the countrys distribution of income or social development and the private sector questioned this move. It seemed as though the conversion was more of a political one than economical. Peter Leon points out that in 2009, the state owned enterprises still failed to make a profit (Leon, 2010). In the 1970s, the Zambian copper mines were nationalised when the government bought 51% of all the shares in the copper industry and paid a management fee to all previous owners (Van Wyk, 2010). This was a seemingly reasonable scheme as the copper industry constituted 90% of Zambias total revenue. However, this acquisition by the government was followed by a decrease in the price of copper which, according to Julius Malema, resulted in the failure of nationalisation (Malema, 2010). The decrease in price led to losses for the government whilst management fees were still paid out to the previous owners. Wood commented by dismissing Malemas statement and rather proposed that the losses occurred mostly by mismanagement from the government (Wood,2010). The losses were so enormous that the copper mines were re-privatised and Zambia became a global case study in the mismanagement of mining operations( Mohamed, 2011). On the contrary, Botswana presents a different, more positive case study. It is ever so commonly held up as a successful model of nationalisation (Coetzee,2010). Botswana nationalised their diamond mining sector and were able to manage the mines without any negative fiscal effects. Coetzee suggests the reason for the success as the governments cooperation with De Beers Cosolidated Mines. However, the nationalisation didnt quite meet intended objectives of greater distribution of income , a lowering of the unemployment rate as well as poverty alleviation. The people of Botswana did not benefit from the profit made through the diamond mines (Van Wyk, 2010). With an unemployment rate between 25% and 30% and half of the nation living below the poverty line, Botswana has the highest poverty

gap in the world and suffers from an uneven distribution of income. All this shows that the objectives sought through nationalisation are far from attainment. In general, research points out that nationalisation is feasible and viable more in some countries than others but has a limited life cycle and is highly dependent on the chosen commodity such as the Venezuelan encounter in the Orinoco oil fields. In this case, poverty was not addressed from the ground but the state was able to balance its books and create a number of jobs. Nonetheless, the aforementioned international examples shed some light on the argument of whether South Africa should nationalise mining or not. If acquired, will the state-owned mines be exempt from possible mismanagement and will the government be able to achieve all its objectives? Afterall, For the state to be involved in such a precarious industry it will have to be efficient, it will have to demonstrate competency (Brown, n.d). Thus more weight is put on this question considering that South Africa has a history of either failed or not so successful state enterprises. Eskom made a loss of R3 billion in 2009, SABC made a loss of R910 million in the same year while Alexkor, a government mine, made a loss of R77 million (Leon, 2010). All of these are state owned enterprises and their lack of success questions the governments management skills and whether it will be able to run such a big sector as mining. On the other hand, the Kwa-Zulu Natal Treasury economist Clive Coetzee draws attention to the fact that the private sector already has the human and intellectual wealth to maintain this sector and thus there is no need for the state to intervene. Furthermore, even though the government may be able to distribute income through the increased revenue, there will be high debts for legal costs, transferring of funds and developing costs involved in the course of nationalisation (Wood, 2010). Wood, however, goes on to mention that nationalisation may be beneficial for the nation in the long run. True, but the short run effects may cripple the South African economy and this would take numerous years, if ever, to heal. In actual fact, Leon suggests that not only would it take years for the mining sector to show a profit (if nationalised), but that by the time it does, most of the resources could be depleted or in short supply before they could show a profit (Leon, 2010).

Expropriation(nationalisation without compensation to former owners) is not an option as the international community would frown upon such an act. One trade union leader even warned that nationalisation without compensation would spark up a revolution due to the large number of South African citizens who would lose their pensions. However, Dr. James Motlatsi, former president of the National Union of Mineworkers, reportedly said in the Mining Weekly that he believes that even nationalisation WITH compensation is a hopeless case as the government does not possess the R2-trillion-plus that it would cost to purchase the mines (Leadership Online, n.d). How and at what price would the government purchase the mines? If the proposal is to buy shares on the JSE stock exchange, as soon as this is known by the public and the firms concerned, prices will be driven artificially high, forcing the government to pay more for the shares than they are actually worth (Louw, 1991) .The cost would obviously be a burden on the ordinary citizens. Afterall, every cent that would be spent on compensation is a cent that could have been spent on other worthy social development programmes such as rural development schemes and the building of hospitals/clinincs. Another negative effect that nationalisation would have is the possible decrease in foreign direct investment. Leon, pointed out that nationalisation would create fear among foreign investors, especially in a country that has a history of failed state owned enterprises , (Leon,2010). Afterall, when foreign investors want to invest in a country, they first investigate and take into account how the government of the country in question manages its state owned enterprises. If the government has failed to successfully and effectively manage them, uncertainty will increase from investors. Sadly, as we discussed earlier, South Africa has a rather unimpressive history of state owned enterprises and this may scare off potential investors. It is not surprising, then, that the minister of finance, Mr Pravin Gorhan, reassured investors that nationalisation of South African mines is not government policy (Mohamed, 2011). Another strong argument advanced by many questions the motives of those who are in favour of nationalisation. As mentioned, those who are in favour of nationalisation often invoke the Freedom Charter and are confident that it calls for nationalisation. However, this is not entirely the case. The Freedom Charter demands that The mineral wealth beneath the soil, the banks and the monopoly industry shall be transferred to the ownership of the people as a whole. Paradoxically, ownership by the state is not quite exactly ownership by the people, as Joe Slovo and other socialists now concede (Louw, 1991). Private ownership, in essence, is ownership by the people, especially in a widespread free market.

Furthermore, what will be the effect on Non-Profit Organizations (NPO) if mines are nationalised? This is an issue that has not been taken into account by many of those in favour of nationalisation. All through 2009, some R5.1 billion in private sector funding flowed to NPO programmes and projects for job creation, health, education, housing, health community development and many other social development services (Brown, n.d). Of this amount, it is reported that the mining sector contributes an average of 20% and spends significantly more on Corporate Social Investment (CSI) than any other industrial sector (Brown, n.d). This dismisses the argument that mines should be nationalised because they do not give back or reinvest enough into communities. There are other ways in which Government can achieve its objectives of social development apart from through Nationalisation. There are many other job-creating, socially uplifting possibilities that the government can consider, even within the mining sector. Democratic state power can be used to leverage transformation within the mining sector. For instance, the government could impose National Shipping Quotas on the mines (Cronin, 2009). Afterall, more than 90% (by volume) of all our exports which are mainly minerals are by sea. Invoking a Shipping Quota would allow the government to achieve immediate transformational objectives without nationalisation. Furthermore, the Royalty Act as well as the National Minerals and Petroleum Development Act both fulfil the vision of giving back to the country and it is not necessary for the government to nationalise mines. All things considered, it is quite transparent that the nationalisation of mines is not feasible for South Africa. The reasons for doing so are vague and both the financial and economical implications would be a burden for the entire country. International experience from countries such as Zambia, Venezuela and Botswana, demonstrate the potential flaws and dangers involved with nationalisation. Our governemnt should rather focus on other means of liberating its people from financial captivity and dwindling economic conditions.

BIBLIOGRAPHY

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