In case anyone was wondering if I had disappeared into the ether: I have been seriously busy and have had no time to post on the blog.
If you were paying extra attention, you may have noticed that a post reviewing the nationalisation of mines debate appeared and disappeared a few weeks ago.
My mistake – it was bespoke for a month, and I jumped the gun. I am now able to publish it and you will find it below.
Meanwhile I am into my second reading of An Inconvenient Youth – Julius Malema and the ‘New” ANC by Fiona Forde. It is exceptionally good and I strongly recommend you go out and buy yourself a copy. I have begun a review which I will publish here during the course of the week.
But meanwhile, here is the month-old nationalisation update/review. My views haven’t changed much since I wrote it … and it is good to get it on the record … even if it is a little turgid and written in an overly formal tone.
The nationalisation of mines debate in South Africa is, as predicted, reaching new heights of sound and fury. Yesterday it appeared that Cosatu was officially supporting the Youth League call. This is a situation fraught with danger although I do not change my assessment that the ANC is unlikely to decide on mine nationalisation along anything like the lines proposed by its youth wing.
- Yesterday Cosatu economist Christopher Malikane argued that the ANC has accepted as fact that the mines would be nationalised and that it was only a question of “how” not “if”.
- This does not imply significant new risk although the markets are likely to interpret it as such.
- In reality Cosatu is significantly divided on the call and current shifts in Cosatu policy have more to do with (important) internal conflicts.
- Cosatu does not have the final or even main say over ANC economic policy and its current flirtation with the Youth League is actually about frustration with not achieving its policy aims with the ANC.
- The ANC and its left wing allies have been consistent and steadfast in their criticism of the call and I outline the history both of the Youth League call and of the critique of the call in this report.
- The nationalisation call has consistently been deployed in political battles for power within the ANC and in government which both gives the call unrealistic political energy and makes the threat difficult to interpret or assess.
- The ANC has set its Economic Transformation Committee the task of assessing the call and making proposals. I expect clarity to emerge in November this year but a final decision will only be made at the centenary national conference in December next year.
- Cost, international agreement, the Bill of Rights and the constitution make it inconceivable that the ANC attempt to nationalise the mines.
- However I think the party and government will use the threat as a stick to get a better deal out of the mining houses.
- Between now and the final decision the “sound and fury” will keep the issue alive and the threat present.
Cosatu shifts towards the ANC Youth League
Yesterday Congress of South African trade Unions economist Professor Christopher Malikane was reported to have said at a South African Chamber of Commerce and Industry forum that the group charged with discussing the nationalisation of mines in the ANC had moved beyond the issue of whether the mines should be nationalised and is now purely considering modalities to achieve this aim. “Investors are looking for certainty around the issue of nationalisation, well this is the certainty they need,” he said.
The ANC Youth League managed to place formally on the agenda of the ruling African National Congress (at the party’s National General Council in September 2010) the proposal that government consider nationalising a majority share of the mining industry – for report back and a decision at the party’s Mangaung elective centenary conference in December 2012.
The general noise gets louder
With the ANC and government leadership mired in controversy relating to poor service delivery, poor government performance and accusation of corruption – and the Zuma presidency as weak as it has ever been – the ANC Youth League and its supporters in government appear to have seized the initiative and are making all the running at a public level. Investors and other observers would be forgiven for thinking that the slogan “Economic Freedom in our lifetime!” and the calls to nationalise the mines, banks and the land (that last explicitly without compensation) were not government policy. I am of the view that owners of mining equity and other property in South Africa are starting to feel the heat.
My view has been that the ANC is highly unlikely to decide to nationalise the mines – although uncertainty in this regard will persist right up until December 2012 (although some clarity is expected to emerge after the ANC committee examining this issue reports back some time in November this year).
I think that the party and government will attempt to use the populist surge to discipline the mining companies to fulfil their social and Black Economic Empowerment obligations under the Mining Charter (which arises out of the 2002 Mineral and Petroleum Resources Development Act).
Additionally government and the party are likely to use the opportunity to change the tax and royalty regime to extract more revenue from the sector – particularly with the imposition of a tax on windfall profits.
Finally I think it likely that new obligations will be placed on the mining companies – especially with regard to some form of obligatory contribution to the building and maintenance of transport and power infrastructure near where the mining operations are located.
Brief History of the nationalisation call
The ANC Youth League on nationalisation of mines
Soon after the current leadership of the ANC came to power at the landmark Polokwane conference in December 2007 the ANC Youth League elected Julius Malema as its president (in April 2008).
By the end of that year Julius Malema and the Youth League began proposing that the mining industry be nationalised. This was the essential elements of that proposal:
* an immediate suspension of the issuing of mineral rights and permits;
* the establishment of a state owned mining company;
* the nationalisation – with or without compensation – of fifty percent of all mining operations;
* that licenses only be issued in future on the basis of a 60 percent equity stake being held by the state owned company.
