Nationalisation debate ‘casts shadow over mining industry’

2011-04-13 11:09

The debate over nationalising South Africa’s mines dominated the agenda for mining companies last year, a review released today found.

“Regulatory concerns and the nationalisation debate took a front row seat during 2010 and covered the industry in a blanket of controversy,” PricewaterhouseCoopers (PWC) African mining leader Hein Boegman said in a statement.

This was revealed in a PWC survey of the local mining industry and titled SA Mines, Review of trends in the South African mining industry.

“The challenges in obtaining new order mining rights and environmental authorisation for projects pales into insignificance when the nationalisation debate begins,” the report found.

“Security of tenure is essential when one makes investment decisions that span up to 30 years, or more. Because so much is at stake, the emotions associated with nationalisation unfortunately make it difficult for one to take an objective stance.”

The ANC had asked experts to investigate successful models on which to base the role of central governments in mining. The outcome of this research was only expected to impact ANC policymaking by 2014, PWC said.

“An outsider could probably be forgiven for viewing the current debate within the ANC as much more of a political power struggle than an ideological assessment,” according to the report.

Boegman said there appeared to be agreement that South Africa’s mineral wealth had to benefit its citizens.

Some argue that the wholesale nationalisation of mines would achieve this goal through the earning of profits from mining companies.

However, the National Union of Mineworkers (NUM) is against wholesale nationalisation. It would rather support strategic investment by the state in the industry.

Proceeds from these mining activities could be set aside for education, health, rural development and re-investment into the state mining company, the NUM said.

PWC questioned why the state should assume ownership when there was already significant income generated from mining companies on a risk free basis.

“If this does happen, the state would have to use funds set aside for other responsibilities to fund new developments.”

According to PWC’s Total Tax Contribution study, mining companies contribute significant amounts in addition to corporate income tax.

“The total tax rate for all taxes borne as a percentage of profit adjusted for tax expenses amounts to 20%. For every R1 of corporate income tax, mining companies pay an additional R0.96 in taxes collected (excluding the impact of refunds).”

PWC warned, though, that mining companies “should continue to act as good corporate citizens and communicate their efforts towards sustainability to manage perceptions”.

PWC found that regional nationalisation had failed in countries like Zimbabwe, North Korea and East Germany.
“In our opinion, South Africa cannot afford the risk to the mining industry’s contribution by engaging in a nationalisation experiment,” PWC said.

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