Now lets scotch the planned nationalisation of minerals

Right after the March 31 closing date for submissions on the Minerals Development Bill, the Sunday Times carried two items on the subject. The Royal Bafokeng had a full-page advertisement about the Bill depriving them of their mining royalties by expropriation without compensation. And 'following the Bill's roasting by London fund managers and investment analysts, who branded it vague, lacking in detail and capable of scaring off investors, Minister Phumzile Mlambo-Ngcuka has pledged to continue consultations and says she would welcome further proposals from business.' In July last year, Chicago University's Law Professor Richard Epstein gave a talk on mineral rights in Johannesburg. He has specialised in property rights issues – intellectual property, water rights, mineral rights and property law in general, and his famous book Takings is highly relevant to whether South African mineral rights can or should be nationalised. Some of his comments during his talk, welcome or not, might help the Minister.

You want a system of secure property rights with respect to minerals to make sure that effort is expended on the exploitation of these rights rather than on struggles over how to divide the spoils.

Once you start to give people "use it or lose it"-type options, you introduce a massive set of distortions that will lead to premature excavation.

When government decides to interfere with mineral rights, unless it pays full compensation it will distort the patterns of use prior to the confiscation, and it will create gratuitous social inefficiency.

To nationalise minerals may well result in government getting less money overall.

Since South Africa now sells most of its minerals on international markets, there will be no forgiveness in world markets for local inefficiencies.

A programme which says, "We want to level the playing fields," is going to be destructive for everyone if it produces inefficient outcomes by depriving everybody of the accumulated expertise and capital that the established mining companies have been able to acquire through their operations over the years.

There is a fair degree of freedom for constructive activities without destabilising property and minerals rights regimes.

There is a big danger in putting all mineral rights in one house, which is what you do when you create a state monopoly. There is absolutely no reason to have a state take-over to deal with the problem of indefinite or imperfect property rights. You do not want to have confiscation without compensation. We do not have to know the distribution at this moment of state lands, private lands and tribal lands. We do not have to know how many tribes there are, or what the values of the minerals are. What you have to agree upon is a stable legal regime. The question is whether it is going to be private or public. And the thing that I would urge upon you is that private rights out-perform public rights. So the function of a government ministry ought to be to figure out how to privatise.

Nobody will choose to invest in South Africa tomorrow if you confiscate the property of people who live in South Africa today. Nationalising minerals with or without compensation seems such an unnecessary and suicidal course for South Africa that we can only hope public opinion, the Minister, the cabinet, or the Constitutional Court will scotch the Bill. Source:Dr Jim Harris is a freelance researcher and journalist. He maintains the Privatisation Update which appears under Publications on this website. FMF\2 April 2001