Nationalising Mines Essay Format

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Abstract

Nationalisation is high on the policy agenda in South Africa. This paper considers the case for nationalising the local mining sector from an evidence-based perspective. The relevant evidence is derived from theoretical considerations and related to the known features of the South African mining sector and economy. A strong case against nationalisation emerges, which can be summarised as follows: The mining sector is competitive and therefore a poor candidate for public ownership. Further, the resources sector does not dominate the South African economy nor does it create the risk of Dutch Disease. Nationalising the mining sector will cost the government more than it receives. This is not only a bad idea in itself, but it will limit the scope for distributive policies on the national budget. The contemporary international experience demonstrates the risks of fiscal imprudence. Finally, nationalising the resources sector will undermine support for those very market-based institutions required to achieve a higher long-run growth trajectory.

Suggested Citation

  • Stan du Plessis, 2011. "Nationalising South African mines: Back to a prosperous future, or down a rabbit hole?," Working Papers 17/2011, Stellenbosch University, Department of Economics.
  • Handle: RePEc:sza:wpaper:wpapers145

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    • Stan du Plessis

      () (Department of Economics, University of Stellenbosch)

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    A storm erupted in policy circles in South Africa after Julius Malema the leader of the African National Congress Youth League (ANCYL) boldly proclaimed the need for the mining industry in South Africa to be nationalized. The demand was predicated on fulfilling the vision of the Freedom Charter, which was adopted at Kliptown in 1955 as the ‘manifesto’ of the liberation struggle. According to the Charter “The wealth of the country shall be shared among all who live in it!” (Note: the full ANC YL document on nationalisation of the mines can be read here in a PDF version)

    Not surprisingly Malema has faced a barrage of criticism from free marketers and other apologists of capitalism. What was surprising, however, were the attacks he had to face from Ben Turok and Jeremy Cronin, leading figures of the Communist Party. Both Turok and Cronin quickly claimed that the notorious Minerals and Petroleum Resources Development Act [28 of 2002] (MPRDA) brought mineral rights under state control, therefore it is not necessary to nationalize mines, as this piece of legislation means that all South Africans through state ownership of the mineral rights already share in the wealth of the mining industry.

    The attack on Malema from the leading SACP cadres was so vicious and unexpected that Malema responded by promising that he will defend the ANC against communist takeover with his life, reflecting his and the ANCYLs ideological confusion. However, it is important to note that Malema felt it necessary to pose such a radical demand as mine nationalization, possibly due to pressure from the ANCYL ranks. This also shows that the YCL, basing itself on radical socialist demands, can gain a wide layer of support amongst youth in the alliance organisations. Malema has taken it a step further by demanding the progressive nationalisation of the entire commanding heights of the economy, starting with mining and then moving on to banking. Malema reiterated his demands on the eve of the Mining Indaba in Cape Town. This is an annual event for mining capitalists planning their scramble for African minerals. Susan Shabangu the Minister of Mineral Resources publicly backtracked on Polokwane Resolutions by stating that nationalisation is not ANC policy, and that the nationalisation “will not happen in her lifetime!”

    Not surprisingly the Chairperson of De Beers, Nicky Oppenheimer jumped to the defence of Susan Shabangu. Julius Malema’s response to the head of the capitalist family which has dominated the mining industry for close to a hundred years, manipulated colonial, apartheid and post apartheid governments in the interest of private profit, shows a high level of class consciousness permeating the ANCYL and its leadership. Malema is reported to have said, “Who is Nicky Oppenheimer? We don’t respect him. He has never been a leader of our people. Ours is to take from his family what belongs to the people of this country.” The leader of the Youth League demonstrated that his level of revolutionary consciousnesss is light years ahead of that of the leadership of the SACP through comments directed at Susan Shabangu. “Her pronouncements show that she has committed her own life to capital; capital continues to take care of her. What she is saying is that in her lifetime our economy will never be decolonised. She leads the most untransformed sector in our economy and should know better.” He accused the mining minister of “sucking up to monopoly capital” (Mail and Guardian, Feb 5-11, 2010.p.10).

    The ANC Youth league and its young supporters are running miles ahead of the leadership of the South African Communist Party, and even COSATU. The SACP slogan of “build socialism now”, is meaningless without a detailed programme and strategy for doing exactly that. Malema and the ANCYL are putting forward the content of what the building of socialism actually requires, and it certainly does not require a deepening of capitalism. Especially now that global capitalism stands exposed and naked in its bankruptcy. Jeremy Cronin’s defence of the MPRDA ignores the fact that the minerals mined are privately owned and disposed off by multinational mining companies, and that the value of the minerals are realized in London, New York, Tokyo, and Toronto where these companies are listed or based. While South Africa sits with the enormous costs of mining, the profits of mining is realized in the First World. The costs include costs to communities surrounding mines, including being pushed off their land; of the destruction of their traditional economies and culture, the destruction of their natural environment, the consumption and pollution of their water sources and the destruction of their health.

