Mine Nationalisation Would Expose the Fiscus to Unnecessary Risk

Regardless of what precisely the ANCYL has in mind as a “model”, there is a bald (unsubstantiated) assumption that nationalisation will increase the state’s “fiscal capacity”.

No one has, as far as we could establish, provided evidence to the effect that nationalisation is likely to have net fiscal benefits. Economist Dawie Roodt estimates that approximately fifty percent of mining profits already accrue to the South African government. In other words, by virtue of taxation, it is effectively a fifty percent shareholder in the country’s mines. But, he points out, it is a disproportionately privileged de facto shareholder. It participates only in profits. It does so without having invested a cent in the mines from which it derives such generous revenues. And it incurs zero risk. It shares profits but not losses; a situation investors might fantasise about, but never experience.

Whilst it is unclear, the implication of the ANCYL’s discourse under What is to be done?, implies that the state’s share (whether 50 percent or 100 percent) will be purchased rather than confiscated. There is no calculation of whether such an investment will yield a beneficial rate of return to the fiscus. If the experience with state-owned mines, including our own Alexkor, is anything to go by, the state may be better off investing surplus capital at fixed rates of return with private banks.

Author: Leon Louw is the Executive Director of the Free Market Foundation. This is an excerpt from the chapter,Analysis of the ANC Youth League’s Nationalisation Proposals, in the book Nationalisation, recently published by the FMF. The views expressed in the article are the author’s.

FMF Policy Bulletins / 15 March 2011