/ 1 July 2011

Inside ANC nationalisation debate

The N-word is seriously back in contention after the M-politician used the ANC Youth League’s annual conference to push the nationalisation of mining and a land grab in agriculture as the cornerstones of ANC economic policy.

The ANC has been discussing the nationalisation of the mines internally as part of an effort to better understand the role of the state in optimising the management of mineral resources.

An economic transformation committee was set up to research the role played by the state internationally and several papers have been published on the ANC’s website on the issue. The papers are contained in Umrabulo, a quarterly journal that encourages debate and rigorous discussions at all levels of the ANC.

The committee is nominally headed by Enoch Godongwana, the head of economic transformation at the ANC, but it is understood that secretary general Gwede Mantashe is taking a keen interest in the proceedings.

The papers are contributions by the ANC Youth League, Joel Netshitenzhe, MZ Ngungunyane, Cosatu, Floyd Shivambu, Paul Jordaan and the National Union of Mineworkers (Num). It is understood the committee must complete its report by November this year.

There is no consensus on the way forward and there is no agreement on the key terms and their meaning, but all parties argue that their contributions aim to maximise the role of the state as the custodian of the mineral wealth of the country.

The youth league argues for the creation of a state-owned mining company to house the existing assets that the state owns. It says it should not be run like Eskom, Transnet or SAA, where the sole goal is to maximise profit. Rather, its progress should be measured “as per its ability, capacity and coherent determination to create jobs, maximisation of the country’s gain from mineral resources, contribution to socioeconomic development and assistance of communities where mining happens.

“This will conspicuously require greater levels of accountability, openness and engagement with communities, workers and other important stakeholders.”

The state-owned company, says the league, should be accompanied by an expropriation model, with and without compensation.

It says the Expropriation Act will guide the state’s nationalisation of existing mines. “This should necessarily be done in a manner which guarantees socioeconomic development without disrupting the operations and employment of workers in the mines that should be nationalised.

“Depending on the balance of probabilities, the state can expropriate not less than 50% of the existing mines. This effectively could result in the state controlling, benefiting and taking liability of the existing mines’ operations and functionality while complying with the country’s taxation and royalties requirements and provisions.”

The third leg of the league’s proposal is for the Minerals and Petroleum Resources Development Act to be amended to say that applicants should be in partnership with the state-owned company which owns not less than 60% of the shares and right of determination.

It ends its submission: “The mineral wealth beneath the soil, monopoly industries and banks should be transferred to the ownership of the people as a whole.”

Netshitenzhe says in his intervention that the world and the ANC have moved on since the Freedom Charter was drafted in the 1950s and that, after the collapse of socialism, the ANC developed positions such as in its Ready to Govern document.

He describes the approach as a tilt towards characterising the private sector, including monopoly capital, as a potential partner in development, a far cry from the literal interpretation of the “wealth clause” [in the Freedom Charter].

Netshitenzhe says that, in weighing the evidence against state ownership, the starting point should be about the strategic economic and broader social objectives. He says that the instruments to achieve this include state ownership, levels of taxation and the rigour of regulation.

The mining industry, in Netshitenzhe’s view, has fallen short in a number of areas, including beneficiation, capital expansion when compared to competitor economies such as Australia and in its contribution to skills and industrial development.

But, he says, bottlenecks, including those caused by government, contributed to the sub-optimal performance by mining.

He says that Norway and Venezuela are cases where mining has been used to increase the state’s fiscal capacity.

He quotes research that shows that state-owned companies are not inherently good or bad but need to be staffed by a high-quality bureaucracy. He says that the call for the holus bolus nationalisation of the mines is not supported by strong evidence.

The youth league’s Shivambu says in reply to Netshitenzhe that Cosatu backs the league in its submission but asks for it to adopt a broader view. “We argue that nationalising the mines may have little effect if the monopolies to which the mines sell their products continue to be owned privately.”

He says that, to promote beneficiation, job creation and improved competitiveness, the private monopoly ownership of strategic industries will have to be dismantled.

Jordaan, formerly the head of Mintek, South Africa’s national mineral research organisation, says in his submission that the youth league, with nationalisation, wants to increase the state’s fiscal capacity, to industrialise and create more jobs, to safeguard sovereignty and to transform South Africa’s unequal spatial development patterns.

“However, it can be argued that all of these objectives could be achieved by a variety of policies, strategies and instruments without necessarily nationalising the mining companies, which could have extremely negative impacts on growth and development, including negative perceptions by investors, massive increases in debt to finance expropriation and a decline in operational efficiency resulting in job losses as a result of the generally poor record in running state-owned enterprises.”

Jordaan refers to the African Union’s Mining Vision, adopted by heads of state, including South Africa, in 2009, which “expands considerably on the potential beneficial impacts of a minerals endowment”.

Num says its submission that it does not support a blanket or wholesale nationalisation but prefers a strategic fund/equity approach. It says the proposed state mining company should invest in energy minerals such as platinum, coal and uranium and infrastructure minerals such as iron ore and manganese.

It says that, with platinum group metals, South Africa could move away from being an assembler of platinum products to a manufacturer of these products. It adds that both iron ore mines and steel plants should be nationalised to provide cheaper steel to the economy.

The African Union’s Mining vision
The rise of China, India and other Asian economies has created an unprecedented demand for minerals, providing a new opportunity for Africa. Demand for African minerals can allow for beneficiation downstream and the development of capital goods such as mining equipment upstream.

There are also sidestream linkages to infrastructure — power, logistics and communications. The AU says that the linkages will not happen automatically, meaning that state intervention will be necessary.

Underpinning the vision is to use the demand for African minerals as a catalyst for broad-based growth and development. It sees the principal resource-based opportunities to come from the use of resource differential and windfall rents to improve physical and social infrastructure.

Paul Jordaan, former Mintek head, says: “Tax regimes [should] augment with increasing returns and thus allow the state to garner differential rents for above grades and windfall profits.

“In addition to straight corporate tax as a percentage of profit, a resource rent tax (RTT) should trigger after an ‘expected’ [treasury bond plus a margin] return on investment has been achieved.

“A RTT would give the state its share of the differential rents embodied in rich and/or amenable mineral deposits.” The development of physical infrastructure could free the potential of other resources such as in agriculture, forestry and tourism.