1. Index
1. Index……………………………………………………………………………………………..1
2. Introduction………………………………………………………………………………………2
3. Advantages of nationalising mines……………………………………………………………3
4. Disadvantages of nationalising mines………………………………………………………..5
4.1 Zambia………………………………………………………………………………..6
4.2 Venezuela…………………………………………………………………………….6
4.3 Botswana……………………………………………………………………………..7
5. State Owned Enterprises………………………………………………………………………7
5.1 ESKOM……………………………………………………………………………….7
5.2 TRANSNET…………………………………………………………………………..8
5.3 SABC………………………………………………………………………………….8
6. Impact of nationalising mines………………………………………………………………….8
7. Conclusion………………………………………………………………………………………9
8. Bibliography……………………………………………………………………………………..10
2. Introduction
Great discussions have erupted in South Africa since the leader of the African National Congress Youth League (ANCYL), Julius Malema, suggested that the mining industry should be nationalised. According to David van Wyk the leader of the ANCYL did this to complete the vision of the Freedom Charter that was adopted at Kliptown in 1955. The Charter states that “The wealth of the country shall be shared among all who live in it.”(Van Wyk, 2010).
Unfortunately it is not that easy to make such a statement and expect that it will be just approved by society. Malema has been met by much criticism from free marketers as well capitalists. Leaders of the South African Communist Party (SACP), Ben Turok and Jeremy Cronin, has also questioned this notion made by Malema (Van Wyk, 2010).
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Both the leaders of the SACP stated that the National Minerals and Petroleum Development Act brought the minerals under state control, which accordingly means that through the state ownership of the act share in the wealth of the South African Mining Industry. Malema responded so viciously to the SACP’s statement saying that he will defend the ANC against communist takeover with his life, which brings in question the real reason why the ruling party wants the mining industry to be nationalised. Malema also stated the nationalisation of mines fall under ANC policy and that communists could not know what ANC policy states. Pravin Gordhan, Minister of Finance retaliated by saying that the nationalisation of mines does not fall under state policy and that everyone is allowed to debate over the topic and deliver their own opinions. Not everyone is as keen as Julius Malema to have mines nationalised (Mpho, 2011).
Tim Wood states that nationalisation of mines has lead to a decrease in foreign investment, especially after the questionable statements and outbursts of Julius Malema (Wood, 2010).
This is exactly what will be discussed further, weighing up the advantages with the disadvantages and also explaining the implications when such a big sector is nationalised. Thus will it be concluded what the ruling party is to gain with the nationalising of mines.
3. Advantages of nationalising mines
A study done in 2009 showed that mine workers in South Africa earn around R1 500 per month for surface workers and R3 000 for underground workers. In Canada in 2006 mine workers earned around $26000 per month (Van Wyk, 2010).
Therefore workers in a Canadian mine earned more than six times in 2006 what South African mineworkers earned in 2009. According to the ANCYL discussion done in February by Julius Malema, mines should be nationalised primarily to create more jobs and pay higher wages, thus “giving it back to the people” (Malema, 2010).
In order to do this the following will happen graphically:
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Producer loss
Unemployment rate
Price
Supply
P1
Consumer surplus
Producer surplus
P0
Demand
Q1
Q0
Q2
Quantity
If wages are increased to P1 and Q0 is kept the same, the graph indicates that unemployment will increase, the producer will have a loss as well as a surplus and the consumer will have a surplus. If the producer’s loss is bigger than the consumer surplus, the company will make a loss, thus to keep unemployment from rising while paying higher wages, research must be done (Wood, 2010).
Mister Peter Leon, Chairman of the Mining Law Committee of the International Bar Associations, states that there can be a quite a few advantages by nationalising mines (Leon, 2010).
If the mining sector is nationalised the government will have direct control over the sector and not through all the regulations. If the mining sector is under government control, minerals would then rather be sold locally rather than exported to foreign countries. As previously discussed, employment can be protected and the maintenance of production levels of important minerals where the mine is struggling financially, but this will also require a substantial amount of capital from the government. Leon further states that if the nationalisation of the mining sector succeeds the revenue generated from the mines will form part of the national revenue and benefit the whole country. Social economic development will thus be improved. If nationalisation proves to be successful, the government now with higher revenue could create a greater distribution of income.
According to Van Wyk, 200 commodities made out 47% of the total exports in South Africa. The total sales of mineral were $12.3 billion in 1999 where $9.5 billion was exported $14.2 billion in 2000 where $11 billion was exported (Van Wyk, 2011).
