/ 21 September 2010

The case against the nationalisation of mineral resources

When the Freedom Charter speaks of transferring the commanding heights of the economy to the ownership of the people as a whole, it is not confining itself to a narrow bureaucratic takeover by the state apparatus and a ruling party’s “deployees”. This is why the South African Communist Party prefers in general to refer to “socialisation” rather than “nationalisation”.

  • The case FOR nationalisation is argued by ANC Youth League spokesperson Floyd Shivambu
  • The mere fact of state ownership doesn’t tell us what kind of state we are dealing with. Hitler’s Nazi Germany, Mussolini’s fascist Italy, and Verwoerd’s apartheid South Africa all had extensive state ownership of key sectors of the economy.

    What are the actual merits of calling for the nationalisation of the mines in South Africa now? Many comrades have responded to ANC Youth League president Julius Malema’s call for nationalisation by arguing that the Mineral and Petroleum Resources Development Act of 2002 has already implemented the charter’s call for “the mineral wealth beneath the soil” to be “transferred to the ownership of the people as a whole”.

    Indeed, this important and progressive legislation explicitly states that “South Africa’s mineral and petroleum resources belong to the nation and that the state is the custodian thereof”.

    In terms of this Act private (or public) entities can be given a right to mine by the government, but this right may not exceed 30 years. In other words, it is the “nation” (with the state as custodian) and not the mining companies that have legal ownership of mineral resources.

    This legislation (with attempts to consolidate existing state holdings in the mining sector into a state-owned mining house) provide us with greater strategic leverage over the sector than we had before. But it cannot just be a case of what lies beneath the soil. What about all of those massive mining corporate entities sitting on top of our soil (many of them now with principal listings and mining operations offshore)? Are they not among the monopoly industries the Freedom Charter had in mind?

    This brings us to an important distinction. Legal ownership is only part of the story. There is also the critical matter of effective strategic control over resources and over the production, beneficiation, logistics, marketing and investment processes inevitably linked to such control.

    In this regard Malema (and other youth leaguers) have argued that if we nationalise the mines we will be able to ensure that we beneficiate, rather than simply being a primary commodity exporter. Here they touch on something profoundly important. We are still locked into the same century-long, semi-colonial growth path that reproduces racialised inequality and underdevelopment; where South Africa is a semi-peripheral exporter largely of primary commodities in the global capitalist market. This exposes us to many vulnerabilities, as witnessed in the current global meltdown, and it creates severe distortions in our domestic economy and society.

    Malema, however, does not carry this argument forward in a systematic way. First, in some respects South Africa is already involved in very considerable mineral beneficiation. Eskom turns a significant proportion of our coal production into electricity. Sasol’s global leading-edge technology beneficiates coal into oil and other petrochemical byproducts. Sasol, in fact, provides for some 35% of all our domestic petrol needs. Our coal-into-energy is also further (and problematically) beneficiated into aluminium at two major smelter plants in Richards Bay. Some of our iron ore is beneficiated into steel by major corporations, including the former Iscor and now-privatised multinational ArcelorMittal.

    In these cases the problem is not the lack of beneficiation but the kind of beneficiation. In the case of aluminium smelter plants, for instance, they are huge electricity-gobblers and the bauxite used for the production of aluminium is shipped in from Australia. Basically, these corporations came here to plug into our cheap electricity grid (and they have been given 20-year electricity deals, way below what we pay for our own electricity).

    We are literally exporting, at a loss, South African electricity congealed into aluminium bars at a time when we are facing major electricity shortages. Our coal-fired power stations are major carbon emitters and consumers of increasingly scarce water resources. The pricing of beneficiated products on our local market is also a major problem — steel producers are under investigation for price collusion and Sasol is notorious for undermining local downstream producers (and therefore job creation) with its price-distorting monopoly behaviour.

