Will SA Mines Be Nationalized?


"Government can alter legislation any time in near one-party nations."

The argument that South African mines will be nationalized stems from Julius Malema, the head of the Youth League of the ANC. It has been rumbling on for some time now. Mrs. Shabangu the Mines Minister previously stated that it would not happen in her lifetime. This was ignored by the Youth League who held to their position. At that time, it was not on the Agenda of the ANC and was treated with a measure of derision by the ANC. Then the ANC conference happened and the ANC placed the issue on the Agenda to be discussed in 2012.

As in most countries, internal national issues rise in importance far above international ones. The issue of whether the previously disadvantaged classes in South Africa are getting their fair portion of the country's wealth has been a burning issue since 1994 and is unlikely to go away.

This Is Africa
The quote from the film Blood Diamonds—"This is Africa" is often used to highlight that thinking is different in Africa to the rest of the world. The developed world concepts that if laws rule governments, good economic sense will prevail. Before taking this issue further in this article, readers must factor in certain sub-Saharan cultural differences that they are unaware of when it comes to such discussions.

Glance at the history of sub-Saharan history and you will see an overriding description of rulership by individual tribal leaders. Names like Robert Mugabe, Mobutu Sese-Seko, Dr Banda, Idi Amin and, in the past, Shaka Zulu spring to mind. How did they get so much power? In that part of the world, an African chief is considered the father of the tribe. He has the right to everything and, as a father, he is expected to look after his children. As such, it is deemed right that he should own everything. His word is law and that law may change from time to time, according to the situation he finds. Any Cabinet he may surround himself with is there to advise him, for he makes the decisions, not the Cabinet or party. In South Africa and Zambia's case, this outlook has been modified to some extent, for in Zambia the government is a mixture of several tribes. In South Africa, while the Xhosa tribe is dominant, politics via the Unions has diluted the sole leader's power. Nevertheless, even there, government reflects the pressures of power and sees legislation as subject to those pressures. Government can alter legislation any time in these almost one-party nations. It is against this background that mining legislation should be seen.

The author experienced this attitude first hand in Mozambique, when he quoted a regulation agreed with the World Bank on Debt Conversion. He pointed out to officials of that central bank that particular regulation, whereupon he got the reply: "Oh, that's only what's written." The top official in charge of the application, made it clear that his opinion at that time would override any such regulations.

As we have all seen repeatedly, since Mr. Mugabe took the reins in Zimbabwe, the desire to control and own the wealth of their own country by the current leaders has been relentless.

South Africa
With this in mind one looks at South Africa, which, to its credit, has seen the reins of power held in ANC hands since 1994; and the overall shape of the economy is still much the same as it was prior to 1994. In that time there has been the pervasive policy of Black Empowerment steadily creeping into all walks of life. To date, this has not sprinted to its objectives too quickly, in the hopes that the economic engine will run at the pace it did before 1994. The intention of the government there has been that the city should come to the village, but slowly we've seen the village come to the city. It is this process that will dictate the future of South Africa.

In South Africa, the fattest goose has always been the mining sector and the object of avaricious government eyes. But this goose has thinned tremendously in the past decade, as a rising Rand has choked off new growth in the gold sector and the tonnage produced has fallen from a peak of over 1,000 tons of gold to the present around 170 tons. Shallow mining of platinum is faring much better, so just as vulnerable.

The underlying belief in the heart of the unions, that workers should get a bigger share of the profits through wages (rising faster than inflation) will see costs rising at an accelerating pace, making future growth in gold mining slow continuously.

Nationalization: A Socialist or African Policy?
Please note that African Communism has little to do with Russian or Chinese Communism. Hence the above question. You have to blend the above attitudes to ownership with the unionism of the largest labor union in South Africa COSATU. The government has to rely to a great extent on COSATU's support to continue to rule unchallenged. There have been signs of deep discord between the two of late, for Black Empowerment appears to follow the traditions of tribal Africa more than it does Socialism, much to the annoyance of the unions. The number of newly empowered Africans (and often related to political leaders) is very few, with the principles of the process broken repeatedly as a small number of nepotistically linked individuals have gained great wealth, while the poor majority remain as poor as ever.

(There is the tale of Wisdom Mbutu and Happy Boy Mtwetwe digging holes in the road, and Happy Boy turns to Wisdom and says: "After the revolution, the bosses will dig the holes in the road." Ten years later, and after the ANC had power for many years, there they are both still digging the holes and Wisdom says to Happy Boy: "I thought you said the bosses would be digging the roads after the revolution." To which Happy Boy replies: "We are!")

The driving force behind the discussion on nationalization is the Black Empowerment process. However, as the efficiency of the system declines (you saw that in electricity and its coming in hospitals, water and a host of state-run or para-state-run enterprises) it is clear to all, including the ANC, that such a step would mean a disaster for production and profits. It would also mean the end of foreign investments in South Africa. The nation cannot grow without foreign investments in the country. Despite all this, the issue is now on the agenda. It is the political shape of the country that will dictate whether nationalization will happen. We cannot rule it out as we felt we could a month ago. With BEE already demanding the 26% of South African mining be handed (almost free) to black investors, there is a distinct possibility that nationalization could happen!

The conclusion of the discussion may well be two years away still, but the fact that it is on the Agenda of the ANC then will delay or deter foreign investment on a broad front in South Africa. Should it become a reality thereafter you will see South Africa slide down a very steep slope towards the state that Zimbabwe is in now. The lower prices South African shares have relative to their U.S. and Canadian counterparts, reflects this possibility.

What Will South African Mining Companies Do About This?
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Legal Notice/Disclaimer
This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina only and are subject to change without notice. Gold Forecaster - Global Watch / Julian D. W. Phillips / Peter Spina assume no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, we assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information, provided within this Report.

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