If the African National Congress Youth League (ANCYL) were sitting in the Cabinet and one of its members advocated mine nationalisation in order to get more State revenue, hopefully someone there would point out that government already gets 50% of the profits from South Africa’s mining activity in direct and indirect taxes.
“The South African government couldn’t be in a better mining position in its wildest and most exotic fantasies,” says Free Market Foundation executive director Leon Louw, who spoke to Mining Weekly in a video interview, following a meeting in Johannesburg hosted by Citibank.
Citi MD DonnaOosthuyse’s hosting of the round table on nationalisation is indicative of the extent to which business is concerned about the issue, which will prejudice the prospects of future generations for decades if it is allowed to go ahead. Oosthuyse is also president of the American Chamber of Commerce in South Africa.
The seriousness of the Chamber of Mines of South Africa about the nationalisation issue has resulted in CEO Bheki Sibiya announcing that Xstrata South Africa executive director Andile Sangqu has been appointed to head a special committee on the issue (see accompanying article on page 9).
Louw makes the point that the South African government has not had to invest a single cent to become that effective 50% shareholder and, better still, is not at any financial risk, sharing only in the profits and never in the losses.
Conversely, if the South African government were to decide to nationalise the mines – which it has repeatedly said is not policy – it would cease to receive that 50% of the substantial profits from the country’s mining industry, which Louw views as “the best possible investment one could imagine”.
Instead, as empirical global experience shows, the State will almost certainly be faced with having to make good mining industry losses, as has happened the world over postnationalisation.
South Africa already has first-hand experience of this with its State-owned enterprises and parastatals running at losses.
The South African government currently already owns 45% of the total fixed capital stock of the South African economy, but in the last decade has accounted for only 29% of economy’s total net investment, a very poor performance.
In contrast, as Chamber of Mines senior executive Roger Baxter recently pointed out, the total revenue of the South African mining sector was R420-billion in 2010 and its total expenditure R440-billion.
One of South Africa’s former State-owned enterprises that has managed to do exceedingly well after escaping the clutches of the State is the synthetic fuels producer Sasol, which suffered losses and gobbled up subsidies during the period when it was State owned.
After it was privatised, Sasol at one stage generated such whopping profits that government considered introducing a windfall tax to squeeze more from the now JSE- and NYSE-listed multinational.
Instead of consuming the government’s wealth, the privatised Sasol now contributes to it, as do most of the private-sector mining companies while the State-owned diamond miner Alexkor consistently disappoints.
Louw’s view is that government simply cannot get more revenue out of the mines than it is already getting. “It’s at a maximum,” he says.
“We have by far the best formula at the moment, from which the government gets money from the mines rather than having to subsidise them in the way that it has to subsidise all its parastatals.”
Louw regards government as a disastrous owner of enterprises and forecasts that it would be as bad in mining as it is with policing, education and heathcare.
“When things are in the hands of the State, they’re generally in a helluva state,” he adds.
Botswana Government Has More Risk
Botswana, which is held up by the ANCYL as a mine nationalisation success story, is not an actual example of mine nationalisation at all, says Louw.
The Debswana diamond-mining company is a partnership between the government of Botswana and private-sector mining company De Beers.
“The Botswana government makes it very clear that it does not tax the mines, but just owns the shares in the partnership companies.
The South African government has a 50% share of the mining companies through direct and indirect taxation but, unlike Botswana, does not have to put up any capital and risk losses.
“So the South African government is better off than the Botswana government, by leaving it entirely to the mining company to do all the mining and run the business,” he adds.
There is widespread understanding of the ANCYL’s objectives, urgency and sense of desperation and that the people the ANCYL are worrying about have been neglected.
Many, from the right to the left of the political spectrum, are prepared to share what could be done, with some ideas seen as relatively radical.
One of the projects that the Free Market Foundation is working on is to promote the conversion of all black-occupied land in South Africa’s black urban townships to full unambiguous freehold title, free of charge.
“Just hand every single black household, including those in the informal settlements, the old apartheid places and the new Recon-struction and Development Programme houses, the title to the properties at no charge.”
That would create an estimated ten- million new land-owning households in South Africa, unleashing land worth in the vicinity of trillions of rands into the hands of blacks and into the economy.
Also mooted is the privatisation of State assets by giving the shares of State-owned enterprises to blacks, and the avoidance of nationalising what the State does not own.
For instance, this could involve placing the shares of State enterprises like South African Airways, Airports Company of South Africa, the South African Broad-casting Corporation, Eskom, the Industrial Development Corporation and other State companies in private black hands.
The foundation may also propose that the State becomes the insurer of national health and not the provider of national health services by turning all the State hospitals, which represent 85% of South Africa’s hospital beds, into black-owned healthcare businesses.
In this way, the State will insure the poor and the rich will insure themselves, which mimics President Barrack Obama’s US health plan.
South Africa is not, however, without its political “time bombs” and the fastest ticking of these is its level of unemployment.
On how to employ the more than 51% of South Africa’s youth between the ages of 18 and 25, Louw points to the many convincing employment models of other countries.
“We don’t have to look further than our new Bric partners, Brazil, Russia and India,” he says.
What Brazil, India and China have done is to free up their economies.
“They liberalised and they’re moving rapidly towards less nationalisation. They’re privatising and cutting taxes and, by doing that, they’re creating jobs and prosperity.
“There’s greater life expectancy and health-care in freer economies, and that’s why most African economies, most Asian economies and most South American economies are now successfully going the opposite of nationalisation and it’s working,” Louw says.
South Africa needs to emulate what works and avoid what fails.
Usually, in a decade or two, nationalisation tends to be followed by a return to privat-isation.
Countries like Zambia, Chile and many others around the world nationalised and then privatised again 10 to 20 years later.
Sometimes the mining companies are confiscated and, in other instances, they are bought out.
In buyouts, the vast amounts of public wealth are allocated to the process that should really have gone to education, healthcare, welfare and housing.
When privatisation returns, many nation states then sell the mining assets back to the private sector at a fraction of the price that they bought them for in the first place.
“The fact is nationalisation results in privatisation after nationalisation has failed.
“The facts are that nationalisation, always and everywhere, has resulted in declining efficiencies, fewer jobs and less income for the government,” says Louw.
Link to video