In Zambia, thousands of jobs were lost, tax revenues dropped alarmingly, poverty became endemic, and government services in health, education and infrastructure ground to a halt.
Nationalisation of mines and other profitable sectors of the economy, like finance and banking, remains part of political rhetoric in some African countries, like Zambia, Zimbabwe, and South Africa.
To populist politicians, nationalisation is a wonderful theme to whip up support among people with negligible stakes in the economy. It seems to promise instant riches.
In rhetoric, 'mineral wealth' of the country will 'belong' to people who would become rich overnight, provided certain people are voted into power. Economic and political realities are vastly different from these populist expectations.
Statements by ANC Youth League president Julius Malema and others, indicate plans to nationalise ownership of all mines to the government of the day, in the same way that government owns Eskom, SAA and other state enterprises.
The rhetoric raises two fundamental questions; would government buy shares, or seize land, mineral rights, assets, works, and companies? What level of shareholding would be considered 'ownership'?
The ANC-led alliance knows that South Africa runs on foreign and local investment. Our economy grows marginally, creates employment, and supplies services to rich and poor. Shares transfer does not add value to any economy. Value is added by optimal use of productive resources, not by ownership.
Ownership with strings
Should government merely grab shares of mining companies, the result would be an immediate and total freeze on foreign investment, a capital flight, a shortage of foreign exchange, and a significant contraction of the economy. There would suddenly be less money available to government to provide services and maintain infrastructure. Our water and lights would soon fade out.
Government could, if pressurised by public demand, buy shares in mining companies. This of course would mean that current holders of shares, largely pension funds and other institutional investors, would willingly or otherwise, sell some shares to government.
As the mining sector makes up a large slice of investments of pension funds, including the State Pension Fund, any move towards paying unfair value would hurt these funds, reduce their funding capacity, thus placing a burden back on the state to care for the elderly.
Labour toys with government models
The National Union of Mineworkers (NUM) has called for a state owned mining company, which would "invest in strategic minerals such as platinum, coal, uranium, iron ore and manganese".
Madoda Sambatha, NUM head of parliamentary affairs, stated that a "nationalisation model should encompass a majority shareholding position of 50% plus one", which translates into a state owned mining company having to buy 50% of mining shares in all 'strategic' mining companies in the country.
In a financial perspective, current market capitalisation of the mining sector on the JSE is about R1700-billion, or to spell it out, one thousand seven hundred billion rand. This number excludes mining companies not quoted on the JSE, including De Beers.
In the NUM scheme, government would have to raise R850-billion to buy shares on behalf of their version of a state mining company. This R850-b could be far better used to create jobs, provide services desperately needed, and invest in infrastructure, the proper function of states and governments.
Development cost
Should government take control of mining, a highly globalised, technical and capital intensive industry, government would have to invest in new mining operations to turn a profit and create jobs.
Capital intensity is illustrated, for example, in Madagascar, where the new Sherrit nickel cobalt mine at Ambatovy will cost nearly US$5-n, about R40-b, before it starts operation.
If government buys mines, it would have to fund new ventures too, since investors would have left. Nationalisation would enforce disastrous financial management.
And government, as major shareholder, would have to operate mines, something it lacks about a century of experience in doing.
Zambian copper disaster
The ANC had pointed to Zambian nationalisation of copper mines in the 1970s, to illustrate the negative impact of the plan that the ANCYL and NUM propose. Prior to nationalisation, Zambia reached a peak production of 720 000 tons of copper. Just 25 years later, even with private sector help, they could barely manage 300 000 tons, thanks to government meddling, corruption, short term vision, lack of maintenance and investment in plant, equipment and technology.
Thousands of jobs were lost, tax revenues dropped alarmingly, poverty became endemic, government services in health care, education and infrastructure ground to a halt.
Given the track record of mismanagement and corruption in government in general, and state enterprises in particular, this is the likely scenario for nationalised mining in South Africa.
Mines benefit South Africans
Average South Africans should benefit from mineral wealth beneath our soil. A 2009 publication, 'Breaking the Curse' by the Open Society Institute of Southern Africa and partners, argues that mining's benefits reach citizens via a transparent and fair tax system, and private business turning Africa's mineral wealth into development.
Let risk takers in the capital markets, and technical experts such as geologists, miners, and metallurgical engineers, find, explore, finance, develop and operate mines for optimal profit, and pay their fair share of taxes to governments, which in turn use the funding to develop their countries in accordance with the best public interests.
The public already own many mining shares via their pension and provident funds, which are investing for long term benefit of all South Africans. Also, many South Africans invest, directly or indirectly, in unit trusts, which themselves are large investors in mining shares.
Through these various vehicles, South Africans benefit financially from profitable, private mining operations.
To allow politicians to change a finely balanced economy, and make supposedly popular decisions on investments and operational parameters of highly complex mining ventures, has been proven to be disastrous.
