Feb. 7 (Bloomberg) -- A study commissioned by South Africa’s ruling African National Congress said nationalizing the country’s mines would be disastrous and increased taxes on the industry should be considered instead.
“Nationalization without compensation would require a constitutional change and would result in a near collapse of foreign investment and access to finance, as well as widespread litigation by foreign investors,” according to a copy of the study obtained by Bloomberg. “This route would clearly be an unmitigated economic disaster for our country and our people.”
The ANC undertook the study under pressure from its youth wing, which has said the black majority doesn’t benefit adequately from the country’s mine resources. The proposals are due to be considered at party conferences in June and December.
South Africa is the world’s biggest producer of platinum, chrome and manganese. Anglo American Plc, Xstrata Plc, Rio Tinto Group Plc and BHP Billiton Ltd. have operations in the country. Buying the country’s publicly traded mining companies would cost almost 1 trillion rand ($132 billion), more than the national government’s annual budget, the study says.
Mines Minister Susan Shabangu declined to comment on the contents of the report. She confirmed that it argues against nationalization and said its findings may not necessarily be implemented.
“That’s a study,” she said in an interview in Cape Town today. “We have got our own internal process. We have to have a tax which would be competitive, especially in relation to other mining jurisdictions. For the past decade we talk about having missed the previous mining boom.”
The study recommends the government consider working with labor unions to exert greater control over key mining companies.
While the state and unions have significant stakes in mining companies, union holdings are “generally managed by private sector fund managers, giving little scope for direct influence,” according to the study.
“The unions should pool their mineral holdings with the state in a special purpose vehicle that would then have a major influence on the mining companies,” according to the study’s proposals. “For strategic minerals, where majority state control might be necessary, this holding could be increased to a controlling holding but this will require compensation at market value.”
Resources Rent Tax
The document proposed the introduction of a “resources rent tax” on all mining operations triggered once they are earning returns in excess of about 15 percent annually.
Such a tax at a rate of 50 percent would earn about 40 billion rand at current prices, the study said, recommending that the proceeds “be kept in an offshore sovereign wealth fund” to ease the strengthening of the rand during commodity booms.
Other recommendations include a 50 percent capital gains tax on the transfer of mineral prospecting rights and the imposition of a 30 percent “mineral foreign shareholding withholding tax” on companies based in foreign tax havens. Mining deposit concessions should be allocated through a public tender process rather than allocated on a first-come, first-served basis, the study said.
It called on the National Treasury to delay plans to introduce a carbon tax, because it may discourage mining.
The study also proposed that the ministries of mineral resources, energy, trade and industry, public enterprises, economic development and science and technology be merged into a “super economic ministry” to ensure management of the economy is better aligned.
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