A rich seam to be mined
State intervention in natural resources looking likely.
There is a global debate at present about the role of the state in managing natural resource endowments and ensuring that the broadest possible benefits flow from extractive industries. Local engagement with this issue, unfortunately, has been dominated by the confused and polarising nationalisation proposals of the ANC Youth League.
But the league’s parent body, the ANC, has now injected a suitably grown-up dimension to the discussion with the help of a three-member task team that has been travelling the world looking at how other countries manage their mineral wealth. Part of the team’s report has now been leaked, with the word “draft” writ large on every page. There are also instructions on each page that the report should not be disseminated in any form to anyone. Clearly its content is sensitive—and very much up for discussion.
The report envisages a dramatic shake-up of the mining sector with the creation of a super-ministry to oversee mining and a much more active role for the state. A range of export taxes is envisaged to encourage beneficiation and to try to ensure that South Africa maximises its gains from its near-monopoly position as a supplier of platinum to world markets.
Getting a mining right with the sole objective of flipping it for profit will become more expensive, to keep chancers out of the game and, where rights revert to the state the asset will be auctioned to the highest bidder.
The headline-grabbing measure is a proposed resources-rent tax that will render unto Caesar 50% of mining “super-profits”, which are defined as returns over a threshold calculated by adding 7% to the interest rate on long dated government bonds. The draft document suggests that as much as R40-billion a year can be raised for the fiscus from the super-tax. That is more than a quarter of the current budget deficit.
In our eyes, the plan places too much faith in the ability of the state to co-ordinate activity, particularly via direct interventions in the platinum, steel, and polymers value chain. The government is already hitting funding constraints as it seeks to rebuild the country’s power and transport infrastructure and the risks of corruption, even in our current regulatory regime, are immense.
Creating super-ministries will not change the fact that much growth at present appears to be in spite of the government rather than because of it. Ordinary people are getting on with the job of creating incomes for themselves, while bureaucrats and politicians fight turf wars over who gets to implement economic development plans.
On the other hand, taxes designed to target massive windfall profits and discourage speculation in mining rights have clear merits, as does a sovereign wealth fund, which would accumulate savings to be spent in lean times and to invest in long-term growth.
There is much that reasonable people can argue over in the ANC proposals and that is exactly why they are welcome. A reasonable national debate is exactly what we need after a pointless and damaging shouting match about nationalisation. We now need to get from the uncertainty of the draft to the predictability of policy.