Junior miners back call for nationalisation

2010-09-25 14:36

The ANC Youth League ­received a significant boost for its mine ­nationalisation proposal this week from the SA Mining ­Development Association (Samda), a ­chamber of junior miners.

Samda released a research report backing calls for mines to be ­nationalised in the same week ­members of the ANC, at the party’s national general council (NGC),­ ­supported greater state involvement in the economy.

Samda’s document argues that the country is more likely to achieve its 7% growth target if mines are ­nationalised. The document, ­however, notes that achieving the growth target would be tough as “very few countries with large natural resource sectors” have achieved this.

The comparative research study looks at how Chile, Norway, Venezuela, Nigeria, Zambia, Finland and ­Botswana fared after they nationalised their natural resources to drive economic growth.

The study found that most of these countries experienced a significant increase in state revenues, which supplemented tax collections.

Botswana, according to the World Bank’s Growth and Development Commission, topped the list of the countries that have managed to ­attain and sustain at least a 7% growth rate for more than 25 years.

Botswana’s government rakes in 75% of its revenue from Debswana, a public-private partnership it owns with diamond miner De Beers.

The document proposes that ­nationalising mineral resources would be successful if the state developed the capacity to lead natural ­resource sectors and spent the money it made from owning mines wisely.

Government would also have to ­develop a new mining development agency to provide financial and non-financial support to emerging ­miners.

The document adds that the state should increase its extractive ­capacity.

“Government could extract a ­higher share of mineral resource rent as it has a mineral resource ­endowment of $2.5 trillion (R17.5 trillion), according to ­Citibank,” the report reads.

“But the direct fiscal returns on God’s endowment are relatively modest. The country collected ­mining taxes of R29.3 billion, equivalent to 0.1% of total revenue.”

Duma Gqubule, the project director at KIO Advisory Services, which conducted the research, said ­government needed to take a bolder stance on economic transformation.

He said: “The economy should be transformed to suit the people of this country and government should not be scared of adverse reactions from overseas investors.

“We don’t really need the foreign capital inflows because the foreigners generally trade on the JSE for a month and then leave.”

Gqubule projected that if mineral resources were not nationalised, the economy would continue growing by between 3% and 3.5% for the next 30 years.

Chamber of Mines chief executive Mzolisi ­Diliza said the chamber was opposed to ­nationalisation.

He said: “History is littered with numerous examples, several of them in Africa, of how nationalisation has ­impoverished countries. Nationalising South Africa’s mining sector would create potential for our ­country to be declared a pariah by the global investment community.”

But the nationalisation debate is clearly not off the government’s ­table. Planning Minister Trevor Manuel said at the end of the NGC: “We ­mandated the NEC (national executive committee) to ensure work be done, including research, and for a ­decision to be taken in 2012.”

Samda’s document argues that ­nationalisation could be more ­successful if the rand is weakened.

“The plan should include measures to achieve a competitive, real ­exchange rate to support mining ­sector growth and diversification.”

Some have argued that nationalisation would result in a massive ­increase in public debt. Gross ­government debt lies at R800 billion (33% of GDP).

However, the report points out that after nationalising mines, the public debt could stand at 70% of GDP, while the rand could plunge to R14 against the US dollar.

“This would increase the value of mining assets and government would make an immediate profit of at least 100%,” reads the Samda ­document.

Government could then sell half the shares to pay off the debt and spend the money on key infrastructure development projects, reads the document.

But analysts are sceptical.

Economist Mandla Maleka questioned whether nationalisation would be successful when ­policies like land redistribution, black economic empowerment and ­affirmative action had all flopped.

He said: “These policies were aimed at bringing those materially challenged to the mainstream of the economy, but they failed.” He added that nationalisation had been successful in other countries because they knew how to achieve their objectives.

“Let’s first find closure on these other policies before we jump to ­another transformative policy.”

Another economist, Lumkile ­Mondi, concurred with Maleka.

Mondi said the state’s capacity had been quite weak in managing its own assets, such as parastatals like electricity supplier Eskom and transport and logistics company Transnet.

“Based on these, I don’t think ­government has the capacity to ­nationalise the mines,” he said.

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