Why nationalisation won't work

Sep 28 2012 16:14

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A case for nationalisation

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Fin24 blogger Sashan writes that once nationalised, mines chase away all the skills required to build the mines effectively.

He refers to an opinion piece - Nationalization and Mining: Lessons from Zambia - Daniel Limpitla wrote about a year ago, saying it is most relevant because "whilst the debate around nationalisation of the mining sector in South Africa is not front and centre of the conversation, it is always 'trending' beneath the surface".

Why is it still relevant? Because not only does the author point out how production falls, but he also points out how expensive it is to revitalise the sector once a long period of underdevelopment and underinvestment has passed.

Back to the present, he blogs: “Whilst some fellow who seems to capture all of our imagination was appearing in court up the drag in Polokwane, the markets were taking a serious drubbing here.

“Again, with all the unrest in the local mining industry, the local miners led the way south again. Gold miners lost over four percent, the platinum stocks collectively got thumped three and two thirds of a percent. I saw another analyst report on one of the majors suggesting that it was a conviction sell.

"Yuck.... “OK, not all of the blame can be pointed at the local miners and the unrest for having a negative impact on our markets since last Monday or so. Much of the finger pointing can be in the direction of the Spanish government dragging their heels. Or at least that is what Mr. Market thinks.”

Fast forward to nationalization and Daniel, and Sashan writes: “But the key to the piece that Daniel has written is that once nationalised, mines chase away all the skills required to build the mines effectively. Why? Well, here are some reasons, an excerpt from the piece:

'Mining is a high risk, capital intensive industry that requires access to large numbers of highly skilled people, most of whom are motivated by personal gain.

‘There are very few examples of efficiently run state-owned mines that make a positive contribution to their country’s economy, the copper operations of Chile’s Codelco being the exception. Chile’s success in running nationalised mines is in no small part due to the fact that Chilean mining schools have historically produced more than double South Africa’s number of mining engineering graduates.
'“These Spanish-speaking engineers are also less mobile than South African graduates in the English language dominated world of mining.'

"If you remove the personal incentives for the stakeholders, productivity falls. Without a doubt. And then another telling half a paragraph should seriously be governments mantra on this issue, putting to rest the debate once and for all.

'Removal of the risk/reward profit motive will accelerate the current flight of skills to other mining locations—already the Australians pay a substantial premium over local salaries for mining engineers.

‘This will leave South Africa unskilled, uncompetitive, and begging for international buyers for the now rundown mines, with nothing but ruined assets to sell'.”

If the shortish piece written by Daniel is the only other thing that you read today, do it, suggests Sasha.

  - Fin24

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nationalisation  |  mining unrest



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