ANC warms to Chile mines policy

ANC warms to Chile mines policy

2011-12-11 11:04

Johannesburg - South African mining companies must begin to brace themselves for greater state involvement and higher taxes in the sector.

This as discussions in the governing ANC are leaning towards an appetite for the Chilean model of partial nationalisation.

If the “Miracle of Chile” is pursued, ideological, financial and political compromises lie in the wake as mooted dramatic changes to the nation’s mining dispensation are gaining momentum.

After considering 13 country case studies and models for extracting greater revenue from the natural resources sector, some models were found to be inappropriate to the South African context, and a few, including the Chilean model, were considered relevant.

Enoch Godongwana, the deputy chairperson of the ANC’s economic transformation committee (ETC), said: “The research is complete and the document just needs to be made user friendly.”

He confirmed that the Chilean model had been “well examined”, so was the Venezuelan model, which leans towards wholesale nationalisation.

Godongwana said the document would be tabled for discussion at the January 30 meeting of the ANC national executive committee (NEC).

Thereafter, it is expected to journey to the ANC elective conference in Mangaung, Free State, in June where its fate will be decided.

Sources close to the process say the Chilean model is preferred because it advocates co-existence of the private and the public sectors in the mining sector. Chile is also attractive because it has similar challenges to South Africa, especially its inability to create jobs in downstream industries.

The Australian royalties tax dispensation is said to have also impressed the ANC heavyweights after a visit to that country by Godongwana and Gwede Mantashe, the governing party’s secretary-general.

Professor Chris Maluleke, who is following the discussions on behalf of labour federation Cosatu, said the debate has began to revolve around hybrid models of state interventions in the resources sector rather than blanket nationalisation.

The discussions have honed in on what South Africa can do to extract a fair share of revenue from the $2.5 trillion (about R20 trillion) mining industry for the benefit of all its citizens.

Key features of the Chilean model are a focus on strategic minerals especially its copper, in which it is the world’s leading producer. It is understood that if South Africa were to follow

Chile’s model, minerals such as platinum, chrome and iron ore may be targeted by the state for partial ownership.

Another characteristic of the Chilean model is a multiple ownership structure, with the state playing a significant role in the ownership of resource assets.

A Chilean law, titled the Codelco Law of 1992, authorises the state-owned copper company Corporación Nacional del Cobre de Chile (Codelco) to form joint ventures with private firms to exploit untapped deposits.

The model also asserts a royalty tax of 5% of the operating income of mining companies in certain sectors. The Chileans have a copper fund called the Copper Stabilisation Fund – a sort of sovereign wealth fund that allows the state to impose a supertax during booms to finance the fund.

It ensures that Chile has a nest egg that protects it when commodity prices fall.

There are dissenting voices, however, on nationalisation.

ANC veteran and think-tank Joel Netshitenze, who is a member of both the NEC and the ETC, has warned in his writings that the risks of adopting such a policy may outweigh the benefits as nationalisation has failed in many countries.

Bheki Sibiya, chief executive of the Chamber of Mines (CoM), declined to comment on the latest developments in the mine nationalisation debate.

He said: “The information available to the Chamber of Mines on the nationalisation debate is very scant. We feel it is premature to formulate an official position while the debate is ongoing.”

In the wake of the 2008 global economic crisis, the resurgence of state interventionist economic thinking, where governments had to bail out failed banks and even took over some of them, the ANC is discussing state intervention in the mining sector in a more accommodating environment, experts say.

Dr Petros de Kok, a senior researcher at the South African Institute of International Affairs, said: “In the twilight of neo-liberal economic thinking that frowned on a major role for the state in the markets, discussions have been more open than before.”

Peter Leon, a mining expert at law firm Webber Wentzel, said in the 1970s resource nationalism (or partial nationalisation) was understood to be an attempt by the developing countries to address inequality caused by former colonial governments.

However, in the 21st century, the policy is driven by global concern for resource security, sustainable development, environmental sustainability and poverty reduction.

- City Press 

  • pmolesworth - 2011-12-11 11:42

    God knows I would prefer the benefit of minerals to go to the people of the country rather than the idle rich and those who are rich because they inherited wealth. Sadly I think that if we do see the change, we will see bigger cars for the government and little else. We have thieves, rapists, liars and cheats in government and we trust them to deal with money in the form of taxes... R65 million houses for bigamists while his people live in shacks and you trust him? sad but I don't care who benefits in the end the inheritors or the politicians, it is the same to me, it is not me and I am not making promises to those on the ground... sad sad sad.