    The parliamentary offices of Turok and Cronin are situated in the fairest Cape a thousand miles south of the misery and destruction wrought by the mining industry on the land of rural peasants, well removed from the scourge of HIV/Aids associated with mining. HIV/Aids infection levels in mining towns are double the national rates. Mine workers reside in “informal settlements” or squatter camps similar to the one depicted in the Sci-Fi movie District Nine. The tragedy is that the real life aliens are migrant workers from Mozambique, Malawi, Zimbabwe, Lesotho, Swaziland and the Eastern Cape.

    The Mining Industry in Southern Africa

    Surface workers on South African mines earn roughly R1 500 (US$200) per month, while underground workers earn R3 000 (US$400) per month, figures which have not changed much since 2005 (Hlekiso & Mahlo, 2006). In 2005 the average wage of a Canadian mine worker was US$ 2607 per month (Worldsalaries.org). Canadian mine workers therefore earned 6.5 times more in 2005 than South African mine workers in 2009. Gold is currently trading at around US$ 1200 (SAR 9 000) an ounce, which translates into US$ 38,400,000 per ton, while platinum is trading at US$ 1450 (SAR10 875) an ounce, which translates into US$ 46,400,000 per ton for platinum.

    South Africa, like most of the other countries in the SADC region is highly dependent on minerals. Since the late 19th century, South Africa's economy has been based on the production and export of minerals, which, in turn, have contributed significantly to the country's skewed industrial development. Most industries that developed are interlinked with the supply side of the mining industry, with little diversification away from mining. In 1952 the Trade Union organiser and champion of the working class Solly Sachs noted that, “It is abundantly clear to anyone who has the welfare of South Africa at heart that the future of the people and the whole country depends on extensive and intensive industrial development, and that the mining of precious minerals can serve the interests of the country only as a stimulus for the development of other branches of the national economy.“ Yet he concludes that “It has always been the policy of the Chamber of Mines to subordinate the entire economic life of the country to the selfish interests of the mine owners” (Sachs, 1952, pp. 102-103).

    In 2000, mineral commodities accounted for 47% of the $30.8 billion in total exports. Gold, diamonds, platinum, and other metals and minerals were the top export commodities in 2002. The total value of sales of primary minerals was $14.2 billion in 2000 ($12.3 billion in 1999); $11 billion worth was exported ($9.5 billion in 1999). Processed mineral materials added another $2.98 billion to sales in 1999 and $2.43 billion to exports. The leading export earners in 2000 were PGMs [platinum group metals] ($3.9 billion), gold ($3.4 billion), coal, ferroalloys, aluminum, iron ore, vanadium, and copper. The year 2000 was the first in which the value of PGM exports exceeded that of gold. The recent sharp increase in PGMs has helped compensate for the declining role of gold (Encyclopedia of the Nations). Given these staggering export figures one is left with the uncomfortable question as to why in such a wealthy country have the issues of unemployment, poverty, disease, homelessness and crime assumed such equally staggering proportions?

    A number of myths have emerged about the South African economy, much of these stem from the ideological desire by the ruling class, particularly during the Mbeki terms in the presidency, to perpetuate neo-liberalism, to reverse the gains by the working class and to commodify even the most basic services such as health, education, electricity supply, water, transport and housing. Thus Wikipedia repeats some of these myths “South Africa has a two tiered economy; one rivalling other developed countries and the other with only the most basic infrastructure. It is therefore a productive and industrialised economy that exhibits many characteristics associated with developing countries, including a division of labour between formal and informal sectors and an uneven distribution of wealth and income. The primary sector, based on manufacturing, services, mining, and agriculture, is well developed” (Wikipedia, -) A well developed primary sector is surely indicative of an extractive economy which is typically Third World, Extractive economies depend on abundant supplies of cheap labour, hence the country has a large pool of unemployed lumpen proletarians, who are absorbed into the informal sector, which sector acts as a safety valve against revolution. The two Southern African countries, lauded for being democratic, capital friendly and responsible, South Africa and Botswana are also two of the most extractive industry dependent countries in the world, with the between them the worst gaps between the rich and poor world in the world, the worst HIV infection levels in the world and both suffering massive unemployment levels. There is no second tier in the South African economy. Those classified to be in the “second tier” are the working class, the poor, the unemployed, the excluded, the majority black African part of the population i.e. they are a product of the form that capitalist development has taken in South Africa since the discovery of minerals in the late 19th century.