    Once we unpack the mineral-beneficiation story in this way, we start to uncover the many systemic realities in our economy that lock us into a semi-colonial status within the world economy. These (and other) realities continue to reproduce crisis levels of unemployment and racial inequality. These realities, therefore, need transformation: they go to the heart of the possibility and necessity of a patriotic, multi-class, democratic and nonracial struggle to transform our country.

    Yet it is not clear how nationalising the mines would contribute at this point to the transformation of our perverted accumulation path. If the state actually owned extensive coal-mining interests, we might be tempted to avoid looking at renewable energy sources in the name of keeping some ailing state-owned Coalkom profitable for the shareholder.

    There are further issues that require analysis. Nationalising mining houses in the current global and national recession might have the unintended consequence of simply bailing out indebted private capital, especially BEE mining interests. In early 2009 the government estimated that about 80% of BEE deals were “under the water” as a result of the global recession. BEE mining shares were particularly hard hit as a result of the sharp fall in commodity prices on the world market. And while there has been some recovery for some commodities, their robustness remains very uncertain.

    Many (not all) of our mining sectors are also faltering because of other factors. Electricity is estimated at 10% to 15% of mining operation costs. Cheap electricity and the way the grid has been historically structured in South Africa has had much to do with the dominance of mining monopolies in our economy. With impending, multi-year electricity price hikes, the viability of many mines will be severely affected.

    Then there is the sobering fact that mining is about non-renewable natural resources. Many of our gold mines in particular are increasingly depleted and unviable. In 2009 the global gold price bounced back, but our gold output dropped by about 9% in the same period. Our gold mines are no longer able to respond dynamically to gold price rises.

    The argument that nationalising the mines might serve to bail out failing capitalists assumes that this would involve significant monetary compensation. So what about expropriation without compensation? Contrary to what is often asserted, the property clause in the Bill of Rights sanctions expropriation “for a public purpose or in the public interest”. But it still requires compensation at a price either agreed to by both parties or determined by a court.

    Again, contrary to what is often said, this compensation does not have to be narrowly market-based. The Bill of Rights lists other realities that should also be factored in, including “the history of the acquisition and use of the property” and “the extent of direct state investment and subsidy in the acquisition — of the property”.

    Speaking as a Marxist (not a constitutional lawyer), I think an excellent case could be made that the new democratic state, acting on behalf of the people of South Africa, owes the mining houses absolutely nothing. The “history of the acquisition and use of their property” includes genocidal wars of dispossession that carved out labour reserves for the mines, and the massive deployment of state violence in the Anglo-Boer War that was directed at securing an imperial grip on South Africa’s goldfields.

    The “history of the use of their property” includes hundreds of thousands of mineworker deaths and injuries and the wholesale destruction of the environment, including the pollution of our groundwater. The extent of “direct state investment and subsidy” includes using billions of rands of public money on building rail lines and ports, power stations and an infrastructure grid to serve the mining houses’ narrow profit-maximising interests. It is the mining corporations that owe the people of South Africa trillions of rands in compensation, not the other way round.

    But before we get tangled up in legal arguments, let’s go back to the core issue. How, if at all, would the extensive nationalisation of the mines advance the national democratic struggle today?

    It would land the state with the burden of managing many mining sectors in decline. It would further burden the state with the responsibility for dealing with the massive (and historically ignored) cost of “externalities” — the grievous destruction that a century of robber-baron mining has inflicted on our environment. Nationalising the mining sector now would also bail out private capital in a sector facing many challenges of sustainability. The problems of liquidity and indebtedness for BEE mining shareholders are particularly acute.

    Moreover, extensive state ownership of the mining sector would on its own not change any of the underlying systemic problems in our broader economy. Unless it was part of a much more fundamental transformation of our current accumulation path, it would also not change the semi-peripheral status of South Africa in the global economy — it might even worsen that status. It would probably also mean the state having to fork out billions in compensation at a time when we have other priorities with a better chance of contributing to a fundamental transformation of our current problematic accumulation trajectory.

    Jeremy Cronin is deputy general secretary of the South African Communist Party . This article first appeared in the party’s online journal, Umsebenzi Online