      100001872330980 - 2011-12-11 11:57

      nail on the head spot on

      gzizfreak - 2011-12-11 17:24

      Let our estate agents, banks, car dealers, those who sell sunglasses and beer benefit rather than some foreign "investor" who is sucking us dry. At least the laundered money gets spent inside SA, mostly!

  • gcshrimpton - 2011-12-11 12:04

    Can already see zuma, malema,winnie the poo et al rubbing their greedy hands anticipating even more ill gotten gains. To build larger houses, buy more expensive cars..........all just for them. Wake up ALL the normal. hard working people of SA b4 it is too late!Comment by Tickey & Friends against rsols!

  • Gaans - 2011-12-11 12:23

    This is not such a bad idea. More than 50% of these mines are foreign owned. This means all the revenue generated from these mines are leaving South Africa. With a joint venture the skills of these firms stay in South Africa and there will be more available to the government to improve South Africa. The only problem we in South Africa face is if the extra benefits will reach the right people.

      BigD - 2011-12-11 14:46

      You will be shocked when your Rands hit an all time low when this money gram is launched by the anc. You in their right mind will invest in south africa after this money grab. The when this cash cow dries up what will they loots net, your penson, a white tax, maybea tax on your car, or a 50% tax on your salary. Never be led around by the nose by a fool.

      100000859619065 - 2011-12-11 15:46

      This is simply an attempt by the ANC, by stealth, to achieve the following (inter alia), - Another source of 'tender fraud'. Iow it is just another source of wealth that has not been exploited by those who are deeply connected to the ANC. The 'procurement' process will quickly be ambushed, by the ANC and it will become impossible for suppliers to the mining industry to get any business, unless you are VERY well connected to the ANC. In turn, the newly 'preferred' suppliers will ensure the appropriate 'Trust Funds' remain well funded. - Bail out failed BEE mining ventures. Few BEE ventures are commercially viable entities. In the mining industry that is still reasonably competitive such ventures fail reasonably quickly (eg Aurora, etc). This is the reason state intervention/participation has failed in so many instances - as it removes the competitive element that are a minimum requirement for success/survival. The extent of tender fraud in SA is so vast it is impossible calculate - eg look at some the claims made by Roux Shabangu, corroborated by a recent affidavit by suspended Public Works acting director-general, Sam Vukela, stating that between '08 - '11 more than 80% of Public Works lease agreements were fraudulently/corruptly concluded (ie blatantly ignored the required competitive bidding process). Eg - Chilean government involvement has retained competitiveness/efficiency - ANC involvement will simply equate to out-of-control corruption...

      Nasdaq7 - 2011-12-11 23:26

      "all the revenue generated from these mines are leaving South Africa." Don't forget those private overseas mining companies pay business tax and export duties and salaries of employees and often develop the communities surrounding the mines. Your taxes are going to be raised to maintain those unproductive state run mines. That is not such a bad idea to you? You'd also like those workers to have union membership wouldn't you? Not such a bad after all eh? How about mining safety? You are going to pay out of your tax money if there is a miner killed. Not such a bad idea to you? Your pension money will be invested in those mines. I hope there's no BEE corruption, nepotism or racism at those state run mines. Will they be maintained as well as the roads are maintained? Are you still keen on the idea?

  • gzizfreak - 2011-12-11 17:22

    What difference is there between the supposed ANC corruption and the mainly British operators who had cleverly stolen our mining rights and wealth ever since Cecil John Rhodes? Why do we have to enrich the British? For years, even the Afrikaner had been prevented from free economic activity and could not own more than 49% equity. They lost their mineral rights to the evil partnership between the British and Smuts. Today, Rolls Royce sells cars to wealthy people riding on the backs of millions of South Africans, black and white. Ask the Afrikaner/Boer what it was like under this kind of British oppression and rule. It is about time that we rather feed our own corrupt than the haughty hypocrites abroad. The Kimberley Process is a whitewash of their own evil blood diamonds that were obtained illegally a century ago. Rather assist the ANC in adopting fairness measures, partner with them and become part of the solution. SA needs open-minded entrepreneurs to lead the way. To the rich in ANY enterprise: rather pay higher salaries than the tax man and let the tax man get his share from VAT.

