Feasibility of Nationalising the South African Mining Sector Essay

Introduction The mining industry forms the foundation of South Africa’s economy. Currently South Africa is the biggest producer of platinum in the world and one of the top producers of gold. Julius Malema, the leader of the African National Congress Youth League (ANCYL) was at the forefront of having a detailed perspective on the nationalisation of mines in South Africa at the beginning of 2010. Malema believes the nationalisation of mines will solve all economic disparities in South Africa. There are many South Africans who agree or disagree with this idea. The following discussion will provide answers to why it should be done and who benefits or why it should not be done and what the shortcomings are and the costs that the country will incur if it were to be done as well as examples of nationalisation in other countries (Roberts, 2011). Discussion Nationalisation is the operation of transferring ownership from the private sector to the public sector. According to the minister of finance, Mr Pravin Gordhan stated on the March 14, 2011 that nationalisation of South Africa’s mines and other economic assets are not government policy. â€Å"Nationalisation of mines means the democratic government’s ownership and control of Mining activities, including exploration, extraction, production, processing, trading and beneficiation of Mineral Resources in South Africa†(ANCYL, 2010). Therefore this would mean that no mines would be publicly owned but they would be owned by the state. It has been sixteen years since apartheid and the white minority of 10% of the population owns 80% of the country’s economic wealth. The Freedom Charter is a document that expresses the economic, social and political will of South Africans and according to the document, the mineral wealth of South Africa belongs to the people as a nation. â€Å"It is against this background upon which a concrete position on the nationalisation of Mines is formulated in order to guide the ANC in the transfer of mineral wealth beneath the soil to the ownership and benefit of the people as a whole† (ANCYL, 2010). If the state owns the mines it would allow them to manage the economy by controlling the important industries. They could also invest a larger amount of money and make their services more efficient. Nationalisation of the mines does not mean all sectors are in the hands of the country’s citizens and that they will benefit from all the sectors. It does not yet say anywhere what the ratio (between state owned and privately owned) of the division will be when nationalisations occurs, if it does. Therefore people shouldn’t think that the state will automatically have over half or a larger percentage. An important factor is whether nationalisation will be with or without compensation. It would almost be impossible to nationalise with compensation as the government currently doesn’t have the figure of about R 2-trillion which is how much it would cost to purchase the mines. But on the other hand, expropriation without compensation would cause a collapse of the Johannesburg Stock Exchange (JSE). This would bring down provident and pension funds at the same time. A large number of servants and citizens would be without their retirement investments as well (ANCYL, 20 10). Therefore this poses a big problem already. Some people might think why the mines should be nationalised. Below are three reasons. 1. â€Å"Nationalisation to increase the State’s fiscal capacity and better the working conditions† (ANCYL, 2010). It states that the money received from taxes is not enough to help each and every single South African citizen, which it is not. Education, healthcare, safety and security and housing will not be provided to the masses if the government is not in control of the important sectors. There have been other success stories, such as in Botswana where nationalising the mines provided mineworkers with a safer working environment and higher wages. 2. â€Å"Nationalise to Industrialise and Create more jobs† (ANCYL, 2010). More jobs will be created and industrial investors will be attracted to add to education, expertise and the economy. 3. â€Å"Nationalisation to transform South Africa’s unequal spatial development patterns† (ANCYL, 2010). This means the areas that will be focused on will be ones which will be sustainable in the future as well as effective. Smaller areas that have never been mined before could be targeted as it will provide more jobs in these areas which rarely see economic activity (ANCYL, 2010). Malema believes that everybody in South Africa has the right to the wealth that is produced and that the state should own the larger part of the mines. â€Å"South Africa is divided as we speak. We’ve got two economies in one country, two nations in one country, and it is nationalisation that will unite us† (Andrew, 2011). He also believes many jobs will be created once the mines are nationalised. Patrice Motsepe, a South African businessman, states that he would back Malema’s decision as long as it is in the best interests of South Africa. The ANCYL believes South Africa’s minerals, water, land and marine resources should be used to maximise growth of South Africa’s economy and not purely for profit (Shivambu, 2010). If the mines are nationalised, new economic centres will be developed, new industrial development zones will be established, jobs will be created as the mines owned and controlled by the state will increase local beneficiation and industrialisation