Leading exports were platinum, gold, coal, aluminium, iron ore and copper. One has to wonder that if South Africa has such high export sales why the country is living in poverty and unemployment. If mines are nationalised there would be a greater distribution of income, thus lowering the unemployment ratio as well poverty. This however is easier said than done. In the short term there will be high debts for transferring of funds, legal costs and developing costs in order for the government to be successful with the process of nationalisation. If the government however is successful, in the long run it will be hugely beneficial for the nation (Wood, 2010).
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4. Disadvantages of nationalisation
According to Leon, the implementation of nationalisation will create fear among foreign investors, especially in a country that has a history of failed state owned enterprises (Leon, 2010).
Leon said that it could take years for the mining industry to show a profit and in that time most of the resources could be depleted or scarce before they could show a profit. In addition the government will also have to carry the capital costs of running, shutting down and rehabilitating, exploring and developing mines. This is very worrying seeing that all these costs would have to be carried even though the government is still earning a loss. This in return would lead to great fiscal deficits and debt of the government will increase exponentially. Clive Coetzee, Kwazulu-Natal Treasury economist said that the nationalisation of mines could turn out disastrous for South Africa’s economy. He stated that the mining industry supports the four macroeconomic goals, economic growth, employment, a low inflation rate and a surplus in the balance of payments (Coetzee, 2010).
He goes further by saying that the nationalisation of mines will lead to increased unemployment and poverty. He further states that in 2008 over 500 000 people was currently employed in the mining sector which contributes to 6, 1% of total non-agricultural formal employment. If indirect effects of mining are taken into account another 500 000 jobs are estimated to exist. In salaries this makes out to 6% of salaries paid to all formally employed workers in South Africa. Coetzee pointed out that the private sector already has the intellectual capital as well as the human resource capacity to maintain this sector, therefore there is no reason to nationalise mines. A few examples of failed nationalisation can be mentioned by studying Zambia and Venezuela. Botswana can also be mentioned in terms of their nationalisation policy.
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4.1 Zambia
In the 1970’s the copper mines in Zambia were nationalised by the government buying 51% of all the shares in the copper industry to begin with and paying a management fee to the recent private owners of the copper mines (Van Wyk, 2010).
This was a sensible idea because the copper mines made 90% out of the total revenue of Zambia. According to Malema, the reason for the failure of the nationalisation was a decrease in the price of the commodity (Malema, 2010).
That led to great losses for the government while management fees were still paid to the previous owners of the mines. Wood commented on this statement saying that it could not be entirely true seeing that there was an economic boom between 1972 and 1975 (Wood, 2010).
He further commented by saying that the losses made in Zambia were mostly by mismanagement from the government. The losses were so great that the copper mines had to be privatised again, thus showing that nationalisation was unsuccessful.
4.2 Venezuela
Since President Hugo Chavez has become president, his promise was to nationalise the country and change it into a social state. He has kept to his promise and nationalised telecommunications, electricity, steel companies and a few major oil companies (Ingham, 2009).
The president stated that this will change the country’s economic climate. Banks is next in the nationalisation row, after President Chavez said that if Banks did not want to give low finance cost to government owned companies, they should rather turn them over to him. Ingham states that private investors all over the country are pulling back their investments after the threats from President Chavez that their companies will be invested. Most of them questioned why the country should be nationalised if there is no real problem in the distribution of income or social development. Most of the investors think the nationalisation has more to do with power than the goodwill of the country, thus bringing in question the authenticity of the president’s word. Investors also believe that it would take years before the country could make a profit from nationalisation after all the investments made through buying out companies. Peter Leon stated that in 2009 the country had still failed to make a profit through state owned enterprises, thus eliminating the chance for foreign investment completely (Leon, 2010).
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In both countries the success rating of nationalisation should be brought into account before a radical decision is made about the topic at hand in South Africa. South Africa should be careful not to walk the same path Zambia did in the 1970’s or the one that Zambia is following which could lead to no foreign investment.
4.3 Botswana
Botswana is generally held up as a model of successful nationalisation of its mining industry (Coetzee, 2010).
Coetzee states that the reason for the success of the nationalisation was because it was in cooperation with De Beers Consolidated Mines. The success is associated with private ownership and investment. Botswana never had the desire to make nationalisation part of their policy and strategy. However, Botswana cannot be used as a perfect example because the people have not benefited from the profit made by the diamond mines (Van Wyk, 2010).
Botswana has an unemployment rate between 25% and 30%; half of the nation live beneath the poverty line and has the highest poverty gap in the world. Their HIVAIDS results are the 3rd highest in the world behind Swaziland and South Africa. If all of this is taken into account it can be said that even if Botswana had the highest economic growth rate in Africa over the past two decades, their distribution of their income is still uneven and most of the country is still living in poverty, which automatically states that the nationalisation of their diamond mines is nowhere near being a success.
