The youth league has adopted two policy proposals to shape our country’s future:

  • Nationalisation of mines.
  • Expropriation without compensation.

In response Business Leadership SA poses three questions that public policy needs to answer:

  • Benefits for the nation.
  • Costs.
  • Alternatives that might achieve the intended goal.

Today Business Day was the first to publish an important article by Bobby Godsell and Michael Spicer, chairman and CEO of Business Leadership SA respectively, – Nationalisation: Costs of state ownership are more than meet the eye.

Business Day has kindly consented to the publication of some extracts but the entire article should be viewed or downloaded by clicking on the above link or by going to Business Day itself.

Will nationalisation grow the fiscus?

Last year the mining industry paid R17,1bn in direct corporate tax while R16,2bn was paid to shareholders, the providers of capital.   Nationalisation implies that the government would then get the R16,2bn in dividends, to add to the R17,1bn already received.

Perhaps the key issue here is the perception that mining companies are just “dirt diggers” that export all the benefits offshore with no value addition or benefits accruing locally.   The reality is quite the opposite: last year the mining industry’s total expenditure was R441bn.   Only 7% of the expenditure went offshore: 93% of value of the expenditure of mining companies stays in SA.

Zambian experience

The implausibility of generating more resources from nationalisation was confirmed recently by the Zambian mines minister who said that during the dismal period of nationalisation, the copper mines cost the country $1m a day while under privatisation they were now earning the state $1m a day, a swing of 200%.

This is why the trend worldwide — from China to Russia, from Brazil to Vietnam — is away from state ownership of mining.

Will nationalisation create more jobs?

Mining employs 500000 people directly and creates another 500000 jobs through the expenditure multipliers and industries that either use mining inputs or supply inputs to the mining sector (that is, 12% of total formal sector employment).   Creating more sustainable jobs depends on growing the sector, finding more mineral resources (increased exploration) producing more from existing resources (better technology and productivity) or marketing existing production more effectively.   The international evidence again is overwhelming that it is private sector mining companies that best create long-term sustainable employment through productive investment.

Will nationalisation result in better salaries and working conditions?   Salaries are currently determined by collective bargaining and occupational conditions by law and regulation.   Unions help determine the first of these, and the Department of Mineral Resources the second.

What about the costs

We need first to consider the costs of taking ownership.   Would this be done without compensating any present owners?   Black South Africans are beneficiaries of about half of the institutional holdings in mining shares, and so millions of black South Africans as well as their white counterparts would lose large portions of their savings and pensions, which would be expropriated by a state in the name of enhancing their welfare.   And if foreign owners were not compensated, foreign governments including China, India, Russia and Brazil, in addition to foreign investors, would be likely to invoke international treaties.   SA’s membership of Brics would immediately be in jeopardy and SA would move from a respected member of the international community to a similar pariah status to that it held during apartheid.

Other less tangible costs

State ownership of such a large industry denies the opportunity of entrepreneurship, of venture capitalism and of business ownership to citizens of all races.   Also, when government becomes both the economic player as well as the economic regulator conflicts become compounded.

Alternative policies that might work as well or better

The Mining Charter, intended to govern the race, gender and broader transformation of this sector, was reviewed and revised last September.   This is a more detailed plan for transformation than any we are aware of applying to any part of the public sector.   The revised charter was negotiated between the government, trade unions representing mineworkers and representatives of shareholders.   Such a social compact is worthy of analysis and debate.

Another stakeholder process is under way, aimed at growing the pie available to all South Africans by exploiting SA’s untapped mineral wealth (by some reckoning the largest in the world).   This is the Mining Industry Growth, Development and Employment Task Team.   The task of this process is to ensure the long-term growth and meaningful transformation of SA’s mining industry, as well as the equitable inclusion of all stakeholders in that growth.   A dialogue between this process and those who argue for nationalisation should be to benefit of both, and indeed all South Africans.