Thursday, August 11, 2011

Nationalising South Africa's mines

Julius Malema and the ANC Youth League have been calling for the nationalisation of South Africa's mines. What sort of impact is this having? This is how a Reuters correspondent reported on the issue on August 10, 2011. Consider what effect such a report might have on potential investors overseas. This is the report:

By Jon Herskovitz

JOHANNESBURG - South Africa’s ruling
African National Congress is at war with itself over calls to
nationalise a mining sector that has been the backbone of
Africa’s largest economy.

Nationalisation could bankrupt the country and destroy its
credibility among investors. But the idea resonates with the
country’s poor black majority who see it as a way to spread the
wealth from a sector that grew powerful along with
white-minority apartheid rule.

Here are a few questions and answers as to what may result
of the nationalisation debate.


Not unless the ANC wants to ruin the economy by trying to
take over a sector that accounts for about half a million jobs
and 6 percent of GDP.

The country cannot afford to buy out listed mining firms
which have a market capitalisation of about 270 billion, equal
to about two-thirds of GDP or twice the annual state budget.

Running the mining firms would cost tens of billions more a
year and given the loss-making track record of state-owned
enterprises, nationalised mines in South Africa would place a
huge drag on the economy.

Threats to tweak laws in order to expropriate shares for a
fraction of their value would run up against international
investment guarantees that would almost certainly a trigger
severe backlash from South Africa’s trading partners.

The debate is largely kept alive to settle political scores
in the ANC and will stay on the agenda at least through the end
of next year when it holds a conference to elect its leaders.


The government has been clear on what it expects from mining
companies: more black ownership, more jobs and social justice
for the black poor who have been marginalised for decades by
mining barons.

Nationalisation will not happen but keeping the debate alive
provides leverage.

The government has created a state mining company which will
focus on strategic minerals including coal and uranium, although
it has yet to be decided how the firm would operate. Analysts
said this may be the extent of state ownership in the industry.


The government will likely apply more pressure on mining
firms to achieve a government mandate for them to have 26
percent black ownership and 40 percent black management by 2014.

Mining firms could be pressed into joint ventures with the
public sector in the downstream processing of minerals. The
government’s national growth strategy sees mineral processing as
a pillar of growth and job creation. It has laid out 10 mineral
commodities and five value chains it wants to develop, saying
mining firms will be called on to help.


Changes may come at the margins but there will probably be
nothing major. South Africa’s royalty system is considered one
of the more advanced among mining giants.


Probably not. Mining firms may face greater pressure to
increase shareholdings to local communities where mines are
located and pay a larger bill for infrastructure development.

The energy-intensive sector may see higher tariffs from state
utility Eskom, which is scrambling for funds to build much
needed power stations.

Mark Cutifani, chief executive of mining power AngloGold
Ashanti, said in an opinion article last month the mining sector
is willing to help end “inequality and the demons of its past".

Separate from nationalisation, mining firms could face a
huge bill from legal cases from miners seeking compensation for
deadly lung diseases, especially in the gold mining sector.


High-minded ideals of social justice could easily fall prey
to crass corruption.

Foreign investors, South Africans and the ANC's governing
partners have grown increasingly worried about the
implementation of a black economic empowerment policy introduced
by the ANC after apartheid ended 17 years ago.

BEE is aimed at righting the economic wrongs of apartheid
but critics say it has only enriched a few politically connected
businessmen in a country where millions live in poverty and over
a quarter of the work force is jobless.

An increased push for more black ownership could deepen the
pockets of a few while the impoverished majority see no gains.

Nationalisation could be used to bail out BEE firms that
made bad investments in the sector or to revisit mining rights,
which would deal a blow to regulators already being probed by
police over a sweetheart rights deal that benefited President
Jacob Zuma’s son and his backers.

Joint venture firms could end up as money pits that create
few jobs while piling costs on mining firms.

The biggest risk is that South Africa will place too high a
burden on mining companies, hurting the competitiveness and long term prospects for Africa’s largest economy.

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