5. State Owned Enterprises
The enterprises owned by the government in South Africa were once seen as engines of growth in our economy (Anon, 2010).
These enterprises however were in much light with regards to leadership and financial stability.
5.1 ESKOM
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ESKOM has struggled over the past 2 years to raise the money they need in order to build new power plants for the increasing demand of electricity in the country. They need an estimate of R461 billion and are nowhere near collecting that sort of funds. This has led to an increase in electricity prices which in turn led to more homes left without electricity. In 2008 the electrical grid almost collapsed due to over usage. This caused most mines to shut down for days and left millions of homes powerless for hours, sometimes days at once. ESKOM has increased wages with 9% which is double the inflation rate which increase their operating costs as well. All of these factors bring into account the success of the nationalisation of the electrical company.
5.2 TRANSET
Ports and railways were paralysed for weeks just before the World Cup Soccer when strikes occurred over wages. This damaged the mining sector exponentially and increased the price of goods.
5.3 SABC
The broadcaster of national television has faced leadership and funding issues over the last few years. The consequences of these problems have led to less viewers and less revenue generated from advertising.
6. Impact of nationalising mines
When there is foreign investing in a country’s mining industry there are surely risks to take into account, especially in the mining industry seeing that it is a capital intensive industry (Leon, 2010).
If international investors want to invest in a country then they will take into account how the country in question is managing the state-owned properties. If the government has failed to manage them, scepticism will increase from investors. This could be very disastrous for South Africa’s economy. If Alexkor, a government mine, is used an example there can be seen that they made a R77 million loss in 2009, ESKOM made a loss of R3 billion in 2009 and SABC made a R910 million loss over 2009 as well (Leon, 2010).
Denel has failed to show a profit since 2001. All of this shows that the government doesn’t have the skills or capital to control such a big sector.
7. Conclusion
The nationalisation of mines in South Africa has been met with much opposition. The Minister of Natural Resources, Susan Shabangu stated at the Mining Indaba that mines will not be nationalised in her lifetime (Van Wyk, 2010).
With this in mind there has been concessive evidence as to whether the nationalisation will be a success. If there is looked at state owned enterprises one can come to the conclusion that the government does not have the managing skills or to run such a big sector. Corporate governance is also very low in these enterprises with all the corruption and mismanagement of funds. The Royalty Act as well as the National Minerals and Petroleum Development Act fulfil this vision of giving back to the nation, therefore it is not necessary for the government to nationalise the mining sector. This legislation already provides a method for the nation to benefit form these minerals. Focus should rather be shifted to these laws and away from nationalisation. This in turn will increase investment in South Africa’s mining sector. The nation in turn will benefit from this by taxes paid from the mines to the government and giving it back to the people.
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7. Bibliography
ANON. 2010. Troubles at South Africa’s state owned enterprises. http://uk.reuters.com/article/2010/07/13/safrica-state-firms-facts-idUKLDE66B0M620100713 Datum van gebruik: 07 Maart 2011
COETZEE, C. 2010. Mine nationalisation will be disastrous for South Africa’s economy. http://www.miningweekly.com/article/mine-nationalisaton-will-de-dsastrous-for-south-africas-economy-2010-09-10 Datum van gebruik: 01 Maart 2011
FOURIE, D.J. 2001. The Restructuring of State-Owned Enterprises: South African Initiatives. 12p.
INGHAM, J. 2009. Nationalisation sweeps Venezuela. http://news.bbc.co.uk/2/hi/business/6646335.stm Datum van gebruik: 01 Maart 2011
LEON, P. 2010. Clarify and implement existing laws, not nationalisation. http://sham-media.net/article.php?5 Datum van gebruik: 01 Maart 2011
MALEMA, J. 2010. Towards the transfer of mineral wealth to the ownership of the people as a whole: A perspective on nationalisation of mines.
Mpho, S. 2011. Nationalisation researcher slammed. http://www.fin24.com/Economy/Nationalisation-researcher-slammed-20110227. Datum van gebruik: 01 Maart 2011
Van Wyk, D. 2010. Debate on Nationalising the Mines of South Africa. http://www.marxist.com/south-africa-mines-nationalisation-debate.htm. Datum van gebruik: 01 Maart 2011
WOOD, T. 2010. Foreign Investors shudder at nationalisation. http://www.miningmx.com/special_reports/mining-yearbook/2010/Foreign-investors-shudder-at-nationalisation.htm Datum van gebruik: 01 Mart 2011
