[miningmx.com] — SOUTH Africa’s ruling African National Congress is at war with itself over calls to nationalise a mining sector that has been the backbone of Africa’s largest economy.
Nationalisation could bankrupt the country and destroy its credibility among investors. But the idea resonates with the country’s poor majority who see it as a way to spread the wealth from a sector that grew powerful along with white-minority apartheid rule.
Here are a few questions and answers as to what may result of the nationalisation debate.
WILL SOUTH AFRICA NATIONALISE ITS MINES?
THE country cannot afford to buy out listed mining firms which have a market capitalisation of about $270bn, equal to about two-thirds of GDP or twice the annual state budget.
Running the mining firms would cost tens of billions more a year and given the loss-making track record of state-owned enterprises, nationalised mines in South Africa would place a huge drag on the economy.
Threats to tweak laws in order to expropriate shares for a fraction of their value would run up against international investment guarantees that would almost certainly a trigger severe backlash from South Africa’s trading partners.
The debate is largely kept alive to settle political scores in the ANC and will stay on the agenda at least through the end of next year when it holds a conference to elect its leaders.
IF NOT NATIONALISATION, WHAT DOES THE GOVERNMENT WANT?
The government has been clear on what it expects from mining companies: more black ownership, more jobs and social justice for the black poor who have been marginalised for decades by mining barons.
Nationalisation will not happen but keeping the debate alive provides leverage.
The government has created a state mining company which will focus on strategic minerals including coal and uranium, although it has yet to be decided how the firm would operate. Analysts said this may be the extent of state ownership in the industry.
WHAT MIGHT MINING FIRMS BE PRESSURED TO DO?
The government will likely apply more pressure on mining firms to achieve a government mandate for them to have 26% black ownership and 40% black management by 2014.
Mining firms could be pressed into joint ventures with the public sector in the downstream processing of minerals. The government’s national growth strategy sees mineral processing as a pillar of growth and job creation. It has laid out 10 mineral commodities and five value chains it wants to develop, saying mining firms will be called on to help.
WILL MINING FIRMS FACE INCREASING TAX AND ROYALTY BILLS?
Changes may come at the margins but there will probably be nothing major. South Africa’s royalty system is considered one of the more advanced among mining giants.
WILL MINING FIRMS AVOID EXTRA COSTS?
Probably not. Mining firms may face greater pressure to increase shareholdings to local communities where mines are located and pay a larger bill for infrastructure development. The energy-intensive sector may see higher tariffs from state utility Eskom, which is scrambling for funds to build much needed power stations.
Mark Cutifani, chief executive of mining power AngloGold Ashanti, said in an opinion article last month the mining sector is willing to help end “inequality and the demons of its past”.
Separate from nationalisation, mining firms could face a huge bill from legal cases from miners seeking compensation for deadly lung diseases, especially in the gold mining sector.
WHAT ARE THE DANGERS?
High-minded ideals of social justice could easily fall prey to crass corruption.
Foreign investors, South Africans and the ANC’s governing partners have grown increasingly worried about the implementation of a black economic empowerment policy introduced by the ANC after apartheid ended 17 years ago.
BEE is aimed at righting the economic wrongs of apartheid but critics say it has only enriched a few politically connected businessmen in a country where millions live in poverty and over a quarter of the work force is jobless.
An increased push for more black ownership could deepen the pockets of a few while the impoverished majority see no gains.
Nationalisation could be used to bail out BEE firms that made bad investments in the sector or to revisit mining rights, which would deal a blow to regulators already being probed by police over a sweetheart rights deal that benefited President Jacob Zuma’s son and his backers.
Joint venture firms could end up as money pits that create few jobs while piling costs on mining firms.
The biggest risk is that South Africa will place too high a burden on mining companies, hurting the competitiveness and long term prospects for Africa’s largest economy.
