South Africa’s Mine Taxing Beats Botswana’s Mine Ownership

The South African government, which taxes mines, is better off than the Botswana government, which part owns them, says Free Market Foundation executive director Leon Louw. Botswana, which is held up by the African National Congress Youth League (ANCYL) as a mine nationalisation success story, is not an example of mine nationalisation at all, but one of partnership, adds Louw.

The Debswana diamond-mining company, in which the Botswana government is an equal partner with private-sector company De Beers, is a public-private partnership. “The Botswana government makes it very clear that it does not tax the mines, but just owns the shares in the partnership companies,” Louw elaborates to Mining Weekly Online in a video interview, following a Citibank-hosted presentation in Johannesburg. Citi is headed in South Africa by MD Donna Oosthuyse, who is also president of the local American Chamber of Commerce.

Louw says that the South African government has not had to invest a single cent to become an effective 50% shareholder in the South African mining industry. Better still, it is not at any financial risk, sharing only in the profits and never in the losses. In contrast, the Botswana government, through Debswana, is currently having to invest R12.5-billion in the Jwaneng diamond mine, which would otherwise grind to a halt by 2017. De Beers is investing the other R12.5-billion in the total R25-billion Cut 8 project. Louw’s view is that the government simply cannot get more revenue out of South Africa's mines than it is already getting, as it would overly discourage mine expansion and growth.

“It’s at a maximum. We have by far the best formula at the moment, from which the government gets money from the mines rather than having to subsidise them in the way that it has to subsidise its parastatals,” he says. If the South African government were to decide to nationalise the mines, it would cease to receive that 50% of the substantial profits from South Africa’s mining industry, which Louw views as “the best possible investment one could imagine”, and expose itself to financing future mine losses.

The Chamber of Mines of South Africa CEO Bheki Sibiya says that Xstrata South Africa executive director Andile Sangqu has been appointed to head a special committee that will deal with the mine-nationalisation issue. Sangqu tells Mining Weekly Online that the committee met for the first time on Friday, when it set out its terms of reference for the nationalisation discussion. Chamber senior executive Roger Baxter says that the economic opportunity cost to South Africa of getting its decision on nationalisation wrong would prejudice the prospects of future generations for decades.

Baxter says that the objectives originally set out in the nationalisation documents of Zambia, Ghana and several Latin American countries were not achieved in any of the countries. But the consequences for those countries were exceedingly damaging, with life expectancy in some falling by more than ten years a person on average. South Africa needs to get its economic growth rate up to between 6% and 7% a year, but this is impossible without foreign capital.

South Africa’s savings rate is only 15% of gross domestic product (GDP) and to grow the economy by more than 5% a year, the country needs to have a fixed investment rate of at least 25% of GDP. Baxter reiterates that it is essential for South Africa to attract foreign capital as a supplement to domestic savings in order to grow the country's capital stock and lift fixed investment to a level that facilitates economic growth at a higher pace.

Nationalisation would effectively turn South Africa into a closed economy that would have to rely on its domestic savings for investment, which would currently give the country a growth possibility of less than 1% a year.

To watch the Minng Weekly Online video on Leon Louw, go to and click on 'Multimedia" and then on 'Video Clips'.

Source: Martin Creamer South Africa’s mine taxing beats Botswana’s mine ownership – Louw June 27, 2011

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