of the available mineral resources, and local economies will be developed (Shivambu, 2010). General Secretary of Congress of South African Trade Union (COSATU), Zwelinzima Vavi says that â€Å"Nationalisation can bolster our economy and it will always ensure development† (Beukes, 2011). He said that the nationalisation of the mines will make available money to all the people of the country, not only those who are currently working in the private sector (current mine owners) (Beukes, 2011). One of the ANCYL’s argument is that nationalisation was a demand found in the Freedom Charter and that South African citizens should share the mineral wealth of the nation between each and every one (Achary, 2010). Thus there are valid reasons for the mines to be nationalised but the major concern is the cost that the country would incur to make nationalisation happen. â€Å"Nationalisation is an unaffordable, untimely and frankly unnecessary suggestion, which has already undermined market stability† (Time, 2009). It would cost South Africa R1.4 to R2 trillion to nationalise the mines which seems silly if you think South Africa has the fifth biggest mining industry in the world. This figure does not include extra running costs as well as the costs that go with running loss-running mines. This shows it is a big part of the economy and would be tough to be nationalised. This figure is the same as trebling South Africa’s national debt over a single night, which is unrealistic (Time, 2009). â€Å"The debate on the thorny issue heated up with business executives and analysts warning that nationalisation would damage the economy† (Isa, 2011). Many say it is a disaster and has been for every country who has tried to pull it off. Susan Shabangu said â€Å"consideration of the step was misguided, as the real issue was to address povert y, unemployment, and inequality† (Isa, 2011). This shows that the debates that are ongoing will deter foreign investments. The ANC do realise that it’s close to impossible to nationalise the mines and come off on the right foot but are currently looking at models of how it could be implemented effectively (Isa, 2011). The nationalisation of mines has also been seen as a ploy to try and save Black Economic Empowerment (which has been in place in South Africa for a while, but has not achieved what it hoped to) and not focusing on the amount of poor in the country as well as the amount of unemployed workers (Business Day, 2011). The market value of South African mines (listed) is almost 850 billion rand which is above a third of the country’s total Gross Domestic Product (GDP). Therefore the government should be more concerned over matters such as the education level and the health of the countries people. â€Å"Zambia nationalised the copper mines, which supplied 90% of its exports, in the early 1970s. It ended up hiring back the multinational copper companies to manage them† (News24, 2010). Zambia is the world’s 11th largest producer of copper. The mines were nationalised in 1969 and at this time were exporting about 700 000 tonnes of copper per annum. By the year 2000, exporting figures had constantly decreased to 225 000 tonnes. The result of the decline was partly because of a lack of investments as well as mismanagement of the mines. â€Å"Zambia has neither the capital nor the skills to run the mines by itself† (Time, 1969). Other factors were the drop in the price of copper, a lack of skills among the citizens in Zambia and they were unable to raise capital. They lacked a strong plan with which to back up their initial aim (Time, 1969). Restrictions were placed on exports and imports which resulted in exchange rates rising and therefore gains from exports reduced. Zambia also failed to save earnings when the copper price was high and thus when the price fell, they suffered immensely. Even though the situation is not exactly the same, it does show that to nationalise mines a lot of debate needs to occur as well as research and obviously the country needs the required funds to make sure it can be made possible. South Africa does not have these funds at the moment and thus would not be able to nationalise the mines unless they are willing to operate with huge debts which is unfeasible (Osei-Hwedie, 2003). Conclusion â€Å"Nationalisation is an unaffordable, untimely and frankly unnecessary suggestion, which has already undermined market stability† (George, 2009). This statement sums up the idea of nationalisation of mines in South Africa. It obviously has its advantages such as giving higher wages and creating more jobs but it is clearly evident that the positives are outweighed by the negatives. With so many jobs in South Africa’s mining sector at stake, it is irresponsible to talk about placing this key sector of the economy in the hands of government people. The country does not have nearly enough funds for this project to take place and thus in my view should not take place in even in the near future (Marais, 2010). Reference List ACHARY, N. (2010). Nationalising the Mining Sector in South Africa [Online]. Available: http://www.suite101.com/content/nationalising-the-mining-sector-in-south-africa-a281585 [Accessed 25 September 2011]. ANCYL (2010). Towards the Transfer of Mineral Wealth to the Ownership of the People as a Whole: A Perspective on Nationalisation of Mines. [Online]. Available: http://www.politicsweb.co.za/politicsweb/view/politicsweb/en/page71654?oid=158357&sn=Detail [Accessed 22 September 2011]. 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