A comprehensive, objective, scientific analysis by neutral observers about the nationalisation of mines is of paramount importance for South African society, simply because of the current stalemate of prejudiced and ideological thinking around the topic on both sides of the spectrum, says Jimmy Manyi, president of the Black Management Forum (BMF).

A public debate about nationalisation of mines has been raging for several months after Julius Malema, president of the ANC Youth League (ANCYL), first proposed the idea that the government should consider the idea of owning 60% of South African mines.

Tembakazi Mnyaka, deputy president of the BMF, agreed with Manyi on the need for an objective debate about nationalisation.

She said the challenge with this debate is that those who oppose nationalisation seem to be driven by anti-nationalisation ideology and also by associating nationalisation with the scarecrow called communism – and then the shutters come up.

“Having read the ANC Youth League position paper on nationalisation, I only saw a discussion that seeks to achieve a pragmatic approach to thinking globally but acting locally.

“South Africa must graduate from reacting to the person raising the issue, with the rampant prejudice, and focus on the issue at hand. Play the ball, not the person,” she added.

The issue and retention of mining licences must be driven by the ideal of achieving transformation of the mining industry according to the government-set target of 26% black ownership by 2014.

Tax incentives for complying companies must be introduced. There must be meaningful financial consequences for non-compliance, as it is the only language that business people understand.

The issue is national reconciliation, where black people must be part and parcel of ownership of the productive assets of the national economy and not simply consumers or mere workers, said Mnyaka.

It is very paternalistic for people to argue that “tell us what you want nationalisation to bring you, and we can offer you an acceptable way to respond to your needs”.

This line of thinking is only reinforcing “baasskap” mentality, she warned.

Dawie Roodt, chief economist of the Efficient Group, said that when any company contemplates a takeover, one critical question is what the element of risk involved is when buying the business.

Is it a risky acquisition, yes or no? Will the new business cost your company much money over time?

At the moment, the government receives 50% of the profits from every mine in the country in the form of different taxes, whether that is dividends, personal income taxes from workers or management, or company taxes.

The government’s risk is zero percent.

However, when it takes over the mines, it will inherit 100% of the profits, but also 100% of the risks. If the profits plummet, the government will have to assist the mines with subsidiaries and additional taxpayers’ money.

In all, 60% of the government’s current capital spending is on social needs. If the government takes over the mines and the profits drop drastically, that will mean it will have money available to spend on education and other needs.

Roodt said a recent in-depth study on Zimbabwe revealed that the “beginning of the end” in Zimbabwe has been the fact that the government started tampering with private property rights.

Private property rights in South Africa are sacrosanct. One should not tamper with them.

Malema and the ANCYL on nationalisation

In 2009, Malema envisaged a South Africa in which the state owns 60% of all mines to “generate extra income” for the government.

“The nationalisation of mines will happen, the Freedom Charter says that,” Malema told reporters in Johannesburg in 2009.

The ruling ANC must have its mind made up about it in time for its next conference in 2012, he said.

An internal paper was already being drafted within the party for discussion, Malema added.

“We want the ANC in the conference in 2012 to pronounce what the stand of the ANC on the nationalisation of mines is.

“We need a decisive leadership – we don’t want cowards,” he told journalists. (Source: Sapa, October 2009)

However, Malema was quick to explain this did not mean the government would “grab already existing mines”. “You don’t grab already existing mines; you allow... their licences to expire.

“With the new licence you issue, you have that element of majority shareholding by the state.

“As you issue from now, moving forward, you’re not giving 100% to the private sector – you’re going into a 60/40 partnership,”
he added.

Malema said a strategy was required to see “how we do it without tampering with private ownership because there are laws that are binding us”.

He moved to assure those who were concerned that the government would not be capable of running mines, saying the private sector, owning 40%, would ensure that everything ran smoothly.

The nationalisation of mines was necessary to generate income for the government so that it could fund free education and provide better services to the people, said Malema.

“There is a need for us to make an extra income... and this extra income is in mines.

“This state can’t build hospitals, it can’t give people electricity; the pace is very slow because there is no money. We are relying only on tax.

“Where can we get extra money? It’s beneath the soil – and this soil belongs to us,” he said.

Citigroup’s recent Global Markets survey, which ranked South Africa the richest country in the world in terms of non-energy resources, stated that platinum – on which the country holds a virtual monopoly – accounts for $2.2 trillion of the estimated $2.5 trillion value of resources still in the ground. (Source: Times Live, May 2010)

That potential wealth should accrue to South Africans, not to foreign investors, the ANCYL leader said.

“We need a proper economic intervention that will change the lives of the people practically. We need a state-owned mining company that will be obsessed with redistributing wealth among the communities that are mining – and whatever remains should be added to the national coffers.”

