Burying nationalisation

2012-02-09 06:57

Johannesburg  -  A study submitted to the ANC to reform its vital mining sector proposes a 50% tax on profits and rejects nationalisation as an “unmitigated disaster”.

Although it delivers a hammer blow to calls for nationalisation by radical elements in the ANC, mining houses will be wary of the tax proposals as they grapple with steeply rising labour, power and safety costs in the world’s largest platinum producer.

South Africa has a poor track record of translating its vast mineral wealth into broader prosperity and the government is under pressure to create badly-needed jobs in the industry without scaring off the investment it needs.

“Under the current fiscal regime our nation is clearly not getting a fair share of the resource rents generated from its mineral assets,” an official summary of the 600-page study obtained by Reuters said.

“A Resource Rent Tax (RRT) of 50% must be imposed on all mining. It will trigger after a normal return on investments has been achieved, thus not impacting on marginal or low grade deposits.”

The study defines a resource rent as “the difference between the price at which a resource can be sold and its extraction costs” - in other words, profit.

R1 trillion price tag

As expected, the study, which was compiled after research trips to 13 countries ranging from Chile to Australia to Venezuela, flatly rejects nationalisation, mainly on cost grounds.

It put a R1 trillion price tag - almost as much as South Africa’s annual budget - on acquiring all listed and non-listed mining companies in the country.

An asset grab without compensation against an industry that accounts for 6-8% of South African GDP would be even worse, the report concludes.

“Nationalisation without compensation ... would result in a near collapse of foreign investment and access to finance. This route would clearly be an unmitigated economic disaster for our country and our people,” it says.

The document says new taxes raised, which it estimated at R40bn at current prices, should be ploughed into a sovereign wealth fund that could be used to temper appreciation of the rand during commodity booms.

Once the resource rent tax is imposed, mineral royalty rates should be cut to one percent from the current sliding scale system, which caps royalties at 7%.

Tax havens

The study also proposes a clampdown on the use of tax havens by foreign mining investors - a practice that activists say bleeds capital from poor countries, especially those that rely heavily on mining.

“Many international mining companies invest in Africa via a subsidiary registered in a ’tax haven’,” it says.

“To encourage direct investment from their primary listing country, we should introduce a mineral foreign shareholding withholding tax: if the foreign mining company is held in a ’tax haven’, then rate should be 30% and if not, the normal rate of 10% should apply,” it says.

The study deals a potentially fatal blow on the push for mine nationalisation, which had already lost political momentum due to ANC disciplinary charges against its biggest advocate, Youth League leader Julius Malema.

Malema was found guilty of sowing discord in the party by an internal tribunal in November and was sentenced to a five-year suspension. 

Below are details of some of the key proposals in the study:


A resource rent tax (RRT) of 50% should kick in once an investor has made a “reasonable return.” It should therefore not hit marginal or low-grade deposits.

“Resource rent” is defined as “surplus value” or “the difference between the price at which a resource can be sold and its extraction costs, including normal returns.”


In light of the resource rent tax, mineral royalties should be reduced to 1% of revenue, provided the government is compensated equally through income from the tax.

The current mineral royalties system operates a sliding scale, with levies capped at a maximum of 7%


A “super ministry” should be set up to oversee the sector, as well as the development of other, related parts of the economy, including mining services and downstream industries such as ore processing and smelting.

The new entity would be made up of units from the Departments of Trade and Industry, Mineral Resources, Energy, Public Enterprises, Economic Development and Science and Technology.


If a foreign mining company is registered in a tax haven, a mineral foreign shareholding withholding tax of 30% percent should be introduced. Otherwise the normal rate of 10% should apply.


A state-owned miner should be created to develop minerals deemed “strategic.” It should supply them for the domestic market at competitive prices.


Minerals used for manufacturing, power production, agriculture and infrastructure should be declared strategic and supplied to the economy at prices allowing for a reasonable return or at export parity.


A body should be established to audit existing rights and to regulate the granting and administration of future rights. The commission would also be responsible for deciding which minerals are strategic.


A putative carbon tax would be extremely damaging and should be put on hold. The tax could be reconfigured by having a higher resource rent tax than the proposed 50% linked to carbon emissions.


A sovereign wealth fund could be set up to invest in long-term projects that will ensure economic prosperity beyond the depletion of mineral resources. The fund could be funded through income from the resource rent tax.