ANC's resource nationalism
The ANC will push for a new interventionist economic nationalism, rather than a simplistic nationalisation of the country’s $2.5-trillion in resources not yet mined, which was what ANC Youth League leader Julius Malema had wanted.
The Mail & Guardian has learned from various sources that central to this plan is to force competitive input prices through taxes and other penalties and for state institutions to take bigger stakes in companies that hold key strategic infrastructure minerals. Every producer or miner of critical feeder stocks that are used in manufacturing—from steel, fertiliser, coal, platinum, polymers and copper to cement will be targeted for these types of intervention.
The radical proposals are contained in three discussion reports that the researchers handed to ANC secretary general Gwede Mantashe and the head of the ANC economic transformation committee, Enoch Godongwana, two weeks ago. The documents are still to be debated and vetted by the ANC national executive committee before the party can showcase it at its policy conference in June next year.
The first discussion document deals with economic policy and globalisation; the second discusses how state-owned enterprises and development finance institutions can partner with savings industry funds for new infrastructure; and the third investigates nationalisation as an option for ways the state can intervene to benefit from mineral wealth.
Although resource nationalism is seen by some economists as a killer of investment, the ANC’s research team that looked at the option indicates that state intervention in the minerals sector internationally is the norm rather than the exception. The team visited 13 countries around the globe as part of their research. Its idea is to use South Africa’s resources sector to spur the creation of a thriving manufacturing industry that can drive growth and create jobs.
An option mooted is for state institutions and unions collectively to increase their shareholding in companies such as petrochemicals giant Sasol and steel conglomerate ArcelorMittal South Africa. The view is that these companies, which were once state entities, have strategic input assets that are used in manufacturing, but they are now engaging in predatory pricing and monopolistic activity that stifles competition and growth.
“It’s more about the alternatives to nationalisation and greater state intervention,” Godongwana told the M&G this week. “The state needs to get a better share of these very high prices being charged.”
The Public Investment Corporation, which has R1-trillion in assets, and the Industrial Development Corporation together own 26% of Sasol. The proposal is that union investment funds should be used to increase this stake to 51%. As controlling shareholders the state-cum-union would then be able to fix Sasol’s prices at rates more beneficial to the economy.
To nationalise, on the other hand, would be highly expensive. Sasol, for example, could cost the state more than R50-billion and ArcelorMittal about R8-billion.
Some of the other options on the table in terms of state interventions on mineral assets are:
- An exports tax on raw minerals as an incentive for companies to beneficiate in South Africa and grow the country’s manufacturing capacity. It is a more protectionist approach, one which many other countries have followed, especially in these uncertain economic conditions. But the export tax is exactly the same as the royalties tax, which is based on revenues. The suggestion then is for the royalties tax to be either adjusted or scrapped.
- A resources rent tax, similar to the Australian model, which is based on profits.
- All strategic minerals will have pricing conditions. There is a recommendation to amend the Minerals and Petroleum Resources Development Act to give the minister power to attach conditions to existing and new licences that will force companies such as Sasol to charge a lower export parity-related price than downstream producers would pay in China, for example. These price conditions would have to be imposed by Sasol on their buyers to which they on-sell.
- Strengthen the Competition Act further to allow for stiffer penalties.
- Increase competition in sectors by bringing in an Asian competitor, for example, that will be partly funded by state institutions, such as the Industrial Development Corporation, to challenge monopolies. The same price conditions, however, will apply to the new player.
- Use electricity, rail and port tariffs to force monopolies to lower prices. One recommendation is that Eskom introduce a surcharge on electricity tariffs for Sasol, for example, as a way of disciplining the petrochemicals giant in terms of its higher prices.
- Instead of nationalising Kumba Iron Ore, a proposal is to introduce a user-pay concession on the rail link from its main Sishen mine in the Northern Cape to allow it to export more iron ore. Kumba could build and operate the line for about 15 years and then transfer it to Transnet.
- In the copper industry there are reserves for only another eight years. The state, through the Industrial Development Corporation, is already bidding to buy Rio Tinto’s Phalaborwa Mining Company—South Africa’s only refined-copper producer—which it could merge with state-owned Foskor.
Many of the proposals tie in with the government’s broader goals to stimulate the country’s industrial base as a way to meet the national growth path’s target of five million jobs by 2020. But last weekend Mantashe sent the report on state interventions back to the drawing board, saying it needed to be rewritten in simpler language and case studies of other countries included.
Said Godongwana: “The report must capture the experiences of the 13 countries that were visited and reflect what is good and bad so that we can decide which lessons are useful for our own conditions. We need the best possible recommendations on how we can restructure the economy [to] make us more competitive.”
But a number of ANC insiders led the M&G to believe that the report was sent back because it was too strongly against nationalisation and should eventually go down the “nationalisation-lite” route.
Peter Attard Montalto from research firm Nomura International said such interventions created only more investor uncertainty.
“It has long been our view that the ANC would take a line of greater state control rather than nationalisation, but in the very long run it will lead us to the same place with the same cost as nationalisation.”