Advantages and disadvantages of nationalising mines

The Freedom Charter signed and preserved in June 1955 affirmed that the people shall share in the country’s wealth and more significantly ‘the mineral wealth below the soil, the banks, and monopoly industries shall be transferred to the ownership of the people as a whole”. There has been a lot of debate for the nationalisation of South African mines by members of the ANC who deem that it is now the ideal time to cement this item onto the ANC’s agenda for the 2012 Centenary Conference and for this to at last become government policy.

According to a variety of reports, it is not the ANC’s national executive committee’s concern and as things stand today it is not government policy. Not everyone is as keen as Julius Malema to have mines nationalised (Mpho, 2011). Foreign investment has already declined due to Malema’s uncertain statements regarding the nationalisation of the South African mines.

Advantages of nationalising mines

A sector that is nationalised, allows the government to have direct control over that sector. If the mining sector is nationalised, this would entice the government to sell more minerals within the South African borders rather than export these minerals to foreign countries. If mines were to be nationalised, then the revenue generated would be part of national revenue, and thus would benefit the entire country. Economic development and the total well being of the individual will be improved. South Africa has an unequal distribution of income, this extra revenue will allow government to redistribute income more equally, thus reducing poverty as well as lowering the unemployment rate. There will, however, be a substantial amount of legal and economic costs as well as costs which the government would have to face from the transferring of funds. All of these costs would occur in the short term, increasing government debt. However, in the long run, if the government flourishes, nationailasion of the mines will benefit the entire nation.

Disadvantages of nationailsation

Nationalisation would create panic among foreign investors. South Africa has a history of state owned enterprises that haven’t been very successful, this would place more doubt in the mind of the foreign invertor. The mining sector, after nationalisation, could take a very long time to boast a profit. Resources are scarce, therefore during this time, resources may become depleted, resulting in huge losses for the South African economy. There are very large and vast costs that government would have to encounter if the mines of the country are nationalised. Some of these costs include the general operation and running of the mines, possible shutting down of the mines as well as developing the mines. If the government has not shown any signs of profit, these costs will still have to be incurred which could be detrimental to the economy and the well being of the individual South Afrrican. Debt of the government would increase at tremendous rates and this will spill over and result in great fiscal deficits. Clive Coetzee, Kwazulu-Natal Treasury economist stated that the mining industry supports the four macroeconomic goals, economic growth, employment, a low inflation rate and a surplus in the balance of payments. He further states that in 2008 around 500 000 people were employed in the mining sector which contributes to 6, 1% of total non-agricultural formal employment. This is without the indirect effects of mining, if these effects are taken into account another 500 000 jobs are likely to exist. I believe that the private sector already has the necessary capital as well as human resource proficiency to maintain and sustain this sector. Therefore there is no reason to nationalize the mines in South Africa. Nationalisation has been tried in many countries. By looking at countries like Botswana, Zambia and Venezuela, one can clearly see that the nationalisation attempts of these countries have failed.

Venezuela: President Hugo Chavez wanted to nationalize the country and turn it into a social state. He has nationalised telecommunications, electricity, steel companies and a few major oil companies (Ingham, 2009). Many investors have questioned the president and cannot fathom why nationalisation is needed if there are no real problems in the distribution of income or social development. Investors have claimed that nationaalisation has got more to do with power than the goodwill of the county’s people. Investors and experts in their fiels have also claimed that it would take a very long time before the government would actually realize profits from nationalisation. Peter Leon stated that in 2009, Venezuela had still failed to make a turnover through state owned enterprises, and thus eliminating the likelihood for foreign investment entirely (Leon, 2010).

Botswana:

Botswana is generally held up as a model of successful nationalisation of its mining industry (Coetzee, 2010). Coetzee states that the reason for the success of the nationalisation was because it was in cooperation with De Beers Consolidated Mines. Botswana has an extremely high unemployment rate. According to statistics, around half of the country is said to be merely existing below the poverty line. Statistics also depict the fact that Botswana has the largest poverty gap in the world. It is quite evident that the conditions in Botswana show very little indication that nationalization has improved living standards as income distribution is still uneven and poverty is a fierce fact that the inhabitants face every day. Even if the growth rates were very high, this would not account for the poor living standards, and thus, clearly nationalization hasn’t improved the well being of the individual.

The enterprises owned by the government in South Africa were once seen as engines of growth in our economy (Anon, 2010).

Eskom:

Electricity demand in South Africa is ever increasing. Eskom had devised plans to build a new power plant in order to meet the increasing demand. They struggled, however, to raise the necessary capital to undertake the much needed project. This has caused electricity prices to increase substantially and as a result many homes, till today, are left without electricity. Most of the mines in South Africa were forced to shut down in 2008, because of an elerctrical grid almost collapsing as a resulf of over usage. These are some of the points that show the success of nationalizing the electrical company.

Transnet:

The mining sector was injured as a result of strikes that occurred over wages, during 2010, and many ports and railways were left slightly non operational.

SABC:

The broadcaster of national television has come across leadership and funding issues over the past few years. These issues have had consequences that have led to fewer viewers and loss of revenue that used to come from advertising.

Nationalisation of the mines:

When there is foreign investing in a country’s mining industry there are surely risks to take into account, especially in the mining industry seeing that it is a capital intensive industry (Leon, 2010). When foreign investors invest in a country, they consider many factors, how state owned companies are managed being one of these factors. If these state owned companies are perform poorly, investors will be reluctant to invest in that country. Alexkor, a government mine, made a very large loss of R77 million in 2009, ESKOM made a loss of R3 billion in 2009 and SABC made a R910 million loss over 2009 as well (Leon, 2010). Furthermore, Denel hasn’t showed a profit since over many, many years. It is quite evident that the state has not got the necessary capital, skill and support to control the mines in South Africa.

The minister of finance Mr Pravin Gordhan stated on March 14, 2011, that nationalisation of South Africa’s mines and other economic assets is not government policy. He went on to say that failure to be clear on policies could be an obstacle to elevated levels of foreign direct investment that are required to help lift growth rates to 7 percent.