The Youth League drew authority from the historic Freedom Charter document. The document, drawn up in a national consultative process led by the African National Congress in 1955 and adopted at the Congress of the People in Kliptown says of the economy:
“The national wealth of our country, the heritage of South Africans, shall be restored to the people; the mineral wealth beneath the soil, the Banks and monopoly industry shall be transferred to the ownership of the people as a whole”.
Criticism from the Left of the ANC Youth League call
The major critique of the ANC Youth League call was formulated by Jeremy Cronin, Deputy Minister of Transport and Deputy Secretary General of the South African Communist Party (and major ANC intellectual and ideologue).
It is my guess that Jeremy Cronin was deployed by the incumbent leadership of the ANC in the belief that a criticism of the nationalisation call articulated by leading communists would defuse the Youth Leagues claim of militancy and radicalism – and I therefore cover these arguments in detail here.
Cronin argued that the Freedom Charter passage supports the idea that “the people” get the full benefit of the economic resources “not that there be a narrow bureaucratic take-over by the state apparatus and the ruling party’s deployees” (all Cronin quotes in italics in this section from SACP’s Umsebenzi Online Volume 8, No. 20, 18 November 2009).
The state owning important aspects of the economy says nothing, for Cronin, about whose interests are being served:
“Hitler’s Nazi Germany, Mussolini’s fascist Italy, and Verwoerd’s apartheid South Africa all had extensive state ownership of key sectors of the economy.”
So for Cronin the 2002 Mineral and Petroleum Resources Development Act had already gone some way to fulfilling the Freedom Charter’s objectives by explicitly stating:
“… that South Africa’s mineral and petroleum resources belong to the nation and that the State is the custodian thereof …. In other words, it is the “nation” (with the state as custodian) and not the mining companies that have legal ownership of the mineral resources beneath our soil”.
Cronin argues that the Youth Leagues proposal of nationalising
“mining houses in the current global and national recession might have the unintended consequence of simply bailing out indebted private capital, especially BEE mining interests”.
And further that:
“Many of our gold mines in particular are increasingly depleted and unviable. Some reach costly depths of four kilometres below the surface. Recently the global gold price has bounced back, but it is telling that, unlike in the past, our gold output actually dropped by some 9% in the same period. Our gold mines are simply no longer able to respond dynamically to gold price rises.”
Cronin (while making it clear he thinks “the people owe the mining houses absolutely nothing”) points out that South Africa’s Bill of Rights sanctions expropriation but requires compensation at a price agreed by both parties or determined by the courts.
The bottom-line for Cronin is that nationalisation would do nothing to further the “national democratic struggle”. Rather it;
“would land the state with the burden of managing down many mining sectors in decline … burden the state with the responsibility for dealing with the massive (and historically ignored) cost of “externalities” – the grievous destruction that a century of robber-baron mining has inflicted on our environment. In the current conjuncture, nationalising the mining sector at this point would also probably unintentionally bail-out private capital, in a sector that is facing many challenges of sustainability. The problems of liquidity and indebtedness for BEE mining share-holders are particularly acute.”
Opposition to and support of Youth League call
President Jacob Zuma, ANC Secretary General Gwede Mantashe (who is also SACP Chairman), and Minister of Mineral Resources Susan Shabangu have all explicitly rejected the ANC Youth League’s call – with Shabangu having famously said that the mines would only be nationalised “over my dead body”.
However despite this being the overwhelming position of the ANC and government, the Youth League scored a significant victory by having its proposal placed formally on the ANC’s policy agenda – achieved at the National General Council meeting in September last year.
At that conference Tokyo Sexwale (Mvelapanda Resources and Human Settlements minister) and Bridget Radebe (Mmakau Mining, wife of minister of Justice and Constitutional Development Jeff Radebe and sister of Patrice Motsepe) both came out in support of the ANC Youth League’s call – giving some weight to the now widespread allegation that the Youth League is operating with a hidden and funded agenda to have failing Black Economic Empowerment deals bailed out by government.
Arguing against the call were leading ANC intellectuals Joel Netshitenzhe, Jeremy Cronin and Trevor Manuel. However the ANC incumbent leadership failed to block the Youth League proposal and it is now formal policy of the ANC to investigate the matter and report back for a decision to be made at the centenary National Conference of the ANC which will be held at Mangaung (Bloem) in December 2012.
The ANC’s Economic Transformation Committee
The committee tasked with formulating the ANC’s position on the nationalisation of mines is the Economic Transformation Committee – which has the general brief of investigating the role of the state in economic development and is the natural forum in the ANC to develop a position on nationalisation.
There is not much in the public domain about the proceedings of the committee, but it is my information that Gwede Mantashe is overseeing the work of the committee which is formally headed by Enoch Godongwana (deputy minister of Economic Development and ANC NEC member).
The contributors thus far include those from the ANC Youth League, Joel Netshitenzhe, MZ Ngungunyane, Cosatu, Floyd Shivambu, Paul Jordaan and the National Union of Mineworkers. The full text of the initial contributions can be found in the last five issues of ANC’s internal discussion publication “Umrabulo” (find those on the ANC website at http://www.anc.org.za/list.php?t=Umrabulo).