    In 2000, Anglo Platinum spent $193 million on expansions and two new mines, and $450 million was spent in 2001 (Encyclopedia of the Nations). If we consider than one ton of platinum currently sells at US$ 46,400,000 and multiply this with Anglo Platinum’s proven reserves of 145.56 million tons the astronomical income of this multinational corporation from South Africa’s platinum reserves is realised once more begging the question – why are the majority of South Africans faced with poverty, unemployment, ill health, poor education, homelessness and crime?

    Impala Platinum Holdings Ltd. (Implats), South Africa's second-largest producer, operated 13 shafts within the Merensky and UG2 Reefs, and planned on investing $486 million by 2004 to maintain its capacity at 31,110 kg per year until 2030—from 112 million tons of ore reserves. Lonmin PLC, the third-largest PGM producer in the world, divested its nonmining interests in 2000, restructured itself as a focused PGM producer, and announced plans to increase production by 43% within a 7-year period, to 27,060 kg per year of platinum, at a cost of $550 million. The country's total reserve base of PGMs (metal content) was 62.8 million tons (Encyclopedia of the Nations). Freedom Park is situated in the shadow of Implat’s Rustenburg operations. It is a sprawling informal settlement and a festering sore of HIV/Aids, STIs, sex work, alcohol and substance abuse and crime – it is also where Implat’s workforce resides.

    Primary gold output in 2000 was 430,778 kg, down from 491,680 in 1997 and the 1970 peak of 989 tons. Anglogold Ltd. (the gold division of Anglo American) accounted for 37% of output; Gold Fields Ltd., 25.7%; and Harmony Gold Mining Co., 15.3%—the three companies had capacities of 161 tons per year, 125 tons per year, and 87.1 tons per year, respectively. Gold, discovered in 1886, occurred along a 430-km arc that stretched across Gauteng, the North-West, Mpumalanga, and the Free State. Production of gold rose steadily through the 1960s and 1970s, as newer mines opened to keep pace with burgeoning world-market demands. Gold production declined in the 1990s, because of reduced ore grades, increased mining costs and industry restructuring. In 1996, production reached its lowest level (496,846 kg) since 1956, although South Africa was still the world's largest producer. The world's deepest mine (3,777 m) was the Western Deep Levels gold mine, at Carletonville (Gauteng).

    Natural gem diamond output in 2000 was 4.75 million carats; and natural industrial diamond, 6.06 million carats. De Beers mines produced 10.29 million carats, from 23.3 million tons of material treated. Alluvial diamonds were discovered along the Orange River in 1867, and surface diamonds, at Kimberley, in 1870; both types were later discovered in other parts of South Africa. The Big Hole Mine, at Kimberley, was the world's largest hand-dug mine; by the time it ceased production, in 1914, 14.5 million carats of diamond had been extracted from 22.6 million tons of earth (Encyclopedia of the Nations). Diamonds from Southern Africa made Great Britain the biggest exporter of rough diamonds for more than a century. Southern Africa diamonds give employment to 2 million cutters and polishers in India, whereas in South Africa there are roughly 2000 cutters and polishers, 50% of whom are unemployed because they cannot access rough diamonds. Southern African diamonds make a significant contribution to the GDP of both Belgium and Israel. Southern African diamonds partly fund the oppression of Palestinians. Southern African diamonds contribute to non-unionized child labour in India.

    The wealth derived from the sale of diamonds provided the initial capital for the development of the Witwatersrand gold mines. The market created by the gold mines, in turn, provided the impetus for coal mining, and, later, for the development of the iron and steel industry, which, in its turn, required the development of other minerals. Taxation of mining enterprises has supported South African agriculture, and financed many of the country's administrative and social needs.

    The South African minerals industry operates on a free-enterprise, market-driven basis. Government involvement was primarily confined to ownership of the national electric power supply and the national oil and gas exploration company; under the MPRDA, mineral rights reverted to the state. The bulk of mineral land holdings and production has historically been controlled by five mining investment houses. Since 1994, the industry has undergone a major corporate restructuring, or "unbundling," aimed at simplifying a complex system of interlocking ownership, at establishing separate core-commodity-focused profit centers, and at creating an entry point for the aspirant comprador bourgeoisie, that native bourgeoisie which is dependent on and serving in the interest of imperialism, into the mining industry. The move from Johannesburg to London of two major corporate financial headquarters, Anglo American PLC and Billiton PLC, caused concern over "capital flight," and the government in 2000 blocked the $3 billion merger of Gold Fields Ltd. and Franco-Nevada Mining Corp., of Canada; in 2001, though, the government approved a $19 billion takeover of De Beers Consolidated Mines Ltd. by Anglo American. The leadership of the SACP should be careful that is is not found defending the interests of a comprador bourgeoisie instead of advancing the class interests of the working class. It should also be careful that the lack of substance of its strategies and tactics do not cause it to be marginalised by the much more dynamic and forceful shift to the left in the ANCYL.

