The feasibility of a nationalized mining sector is a debated topic in South Africa at the moment. Most studies and the general opinion suggests however that it is not a good idea and not feasible, especially in a country of our economic and social state. It has been argued that revenues from the mining sector will advance several social and economic projects, including resource redistribution, transformation and job creation.
This essay will argue that mine nationalisation is not part of a practical economic policy. Firstly, the concept of nationalisation will be introduced in terms of the difficulties to which it gives rise. Thereafter, local arguments for nationalisation will be evaluated, followed by case studies of both the South African and international experience of nationalised mines. Finally, South Africa’s stated macroeconomic objectives, the current state of the mining sector, and its estimated growth trajectory will be examined vis-à-vis the probable outcomes of mine nationalisation. In conclusion, alternative policy options to further the country’s national economic goals will be explored in terms of the existing mining sector.
2) The case for nationalization
2.1) Nationalization and its implications
Nationalization happens when the state gains control of an industry, a business, or any Privately, owned property and then turns it into a public mass ownership. This however often leads to companies underperforming as their productivity, service quality and profitability drop (Grant, 2011:62). However debatable, this could be contributed to the loss of incentive to succeed in the workplace. Private companies have a responsibility to their share holders and they are held accountable if issues should arise (Joseph, 2010:146). This system, even if found within nationalized enterprises, often does not work. The state and thereby the taxpayers, who maintain permanent majority ownership of a company will most likely have the treasury intervene when faced with. Thus nationalized enterprises face little risk of becoming insolvent and therefore incentives are void in most situations (Joseph, 2010:146).
2.2) Arguments for nationalization
Several political groupings have engendered support for the idea of nationalizing the South African mining sector. The ANCYL is the most prominent. In a document put forward by them they suggest nationalisation will result in an increase the state’s fiscal capacity, job creation and encourage industrialisation and improved working conditions are some of the motivations that were given to help the cause of nationalization.
2.3) Critiques of the ANCYL position
There is consensus among economists that the role of the modern state does not extend into the production of goods and services that the private sector can provide (Tanzi, 2005:635). Although the Youth League’s motivations are laudable in themselves, they form part of an inconsistent mix of politically motivated social and efficiency goals. Political agendas often impede enterprises by disregarding economic realities and providing opportunities for political patronage. Nationalisation is regarded as a solution to problems such as unemployment, low wages, and social inequality.
The claim that nationalisation would award fiscal benefits to the state seems unconvincing given the state’s current relationship with the mining sector. The state grants firms contractual permits to mine the country’s mineral wealth, and thus in combination with the imposition of large taxes - accrues an estimated 50% of the profits made by the sector (Louw, 2011:37).
The debate surrounding nationalisation has damaged perceptions of South Africa as an investment destination. If predictable future profits are uncertain, investment will be discouraged as a result (Du Plessis, 2011). The mining sector is a competitive industry and labour and capital are managed in order to maximise output. Increasing labour...