It is my understanding that those opposed to the nationalisation call – for the reasons that have already been summarised in this report – are attempting to craft a compromise that will allow everyone to save face while allowing government to wrestle a better deal out of the mining companies – as stated in the “My view” section at the start of this report.
It is my understanding that the committee will report back in November this year and I expect the markets to get an indication of how the debate will pan out then. However, it should be borne in mind that the formal conclusion of this debate will only be reached at Mangaung in December 2012 and the noise is likely to continue right up until the last minute.
Cosatu’s shifting sands
The major change of external inputs into my assessment has been a struggle within the Congress of South African Trade Unions that has resulted in a shift away from the federation’s original position which was closely aligned with the view of the SACP and the incumbent leadership of the ANC – as articulated by Jeremy Cronin above.
The last unambiguous statement from Cosatu on this general issue came in the form of a joint communiqué with the SACP on the 24th of June 2011- I quote it here in full:
“… periods of capitalist crisis are also typically characterized by various forms of right-wing demagogic populist mobilization acting on behalf of various capitalist strata in crisis, but often masked behind a pseudo-left rhetoric. We believe that the same phenomenon is apparent in SA, finding a potential mass base amongst tens of thousands of unemployed and alienated youth in particular. However, behind this populism are often well-resourced business-people and politicians seeking to plunder public resources. We resolved as the SACP and COSATU to close ranks and to expose the true agenda of these tendencies and their connections to corruption and predatory behaviour in the state.”
However, at the Cosatu National Executive Committee meeting a week later a split appeared in Cosatu that has impacted on this debate.
The conflict is complicated but in a nutshell, it is between a faction led by powerful Cosatu Secretary General Zwelenzima Vavi and Irvin Jim of the National Union of Metal Workers (Numsa) of South Africa and a faction headed by leaders grouped around the National Union of Mineworkers (NUM) under Frans Baleni. Broadly the NUM/Baleni faction is supportive of the SACP and the Zuma leadership of the ANC while the Vavi/Jim/Numsa axis has become frustrated with broken promises (concerning both corruption and economic policy) of the Zuma/ANC leadership and would generally seek a more radical socialist or workerist political solution than is being offered by the ANC.
The Vavi/Jim/Numsa faction has over the last month begun courting the ANC Youth League, and attempting to harness the energy coming from this sector for its own ends. This is highly opportunistic as Vavi and Numsa have consistently characterized the Youth League leadership as “right-wing demagogic populist” and the League’s nationalisation call as fronting a corrupt BEE agenda looking to take a double bite out of resources available for transformation.
Rank opportunism or not, the crack in the Cosatu position is adding a new element to nationalisation debate. It is my understanding that the National Union of Mineworkers remains opposed to the ANC Youth League call, but the new element will undoubtedly add some confusion.
The point to remember about Cosatu – a point reiterated by the ANC and government leadership time and again – is that the federation represents a sectional interest. There are obvious reasons why some elements in Cosatu would want the mines nationalised – who wouldn’t want a guaranteed job for life as a Greek style (up until recently) government employee?
It is to NUM’s credit that its president Senzani Zokwana said in November last year that the Youth League was being reckless with the industry and that the League’s call was inspired by rich Black Economic Empowerment recipients looking to get failing deals bailed out by the state and Frans Baleni a month ago reiterated: “It is not only the private sector that has invested (in mines), but the workers with their pension and provident funds have also invested. We should have maturity and the debate should not have political undertones.”
It’s the law!
A key motivator of my view has been that South Africa is bound both formally and informally to agreements – including in the Constitution – that make it impossible to nationalise the mines without full compensation. Nationalising 50 percent of the mines would cost in the region of $130bn. There is no conceivable advantage – and an almost endless downside – for the government to nationalise the mines. Therefore it is not going to happen – although the end result might look like a compromise and might entail the establishment of a state owned mining company, although one with a much smaller asset base and agenda than conceived in the Youth League’s call.
Nothing material has changed that would allow me to change the view – although my confident smile has assumed a slightly brittle quality. Cosatu was never going to be the determining factor in this debate but the weakness of the ANC leadership – in particular the weakness of Jacob Zuma’s presidency – means that I am no longer certain that the centre of the Ruling Alliance can hold.
From the start the nationalisation of mines call has, in part, been a stalking horse for leadership challenges within the ANC and government. I have argued elsewhere that the call has been central to Tokyo Sexwale’s political ambitions and that he has covertly supported the Youth League in this regard for some time.
Now we have an element of Cosatu attempting to forge some form of alliance with the Youth League around the call clearly as part of a strategy to shift the leadership balance within the ANC.
The Youth League itself is using the call for its popular mobilization potential to help push its own candidates (particularly Fikile Mbalula – currently minister of sport) for higher office.
In this environment it would be foolhardy to be overconfident about the call. However it is my opinion that predicting the success of the Youth League call would be the same as predicting the imminent failure of the South African democratic project and state – a view I believe is too extreme and alarmist.
In many ways what is happening now is very much as predicted: the situation will be full of sound and fury right up until a decision is made at the end of 2012.