Malema’s plan and vision includes that the state should own all the nation’s mineral resources.

There should be an immediate moratorium on new mining licences to prevent “looting” in anticipation of nationalisation legislation.

Existing state mining should be consolidated into one company that would invite private-sector partners to take up to 40% equity in new joint ventures.

The private-sector partners would provide the capital to develop new mines. Consortiums would have to comply with black economic empowerment rules and would pay taxes and royalties on their shares of the joint venture revenue.

Holders of existing licences would continue until their licence comes up for renewal – typically after 20 years – at which point they would be allowed to continue in a 60/40 partnership with the state.

Revenue accruing to the state would be applied first in the communities around the mines, and anything left over would go to the state.

Minerals would be sold at discounted prices to investors who develop local manufacturing capacity.

Coal would be sold cheaply to power stations so that South Africa could again make long-term, cheap power deals to lure major investors.

The state mining company would be subject to a minister, and not corporate governance rules.

Malema said foreign investors would be happy to settle for a 5% to 10% share of revenue from joint ventures because the government would offer guarantees to minimise their risk. (Additional sources: Sapa, 20 October 2009; Times Live, May 2010)

Challenging the success of state-run industries

Roodt said that if the government wants to expand its hold on the economy and become involved in an area (mining) in which the private sector has been successful, then it is undermining private property rights, which are essentially sacrosanct.

“I will support nationalisation wholeheartedly on one condition, and that there should be positive proof that all government-run institutions are well run – institutions like SA Airways, Eskom, Denel and others,” he said.

“If they don’t need to introduce special subsidiaries and taxes to support it, but secure profits for those companies, I would support a possible nationalisation initiative.”

Roodt said the truth is that those state-run industries are not well run, so why should nationalisation of mines be contemplated?

The nationalisation of mines may not be run on proper principles, but on social and political principles, which may result in more subsidiaries, too many people employed in an effort to create jobs, and ultimately this will be to the detriment of the national economy and will result in a higher unemployment rate, he said.

There have been many other examples in Africa of the state taking over mines, and they were disastrous, without any exceptions.

“There is perhaps frustration with the slow pace of transformation in the mining industry. But trying to enforce nationalisation of mines could ultimately result in a few cronies becoming very rich,” said Roodt.

“Yet, the problem of unemployment and poverty on a broader base in South Africa would still not be addressed successfully,” he warned.

Foreign investment potential

Dave Mohr, an economist at Citadel, says the copper mines in Zambia were taken over by the government, and it was not a successful operation.

“History has proven that the private sector is more effective to manage a business than the state. That is partially because the state does not invest enough capital in the mines for its growth and for the creating of jobs,” he said.

A decision to nationalise mines may be detrimental to international investors who were looking at South Africa as a potential market. These potential investors, who may be affected adversely by the government’s decision to nationalise the mines, would then rather invest their money elsewhere.

As a result, the government would not be able to supplement the domestic savings, and this would be detrimental to South Africa’s annual growth rate, said Mohr.

Protecting SA’s wealth, and challenging the US

Mnyaka said the ANCYL is focusing on the people of the country benefiting from its riches.

“My take is that the ANCYL is concerned – and rightly so, I may add – that the wealth of this country is being exported daily and the nationalisation discussion is a mechanism aimed at stemming the tide,” she added.

Asked what such a strategy of nationalisation may communicate to the rest of the world regarding South Africa, Mnyaka said: “When a super power like America did not sign for clean renewable energy recently, what did it communicate to the world?

“A country like China is never bullied by world powers, yet it continues to trade with everyone.”

She said racism in the mining industry is still reigning supreme.

“There has to be a realisation that the multiplier effect of this economy can only be fully exploited when the majority of the citizens are meaningful players.”

The example of Norway

Duma Gqubule, founder of Kio Advisory Services, said internationally it is quite normal for governments to participate in their mining industry.

The challenge in resource sectors is to maximise economic rent from the mining industry and to use it for the development of a country.

“We in South Africa have been taking 0.1% of our tax revenue from the mining industry, which is very small and should be much bigger,” he said.

South Africa has 2.5 trillion dollars in mineral resources under its soil, and only a moron will not be taking something from it.

The state can get involved by owning a part of the mineral rights, or by issuing mineral licences.

Between 2001 and 2007, there has been an unprecedented boom in world commodity prices of 400%, but South Africa’s gross domestic product from mining declined 1% in that time.

“Something is wrong, and does not add up,” said Gqubule.

During that period, state-owned mines in Norway accumulated state-owned reserves of R400 billion.

“A friend of mine in Rosebank has mineral rights in Northern Cape in iron ore. He will be flying to Toronto soon, and might sell the rights to a Canadian mining company. Tell me, how do countries benefit from this?” asked Gqubule.