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Is South Africa nationalizing its mining industry?

Foreign investors are getting nervous as South Africa's government debates taking from the rich and giving to the poor.

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Earth moving equipment at a former diamond mine in Kleinzee, South Africa. (Gianluigi Guercia/AFP/Getty Images)

JOHANNESBURG, South Africa — South Africa’s mining industry is in trouble: platinum mines are closing, gold miners are looking elsewhere and overall output is shrinking.

But that isn’t stopping the government from trying to squeeze more money out of it.

The ruling African National Congress said this week it wanted mining companies to contribute more to the country’s social welfare, possibly through a so-called “super tax.” It also said Friday that it is considering giving the state mining company a greater share of “strategic” minerals.

That kind of talk, however, sounds like nationalization to foreign investors. And now they are getting nervous, imperiling further what once was South Africa’s most mighty industry.

The Chamber of Mines, which represents several international mining giants, warned that the imposition of a super tax could “well be the tipping point at which foreign investors choose to overlook the South African mining industry as an acceptable destination for their investment capital."

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South Africa used to be the world’s largest producer of gold. But in recent years it has slipped to fifth as gold firms diversified abroad.

The country is still the world’s biggest platinum producer, but four platinum mines have stopped construction or suspended operations in the last few months because of low prices, rising operating costs and labor strife.

The ferrochrome industry — also the world’s biggest — has taken a hit too because of electricity supply problems.

Despite all of this bad news, the African National Congress, under pressure to address the country’s seemingly intractable poverty, unemployment and widening gap between rich and poor, is looking to the mining companies for a solution.

South African President Jacob Zuma has gone so far as to call for a “giant leap” toward “social transformation.”

Zuma spoke of a “second transition,” the first being the arrival of freedom and democracy after the end of apartheid 18 years ago. The second, Zuma said, would be aimed at bringing economic freedom to black South Africans. Mining, which has long been the domain of wealthy white business owners, could be a key target.

“The structure of the apartheid-era economy has remained largely intact,” he told some 3,500 party delegates at the start of the conference earlier this week.

A controversial report titled “State Intervention in the Mining Sector,” discussed at the conference, avoids referring to nationalization directly. Instead, it proposes a 50 percent tax — called a resources rent tax — on mining companies’ profits in excess of 15 percent return on investment.

This, the document says, could help the government raise R40 billion, or $4.7 billion, in revenue.

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But critics say there are no guarantees that such large amounts of much money can be generated in the longterm, or that it would be enough to solve the country’s economic woes.

Gavin Keeton, a professor at South Africa’s Rhodes University, wrote in Business Day, a South African newspaper, that it would be “foolish” to base government policy and welfare spending “on a shaky belief that profits and taxes from mining will remain exceptionally high forever.”

The opposition Democratic Alliance was also critical. James Lorimer, who acts as the Democratic Alliance’s shadow minister of mineral resources, said the tax plans for the mining industry would just cause more miners to lose their jobs.

South Africa’s unemployment is officially 25 percent. But some say it is closer to 40 percent if people who have given up looking for work are included.

“None of the policies being proposed at its policy conference will lead to the revival of South Africa's mining industry,” Lorimer said in a statement.

“All of them will result in decreased investment, less mining, fewer jobs in mining and a weakening of our economy.”

Paul Jourdan, an author of the African National Congress report, said mining companies must do more than just “dig holes.”

“We want companies that are going to make those linkages and build our economy for the future, post-mining,” he said at a seminar on mining this week in Johannesburg.

If mining companies don’t like this, they can “go to Australia,” he added.

Gwede Mantashe, secretary general of the African National Congress, said the tax was needed soon because poor communities are "becoming more and more impatient."

"Everyone agrees that the mining industry is doing well, but around every mine you see abject poverty and that must change," he added.

http://www.globalpost.com/dispatch/news/regions/africa/south-africa/120629/south-africa-mining-nationalization-anc-zuma