This mining muddle will chase the fat cat investors offshore
Is the South African government going to nationalise the country’s mining assets or not? Your guess is as good as mine (apologies for the pun)! And judging by the latest round of claims and counter claims, the ruling African National Congress’ guess is as
Why the confusion? The reason – and this is one of the few times South Africa has experienced this – is that the ruling party has separated its interests from that of the State. Government is trying to mollycoddle international mining investors while the ANC is desperate to keep its constituents happy. Using the Indaba as a platform various government ministers have dismissed nationalisation out of hand. Last year the Minister of Mineral Resources, Susan Shabangu, announced there would be no nationalisation in her life time. She was as forthright this year. Minister in the Presidency, Trevor Manuel, also took an anti-nationalisation stance. Both Shabangu and Manuel appear to back a milder form of state intervention known as resource nationalism.
Impossible to tell the difference
Is resource nationalism better than nationalisation? A superficial comparison suggests that ownership is the only real difference between the two. Either model requires significant state intervention. Instead of nationalising the mines, at a cost estimated to run north of R1 trillion, government will achieve similar outcomes with a 50% tax on the sale of mining rights, a windfall tax on yet-to-be-defined super profits and by fiddling with existing mining royalty rates. The ‘cherry on top’ of the resource nationalism model would be the establishment of a “super ministry” to police the system.
Early responses from mining sector analysts and commentators suggest that the new proposal will be as damaging to the industry as the old. The response of mining companies to recent Australian tax proposals is well documented – and you can be sure that an uncertain (but clearly punitive) tax regime will drive potential investors from our shores. Commenting on 702 Talk Radio, David McKay (of miningmx.com) said that resource nationalism would be a massive turnoff for the likes of Anglo American. “Government has replaced the uncertainty of nationalisation with the uncertainty of something else – which in itself will be extremely difficult to administer,” said McKay. The bottom line is that tax hikes raise the cost of capital!
“Resource nationalism is still better than resource assets being nationalised, but the proposed taxes are not a good idea if government wants to attract investment in the sector which is already battling because of a restrictive regulatory regime,” confirmed Peter Leon, a mining expert at law firm Webber Wentzel. Quoted in the Mail & Guardian he observed that resource rent tax had brought down the Australian government despite it being significantly lower than the tax proposed for South Africa. The proposal met stiff resistance despite applying to only two commodities, namely iron ore and coal.
Separating party and state
Manuel made some strong comments at this year’s Indaba. After acknowledging that the mining sector’s contribution to overall GDP had shrunk from R103 billion in 2003 to just R92 billion in 2009 he said: “The challenge before us is to reverse this trend, and in reversing this trend we have to plan to boost investment and employment in mining by taking account of five critical issues.” Among these issues he mentioned extracting rent (read tax) from companies engaged in mining in the country! How would government go about extracting rent without deterring direct foreign investment? “If there is to be change, I'm pretty sure that the finance minister and department of mineral resources will take a long-term view and not impose this one fine morning,” he added. “I don’t think that surprises are good for an industry like this and this is likely to be the trend taken by government in introducing change.” A slow change is good and well, but from where and to what? The ongoing uncertainty could prove the undoing of the local mining sector.
Attendees at the Indaba will have heard the likes of Shabangu and Manuel dismissing nationalisation in favour of resource nationalism. Hours later they listened as an annoyed ANC secretary general, Gwede Mantashe, launched an attack on those who have said it was too expensive to nationalise mines. Eye Witness News reports that Mantashe said mine nationalisation was still on the agenda. “It is not a Malema issue – if it was the ANC would not have commissioned a study – it is an ANC matter,” he said. He was dismissing speculation that the nationalisation debate would die down with the suspension of ANC Youth League president, Julius Malema. An ANC task team report on the topic is finally complete and the ruling party will use the report findings to inform mining sector policy formulation at its next conference in June.
If the ANC has yet to finalise its policy around mine nationalisation (or not) we have to ask whether government ministers are spinning a rich tapestry for potential investors. How can government, which takes policy guidance from the ANC, charge ahead with resource nationalisation – or any other strategy – when the options have not yet been debated?
Going nowhere slowly
It doesn’t take much imagination to explain away the dwindling contribution of mining to South Africa’s GDP. After 17 years of democracy the future of the sector remains as clouded as ever. Instead of sweeping nationalisation off the table once and for all government (or should we say the ruling party) is now presenting two alternatives that are equally unappealing to major multinational mining companies. From a laypersons perspective the issue of nationalisation – which the ANC says has yet to be debated – remains on the table… And now another policy – also to be debated – sits alongside it. At best the current crop of leaders is compounding a mining muddle that has existed since they came to power. At worst, they are courting disaster!
Editor’s thoughts: There are two things government must do to resurrect our dwindling mining sector. The first is to clearly communicate their intentions for the sector. The second is to make sure that their intentions meet multinational mining house approval. Will government push ahead with mine nationalisation or resource nationalism despite the warning signs? Or is it a step in the right direction? Please add your comment below, or send it to gareth@fanews.co.za
