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South Africa’s ANC May Ignore Moody’s by Raising Mining Tax

South Africa’s ANC May Ignore Moody’s by Increasing Mining Taxes
Workers at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd., and Lonmin Plc, the world’s three biggest platinum producers, defied unions by striking for higher pay. Photographer: -/AFP/Getty Images

South Africa’s ruling African National Congress will ignore concerns from rating companies and call for an increase in mining taxes, said Enoch Godongwana, the party’s economic policy head.

The ANC must ensure the lives of poor black South Africans improve or risk giving an opportunity for populist leaders to stir up social unrest and erode the ANC’s dominance, Godongwana, who heads the ANC’s Economic Transformation Committee, said in an interview in Johannesburg yesterday.

“Unless we do some radical transformation, we’ll create fertile ground for an uncontrollable revolution,” he said.

Moody’s Investors Service and Standard & Poor’s have downgraded the nation’s debt, citing slower economic growth after the worst mining strikes since the end of apartheid and political pressure to raise spending. The ANC holds its five-yearly electoral conference this month, with nominations showing that President Jacob Zuma may face a challenge from his deputy, Kgalema Motlanthe, amid calls for radical policy change to tackle a 25.5 percent unemployment rate.

“It does nothing for the competitiveness of South Africa and trying to get foreign direct investment,” Peter Attard Montalto, an economist at Nomura Plc in London, said in a phone interview today. If the proposal to raise mining taxes is adopted at the ANC’s conference “that will lead to additional downgrades from Moody’s and S&P in the first quarter.”

Mine Nationalization

Workers at Anglo American Platinum Ltd., Impala Platinum Holdings Ltd., and Lonmin Plc, the world’s three biggest platinum producers, defied unions by striking for higher pay. The demonstrations spread after police killed 34 protesters at Lonmin’s Marikana platinum mine on Aug. 16. Julius Malema, the expelled leader of the ANC’s youth wing who led a campaign to nationalize South Africa’s mines, used the demonstrations to help boost his support and criticize Zuma.

Moody’s lowered South Africa’s credit rating by one level to Baa1 and kept it on a negative outlook on Sept. 27, saying the government was unable to “handle the current political and economic situation.” Standard & Poor’s cut its rating by one level to BBB two weeks later, citing concern the strikes would stoke social unrest.


“We’re kind of in a Catch-22 situation because there are people who listen to Moody’s and when we go out there and raise money, it becomes expensive,” Godongwana said. “We may take a hit. We’ve got to make a choice, do we please Standard and Poor’s and Moody’s or do we deal with the kind of constituencies we’re facing. We’re walking that tightrope.”

While Godongwana ruled out the ANC conference agreeing to any form of mine nationalization, he said increased taxes on mining is possible. The party hasn’t identified which minerals would need higher tax as delegates need to consider the effect on the mines, he said.

“It may well be that we will not increase tax on gold because most of the gold mines are marginal,” Godongwana said, referring to their profit margins in comparison to other types of mines.

South Africa is the world’s biggest producer of platinum and chrome and the fifth-largest miner of gold. The country has an estimated $3.3 trillion of mineral wealth, including coal, gold, copper, platinum and palladium, according to the Department of Mineral Resources last month.

Rising Risk

The proposal for a new resource rent tax is “both unnecessary and unwise,” Cynthia Carroll, Anglo American Plc’s outgoing chief executive officer, said in a speech in Johannesburg yesterday. “The combination of the corporation tax system and the existing royalty regime also already ensures that the state takes its fair share from the profits the mining industry earns.”

The cost of protecting South African government debt against non-payment using credit default swaps over five years has jumped 17 basis points since the start of the mining strikes on Aug. 10, signaling a deterioration in risk perception.

The rand fell 7.8 percent against the dollar in the same period, the most of 16 major currencies tracked by Bloomberg. It erased earlier gains after Godongwana’s comments, dropping as low as 8.8064, and was trading at 8.7771 by 2:25 p.m. in Johannesburg.

The ANC needs to improve how it runs the government, fixing a “very, very bad” education system and clamping down on corruption, Godongwana said.

Eighteen years after the ANC won power by leading the fight against apartheid, elitism, patronage and corruption has crept into the party, Godongwana said.

“Being in government and having access to resources has eroded our value system,” he said. “We’ve got to have some serious introspection.”

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