    For the nationalization of mining under the control of the working class

    The MPRDA was designed to release the monopoly stranglehold of five mining investment houses and allow entry by the aspirant black middle class, mainly ANC leadership figures, into the mining industry. Thus instead of benefitting the population as a whole this limited ‘nationalization’ has benefitted only a small comprador elite. This elite has entered mining in alliance with financial and mining interests from the USA, Canada, Australia, Russia and China. This elite faction of the capitalist ruling class sees Malema’s call for a more comprehensive nationalization as a threat to their attempts to accumulate capital. Malema will face significant opposition from the bourgeois elements within the ANC. The SACP needs to stand only for the interests of the working class, both the miners and masses of South Africa as a whole. It must not feel pressured by the mining companies and the class interests of the bourgeoisie. Instead it should enter a constructive debate with the ANCYL on the important issue of nationalization.

    Malema’s call for nationalization represents a step forward. However, in the face of massive bourgeois opposition the ANCYL has retreated, claiming that South Africa should emulate the Botswana model. The Botswana model is not really the answer to the key questions that arise from the need to build a socialist economy and society in South Africa. However, Malema is a step ahead of Cronin and Turok in this regard. The events of the last week, particularly the remarks by Shabangu at the mining indaba and Oppenheimer’s defence of her is pushing the Youth League into an increasingly more radical position. It also shows that Oppenheimer is not even prepared for the limited nationalisation represented by the Botswana model, thus contradicting his oft quoted lofty praise for the relationship between De Beers and the government of that country. The SACP leadership needs to back Malema’s call, but also point out the limitations of mine nationalization in isolation. It is important therefore to note the positive development in the thinking of the ANCYL in its realisation that nationalizing the mining sector would be an important gain for the working class, but should be accompanied with nationalizing banking and major industry in the interests of the masses. This would be the only way to realise the Freedom Charter’s demand that “The mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole.”

    Botswana is a poor example, and it is important that we reiterate this. The fact that the Botswana government has a 50% share along with DeBeers in Debswana does not mean that the people of Botswana are benefitting from the fabulous wealth produced in that country’s diamond mines. Botswana has an unemployment level ranging between 25% and 30%, it has the highest poverty gap in the world, it has after South Africa and Swaziland the highest HIV/Aids infection rate, almost half of households in Botswana live below the official poverty datum line, and most households do not have water borne sewage. At the same time it has had one of the highest economic growth rates in Africa over the past two decades. Given that it is a capitalist country the economic wealth generated in the country is usurped by a comprador bourgeoisie and international capital. The state’s role in the economy is to police the Botswana public in general and the working class in particular – “creating favourable conditions for investment”. State ownership is not the answer if the state is an instrument of the capitalist ruling class. Only when the state becomes the instrument of the working class intent on abolishing class exploitation and oppression, and redirecting the income generated by the economy in general and mining in particular to address the challenges of poverty, unemployment, disease, illiteracy, environmental destruction will the socialization of the mining industry be useful.

    If we are going to demand socialization then we need to fill this vague term out with concrete demands. Mining in South Africa will only benefit the majority of South Africans if it is placed under the control of the working class, along with banking and the commanding heights of the economy, as nationalized concerns planned in the interest of the masses. In the final analysis the bourgeois state is unable to do this. By putting itself at the head of the working class with a bold socialist programme the SACP can struggle to bring about a real transformation of society. Instead of condemning the ANCYL for its progressive vision, the SACP should take up the challenge and provide revolutionary leadership to the working class. Smashing the bourgeois state machinery and replacing it with a socialist planned economy is the only genuine road to socialism in South Africa.

    Works Cited

    Encyclopedia of the Nations. (n.d.). South Africa - Mining. Retrieved December 2, 2009, from Encyclopedia of the Nations

    Hlekiso, T., & Mahlo, N. (2006, October). Wage trends and inequality in South Africa. Retrieved December 2, 2009, from South African Reserve Bank

    Matuma letsoalo, Malema Strikes Again, Mail and Guardian Feb 5 to 11, 2010. p.10

    Sachs, S. (1952). The Choice Before South Africa. LONDON: Turnstille Press.

    Wikipedia. (-). The Economy of South Africa. Retrieved December 2, 2009, from Wikipedia.Org

    Worldsalaries.org. (n.d.). Canada Average Salaries & Expenditures. Retrieved December 2, 2009, from World Salaries

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