Nationalisation fantasy versus working reality
In Zambia, thousands of jobs were lost, tax revenues dropped alarmingly, poverty became endemic, and government services in health, education and infrastructure ground to a halt.
Nationalisation of mines and other profitable sectors of the economy, like finance and banking, remains part of political rhetoric in some African countries, like Zambia, Zimbabwe, and South Africa.
In rhetoric, 'mineral wealth' of the country will 'belong' to people who would become rich overnight, provided certain people are voted into power. Economic and political realities are vastly different from these populist expectations.
Statements by ANC Youth League president Julius Malema and others, indicate plans to nationalise ownership of all mines to the government of the day, in the same way that government owns Eskom, SAA and other state enterprises. The rhetoric raises two fundamental questions; would government buy shares, or seize land, mineral rights, assets, works, and companies? What level of shareholding would be considered 'ownership'?
The ANC-led alliance knows that South Africa runs on foreign and local investment. Our economy grows marginally, creates employment, and supplies services to rich and poor. Shares transfer does not add value to any economy. Value is added by optimal use of productive resources, not by ownership.
Ownership with strings
Should government merely grab shares of mining companies, the result would be an immediate and total freeze on foreign investment, a capital flight, a shortage of foreign exchange, and a significant contraction of the economy. There would suddenly be less money available to government to provide services and maintain infrastructure. Our water and lights would soon fade out.
Government could, if pressurised by public demand, buy shares in mining companies. This of course would mean that current holders of shares, largely pension funds and other institutional investors, would willingly or otherwise, sell some shares to government.
As the mining sector makes up a large slice of investments of pension funds, including the State Pension Fund, any move towards paying unfair value would hurt these funds, reduce their funding capacity, thus placing a burden back on the state to care for the elderly.
Labour toys with government models
The National Union of Mineworkers (NUM) has called for a state owned mining company, which would "invest in strategic minerals such as platinum, coal, uranium, iron ore and manganese".
Madoda Sambatha, NUM head of parliamentary affairs, stated that a "nationalisation model should encompass a majority shareholding position of 50% plus one", which translates into a state owned mining company having to buy 50% of mining shares in all 'strategic' mining companies in the country.
In a financial perspective, current market capitalisation of the mining sector on the JSE is about R1700-billion, or to spell it out, one thousand seven hundred billion rand. This number excludes mining companies not quoted on the JSE, including De Beers.
In the NUM scheme, government would have to raise R850-billion to buy shares on behalf of their version of a state mining company. This R850-b could be far better used to create jobs, provide services desperately needed, and invest in infrastructure, the proper function of states and governments.
Development cost
Should government take control of mining, a highly globalised, technical and capital intensive industry, government would have to invest in new mining operations to turn a profit and create jobs.
Capital intensity is illustrated, for example, in Madagascar, where the new Sherrit nickel cobalt mine at Ambatovy will cost nearly US$5-n, about R40-b, before it starts operation.
If government buys mines, it would have to fund new ventures too, since investors would have left. Nationalisation would enforce disastrous financial management.
And government, as major shareholder, would have to operate mines, something it lacks about a century of experience in doing.
Zambian copper disaster
The ANC had pointed to Zambian nationalisation of copper mines in the 1970s, to illustrate the negative impact of the plan that the ANCYL and NUM propose. Prior to nationalisation, Zambia reached a peak production of 720 000 tons of copper. Just 25 years later, even with private sector help, they could barely manage 300 000 tons, thanks to government meddling, corruption, short term vision, lack of maintenance and investment in plant, equipment and technology.
Thousands of jobs were lost, tax revenues dropped alarmingly, poverty became endemic, government services in health care, education and infrastructure ground to a halt.
Given the track record of mismanagement and corruption in government in general, and state enterprises in particular, this is the likely scenario for nationalised mining in South Africa.
Mines benefit South Africans
Average South Africans should benefit from mineral wealth beneath our soil. A 2009 publication, 'Breaking the Curse' by the Open Society Institute of Southern Africa and partners, argues that mining's benefits reach citizens via a transparent and fair tax system, and private business turning Africa's mineral wealth into development.
Let risk takers in the capital markets, and technical experts such as geologists, miners, and metallurgical engineers, find, explore, finance, develop and operate mines for optimal profit, and pay their fair share of taxes to governments, which in turn use the funding to develop their countries in accordance with the best public interests.
The public already own many mining shares via their pension and provident funds, which are investing for long term benefit of all South Africans. Also, many South Africans invest, directly or indirectly, in unit trusts, which themselves are large investors in mining shares.
Through these various vehicles, South Africans benefit financially from profitable, private mining operations.
To allow politicians to change a finely balanced economy, and make supposedly popular decisions on investments and operational parameters of highly complex mining ventures, has been proven to be disastrous.
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