“Transformation will be nullified if nationalisation goes ahead”, said Free Market Foundation executive director Leon Louw.
Speaking at the Mining Law 2011 conference, Louw noted that it was not clear why the nationalisation debate was receiving so much airtime when so much progress had been made in transforming South Africa's economy. "Transformation will not only be reversed but eliminated under nationalisation," warned Louw.
According to the FMF book on nationalisation, studies on who owns South Africa's shares have revealed that black South African ownership of the country's financial assets is increasing. Some 36% of assets owned by South African individuals comprise shares listed on the JSE Securities Exchange; houses (primary property) make up around 33% of South African assets; while the bank (money market), bonds and non-residential property make up another 31%.
"Of the total shares owned by South Africans, those owned by whites declined to 66% in 2010 from 77% in 2000, whereas black ownership increased from 23% in 2000 to 34% in 2010," said the Foundation, which said the figures included both direct and indirect share ownership via pension and provident funds.
"The number of pension funds and houses purchased by blacks has increased substantially. Blacks now own 37% of retirement fund flows, a leap up from 23% in 1995. Through investment funds and direct holdings blacks now own a significant percentage of the JSE," the FMF noted.
In the mining sector alone, black ownership had made remarkable progress with the FMF estimating that black investors now own 23.5% after holding just 5% in 1994. Louw argued that even though there is an intention to increase black participation in the mining industry, nationalisation would not be the answer.
Given that ownership by the state is not the same as ownership by citizens, nationalisation of the country's mines would actually result in the reduction of black ownership. Louw noted that the government already receives about half of mines' profit and if it looked for another way to get more money from mining it would be hard pressed to find a better formula.
Economist Dawie Roodt estimated that about 50% of mining profits already accrue to the South African government which means that by virtue of taxation, it is effectively a 50% shareholder in the country's mines. But, he pointed out, that government is a disproportionately privileged de facto shareholder by participating only in profits and not the risk of mining.
"Nationalisation would put government in a worse position than it is in now," Louw said.
Noting the backing nationalisation has received from some black entrepreneurs, Louw said nationalisation has traditionally been very profitable for mining companies who sell their assets to the state at a handsome price and are often after a few years offered these assets back at a fraction of the price it received.
It is, however, difficult to imagine that the government would sanction the huge expenditure that would be involved in nationalising the mines. According to the Democratic Alliance the nationalisation of South Africa's mines would cost R1.4 trillion - or, put differently, would treble South Africa's national debt overnight. This would mean that for every rand spent on nationalising a mine, a rand would be lost to key social development spending such as healthcare or education.
But the primary advocate of nationalisation, the ANC Youth League, has now called for strategic sectors of the economy to be expropriated without compensation. Contained in the league's discussion documents for its national conference - which were released last week - the demand makes the threat of nationalisation even more severe.
"The state has no other option but to decisively transfer wealth, particularly natural resources from those who currently own it, for public purposes and in the public interest," the document reads.
Louw said these statements were causing a lot of damage, particularly to investor confidence. Every time such a comment was made, SA shed 1 billion rand of its gross domestic product, he told Business Day last week.
It is not just mines that the ANC Youth League wants nationalised but also banks and monopolies - big business in other words. But Louw feels that big business might not be taking the nationalisation talk seriously. "The ANC has not said there will be no nationalisation, it has only said that nationalisation is not ANC policy," said Louw. That might change given the earnestness with which the ANC is listening to the ANC youth League's call.
The ANC last year said it had commissioned a study on nationalisation. It is believed that the party plans to visit six countries and do desktop studies on 21 others as part of the research. President Jacob Zuma said in September that the NEC would undertake the research as part of the recommendations to the national policy conference in 2012.
"Nationalisation is a serious threat; it's not just whimsical rhetoric," Louw warned.
Source: Sherilee L Lakmidas Transformation 'wiped out by nationalisation’ BusinessLive 20 April 2011
For text: http://www.businesslive.co.za/incoming/2011/04/20/transformation-wiped-out-by-nationalisation
First published by BusinessLive, 20 April, 2011