Jun 25, 2012
ANC mining policy should focus on 'capturing rents' not nationalisationBack
Johannesburg|Africa|Industrial|Platinum|Resources|Road|Africa|Australia|Brazil|Chile|South Africa|Bank|Investment-wary Mining Community|Mining|Enoch Godongwana|Infrastructure|Mzukisi Qobo|Paul Jourdan
© Reuse this
Speaking at a 'Mining for Change' event on the eve of the ANC policy conference, Dr Paul Jourdan again stressed that South Africa's bilateral investment agreements made nationalisation without compensation “impossible” and that paying compensation would “break the bank”.
The ANC’s Enoch Godongwana would present the 400-page report, which was released earlier this year, formally this week during a 45-minute plenary presentation to delegates that will converge on Midrand, Gauteng.
The rents-focused approach outlined in the Sims report, which has been drafted with reference to mining policies in 30 countries, is also said to be in line with moves by governments globally, which contrasted strongly with the tendency during the 1970s for governments to secure the equivalent of such rents through ownership.
Nevertheless, the report insists that a greater share of the potential rents should be ‘captured’ in the interests of the country’s growth, development and employment objectives – a point that had already sent jitters through an investment-wary mining community.
Proposed is a 50% RRT that the authors believe will enable government to “share” in earnings achieved over-and-above that which would have been possible through the ‘normal’ application of capital, labour and innovation. In other words, in instances where the terms of trade had improved through higher commodity prices, or where the geology itself offered superior yields. At the same time, Sims proposes a reduction in the royalty tax to one per cent.
Such abnormal profits are suggested to be anything above a “return of investment greater than the long bond rate, plus seven per cent”. When the report was drafted it was estimated that an RRT of 50% would yield about R40-billion a year, but Jourdan admitted that it would be far lower currently, owing to the recent softening of commodity prices and the current crisis in the platinum sector.
Critics suggest that such a move could further undermine the attractiveness of South Africa as a mining investment destination and argue that the focus should rather be on improving the competitiveness of a sector that is underperforming relative to other resources-heavy economies, such as Australia, Brazil and Chile.
Political risk analyst Mzukisi Qobo argues that the policy debates should rather be centred on building confidence in the mining sector and on the creation of a “clear road map”, outlining ways to place the sector on a strong competitive footing.
“The ambiguities in the Sims report around the RRT, the functions of the State mining company, the nature of strategic minerals and the slew of regulatory institutions, do not inspire confidence. Instead, they compound confusions,” Qobo says.
The Sims report, itself, acknowledges the failure of South Africa to take full advantage of the 2003 to 2008 minerals boom, owing to resource and infrastructure constraints.
However, it asserts that accelerating the development of the sector has to be tied to five ‘economic linkages’, including the fiscal linkage that has, to date, received the bulk of the attention.
In fact, Jourdan (in his personal capacity) even argues that unless these connections are made, it may be best to leave the minerals unexploited, as without such linkages the developmental objectives will not materialise – instead, they would form the basis for further deindustrialisation.
Sims, thus envisages a strong association between mining and South Africa’s reindustrialisation aspirations, which its argues will form the foundation for 'inter-generational equity'.
The four other linkages outlined identified are:
• A knowledge linkage, which relates to developing the human resources and technological capacity to maximise the spinoffs from mining.
To achieve this, the Sims reports proposes greater coordination of the government departments overseeing minerals development and trade and industry, possibly through a ‘Super Ministry”, or through the newly created Presidential Infrastructure Coordinating Committee.
It also argues for the RRT receipts to be ring-fenced for use in three sovereign wealth funds, designed to support fiscal stabilisation, regional development and minerals development.
Amendments to the Mineral and Petroleum Resources Development Act would also be required, particularly to ensure that the contribution to backward and forward linkages are made a licence condition, as well as to cater for a category of ‘strategic minerals’ that could be associated with extraction and pricing conditions.
Lastly, it also calls for the expansion and upgrading of minerals-related infrastructure to support the expansion of the minerals sector. Part of the process should involve an upscaled investment in geological surveying “so that we have more deposits in 20 years time”.
“But primarily, it is up to our generation to ensure that the current depletion of our finite mineral assets establishes a competitive industrial platform for the economic prosperity of future generations,” Jourdan concludes.
Edited by: Creamer Media Reporter© Reuse this Comment Guidelines (150 word limit)
Other Economy News
Article contains comments
Updated 42 minutes ago Government’ proposed Medium and Heavy Commercial Vehicle Automotive Investment Scheme (MHCV-AIS) is unlikely to have any real impact on Isuzu Trucks South Africa’s automotive assembly business, as the monetary benefits of the incentive would be too insignificant to...
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The board of UD Trucks Southern Africa (UDTSA) has announced the resignation of MD Jacques Carelse. Long-time UD employee, corporate planning and marketing GM, Rory Schulz, has been appointed as acting MD while the process started to appoint a new MD. The Japanese...
There is a need to start planning another pumped storage scheme in South Africa. Much work has already been done at a site in the Limpopo province and the project was very close to being put out to tender at one stage. In 2008/9 the National Energy Regulator of South...
The Coega Development Corporation (CDC) is preparing to leverage its strategic coastal position to develop the Eastern Cape economy through proposed aquaculture development zones (ADZs), with a proposed R2-billion project aiming to contribute $278-million to the...
Completion of the ongoing construction of the 102 km Zomba–Jali–Phalombe–Chitakale road, in southern Malawi, has been extended from June to December 15 because of persistent rains and difficulties in paying the contractor. The project is being undertaken by Kuwait's...
The Malawi government has awarded South African firm Fischer Consortium the contract to upgrade the Malawi Road Traffic Information System. The Directorate of Road Traffic and Safety Services at Malawi's Ministry of Transport and Public Works says Fischer...