  • gzizfreak - 2011-12-11 17:27

    Let me add this: NOW is a good time to educate the working class to accept ownership of their careers, take responsibility for being productive and not thwart safety precautions underground, etc. Responsibility weighs more than rights. It is time for the working class to mature mentally.

  • Nuck Choris - 2011-12-11 17:36

    Enoch Godongwana. Is this not the same person or his wife etc who is involved in the 100 mill pension fund money that seems to have vanished???? Maybe I am wrong...Well if so I am sure this idea will benefit...certain well connected bent persons

  • Paulds - 2011-12-11 21:09

    If the Government takes a part share in the mineral wealth of the country as in Chile. Will this only apply to untapped mineral deposits ? If it does how will it raise the huge sums necessary to develop these assets ? Is this yet another opportunity for the likes of Chancellor House? Rather go the way of the mineral tax like Australia, the one department of government I would consider moderately efficient is SARS so we might get the money, although the recent VAT problems is perhaps a sign of things to come. But even if we got more money what would we do with it, pay out more social grants ? Recapitalize failed or failing farms handed over to the previous disadvantaged ? Bail out the failing BEE mining deals ? Perhaps hand out bigger bonuses to the Youth Development Program ? Haven't we learned anything from the like of Aurora ? Lets make sure we have a plan before we further weaken South Africa's ability to attract inward investment. After all in lot of cases the mining industry is a good example of inward investment. Which everybody says they want, now the government wants more from it, so they are going to change the rules, again ? Plus mining has declined by a fair percentage in terms of its share of GDP over the last few years, is this a good time for South Africa to be looking to take more out of a declining market. Perhaps once, lets consider the law of unintended consequences, God I love this country but please....

  • Mike - 2011-12-11 21:53

    The problem with any form of State ownership is that ownership means acquiring both assets and liabilities. All too often the "potential assets" part of the debate dazzles policy makers who only wake up when the bill for liabilities rolls in. Ask dear ol' Kenneth Kaunda of Zambia and the Soviets. It's one of the reasons why China is also moving to a private ownership model. Chile is at lease a lot more sensible than the Zimbabwean or Venezuelan "models", which are more like state theft for which the ordinary citizens pay and from which the political dictators reap their rich harvests.

      Nasdaq7 - 2011-12-11 23:15

      They don't reap rich harvests for long. They run the mines into the ground and then have to privatize them later.

  • Nasdaq7 - 2011-12-11 22:42

    The solution is just the sovereign wealth fund and mining royalties. Our tax money will be wasted if government tries to run things because those mines won't be as productive as private mines. The ANC tries to do everything and is good at nothing currently. Specialization is what is important in business and government. Lower taxes, create an environment that encourages work, entrepreneurship and not slavery for the state. Forget about the ideas of the USSR and state control - they have abandoned the idea themselves. Russia now has 17% personal income tax and business tax and its economy is growing at 4% to 8% per year! Be honest and admit your only economic education is that which you received in the USSR during the cold war. Show the ANC NEC this graph: It shows the production of the private sector vs. Codelco I rather see corrupt entrepreneurs than state controlled mining companies. They won't be productive. What hours will they run? Start at 9am and clock off at 3pm? Official ANC government hours.

  • 100000150470715 - 2011-12-12 06:46

    Chile's economic miracle has little to do with what was mentioned in the above article. I have seen Chile discussed in documentaries before and they, and the web, say the same thing: among other reforms, they made the central bank independent, cut tariffs, privatized the state-controlled pension system, state industries, and banks, and reduced taxes. In addition, they created a culture of saving and have a liberal immigration and visa policy. Currently there is a drive in Chile to attract hi-tech startups, called "Startup-Chile". If your idea makes the grade you get $40000 USD from the government for six months to get going.

      Nasdaq7 - 2011-12-12 09:54

      It's a free market driven miracle. Milton Friedman - the "privatization expert"'s ideas.

  • TaxGuru - 2011-12-12 11:54

    Lets remove our Raci*t glasses and think of a way to benefit should the gov go the public/private route. Raci*t tendencies will get us nowhere.It's clear for any half educated person that the current system won't last. The ANC has the majority vote, the majority who are not benefiting from the current system.

  • Gregor gmail - 2012-01-15 15:12

    yes tax is the answer..trevor manuel knows this ..not control , not nationalisation!

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