South Africa’s ANC Rejects Mine Nationalization for Taxes

S. Africa’s ANC Rejects Mine Nationalization in Favor of Tax
The ANC removed any reference to nationalization in its policy recommendations approved by members at its national conference in Bloemfontein, ending three years of debate within the party. Photographer: Henner Frankenfeld/Bloomberg

South Africa’s ruling African National Congress rejected proposals to nationalize mines in favor of higher taxes in the world’s largest producer of platinum and chrome.

“The issue of nationalization as we’ve discussed it over the last few months is off the table,” Public Enterprises Minister Malusi Gigaba told reporters in the central city of Bloemfontein today. The party is considering a “resource rent” tax or higher royalties to extract more revenue from the industry, said Enoch Godongwana, head of the ANC’s economic transformation committee.

The ANC removed any reference to nationalization in its policy recommendations approved by members at its national conference in Bloemfontein. That ends three years of debate within the party and removes uncertainty for companies including Anglo American Plc and BHP Billiton Ltd. that own assets in the country. The ANC Youth League has led a campaign for the party to adopt a program of seizing mines to redistribute wealth in Africa’s biggest economy.

State intervention in mining should be focused on minerals processing and through a government-owned company seeking more equity in the industry, Godongwana said. Details of this and mining taxes will be discussed further in the party, he said.

Investor Confidence

“Yes, there will be tax, what form it will take is a matter for the administration,” he said.

The rand fell to 8.5152 against the dollar by 2:27 p.m. in Johannesburg from 8.5260 before the press conference. The yield on the government’s 2021 bond fell 5 basis points to 6.36 percent.

Lack of detail on the taxes may undermine investor confidence in the mining industry, said Peter Davey, the head of mining research at Standard Bank Group Ltd.

“Just as nationalization has always hung like a cloud over South Africa’s mining industry, this uncertainty is destroying investor confidence,” Davey said in a phone interview from London. “There is just too much uncertainty. How can anyone think about starting a new project in say, platinum, if there is the prospect of an unknown level of resource tax.”

Mining makes up about 9 percent of gross domestic product and accounts for two-thirds of exports. The country has an estimated $3.3 trillion of mineral wealth, according to the Department of Mineral Resources.

‘All Views’

An ANC-commissioned study published in February called for a 50 percent “resources rent tax,” triggered once companies earn returns in excess of about 15 percent annually.

“We are concerned that there may be further taxes on minerals,” Vusi Mabena, a senior executive at South Africa’s Chamber of Mines in Johannesburg, said in a phone interview. “We would like to engage with the ANC and the government to ascertain the extent to which those would be imposed on the mining sector.”

The government won’t be “reckless” and will listen to all views before implementing any new mining taxes, Deputy Finance Minister Nhlanhla Nene said at the ANC conference on Dec. 17.

“They made it quite clear that they want to have a debate about it and that is positive,” Stephen Meintjies, head of research at stockbroker Imara S.P. Reid, said in a phone interview. “A ’one size fits all’ tax for the mining industry is disastrous.”

Monetary Policy

Shares of Anglo American, the largest investor in South African mining, rose as much as 0.5 percent, and traded 0.3 percent higher at 262.51 rand at 2:55 p.m. in Johannesburg. Impala Platinum Holdings Ltd. Anglo Platinum, the world’s largest producer of the metal gained as much as gained as much as 1.5 percent to 165.95 rand.

The ANC agreed today to classify certain minerals as strategic, which the government wants to manage through measures including targeted export controls in order to ensure security of supply, Godongwana said. Iron ore, coal, copper, copper, zinc and nickel are amongst minerals being considered for classification, according to the ANC’s document.

The party’s economic policy recommendations also calls for a “more flexible monetary policy regime,” and that the central bank take into account job creation and economic growth in setting interest rates. The South African Reserve Bank’s goal is to keep inflation within a range of 3 percent to 6 percent.

“Government should engage with the new wisdom developing on macroeconomic policy around the world in response to past failures and the global crisis,” according to the ANC’s document.

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