MAC: Mines and Communities

South Africa's ANC holds debates on mining tax reforms

Published by MAC on 2012-07-03
Source: Bloomberg,

But will they lead anywhere?

White South Africans earn, on average, around eight times more than black citizens, despite comprising almost 80% of the population, according to the South African Institute of Race Relations.

It's a shameful - and shaming - statistic for a country which boasts some of the world's most valuable deposits of platinum, gold and diamonds, as well as other minerals.

Since the African National Congress (ANC) achieved power in 1994, there's been heated political and civil society debate over how to "capture" profits from exploitation of this apparent wealth for the good of the people.

The foundation pillar of this endeavour, the Black Economic Empowerment programme (BEE) aimed at securing a 26% indigenous control of mines, has faltered -  at best.

According to the Mines' minister, reporting last year, only 9% of the country's mining operations had met this target by 2009. See: Who will own South Africa's mines?

And, while radical elements within the ANC have long called for nationalisation of the industry, that seems to be an ever-receding prospect.

White-dominated, foreign-controlled, mining companies continue to exert real political  power in the country; some of them have already effectively de-camped, directing their investment into other African states, and further afield.

South Africa's gold production - not long ago the most significant on the planet - has meanwhile declined to the point that the country is now the world's third largest producer.

A confused and confusing picture

Increasingly, other mineral-dependent states are taking steps to address the predicament of possessing resources the world supposedly needs, while continuing to be dependent on  foreign capital to dig them up and process them.

Just last week, the president of Guatemala said he would ensure that the state will soon secure up to 40% of ownership in domestic mining ventures. See: Guatemala seeks 40% stake of all mining companies

Hence, it's not surprising the South African politicians have recently been debating the imposition of a mining windfall tax.

This would bear some features of the Resource Rent Tax, or RRT, recently introduced in Australia - and which appears to be failing in what it set out to do. See: Australia's mining reforms have gone distinctly "down under"

See also: Zambia's government may re-introduce windfall tax on miners 

Also  under discussion is introduction of  an export levy on coal and iron, to ensure "security of supply", similar to that mooted by Indonesia earlier this year. See:
Indonesia tries keeping its minerals at home

The ANC is expected to take a final decision on new mining policies at a conference in December 2012.

However, as one commentator points out (see last article below): 

"[T]he ambiguities... 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."

South Africa's ANC to debate 50% mining tax

By Mike Cohen and Andres R. Martinez


26 June 2012

South Africa's ruling African National Congress may endorse plans to raise mining taxes and increase state control over the economy as President Jacob Zuma shores up grassroots support ahead of a party election.

ANC delegates will this week debate proposals for a mining windfall tax of 50 percent as an alternative to nationalizing mines in the world's largest producer of platinum, chrome and manganese. The plans are contained in draft policy documents to be discussed at a four-day conference in Johannesburg from today. The ANC controls 66 percent of the seats in Parliament.

Zuma, 70, who is seeking a second five-year term at a party election in December, is under pressure from his labor union allies and a growing number of jobless young people to do more to combat poverty and unemployment in Africa's largest economy.

Any attempt to extract more revenue from mining companies such as Impala Platinum Holdings Ltd. and Lonmin Plc risks undermining an industry battered by rising labor costs, electricity shortages and a global economic slowdown.

"You're adding more to the camel and pretty soon you'll break the camel's back," Patrick Mathidi, a fund manager at Momentum Asset Management in Johannesburg, said in a telephone interview. "We're unlikely to get any good news out of the policy conference."

The 100-year-old ANC was pushed by its Youth League in 2010 to investigate the viability of nationalizing mines to help distribute more wealth to the black majority. While an ANC- appointed panel ruled out nationalization as an economic "disaster," it recommends a 50 percent tax on profits of mining companies that earn returns of more than 15 percent.

Shrinking Output

Gold, coal and other mining products accounted for 38 percent of export earnings last year, according to government data. Output contracted 16.8 percent in the first quarter because of mine closures and strikes, the statistics office said on May 29. The FTSE/JSE Africa Mining Index of 21 stocks has dropped 8.2 percent this year, compared with a 5.7 percent gain in the FTSE/JSE Africa All Share Index.

Perth-based Aquarius Platinum Ltd., the world's fourth- largest producer of the metal, shut mines in South Africa this month because of strikes and falling platinum prices. In February, Johannesburg-based Anglo American Platinum Ltd. put a freeze on employment and cut its 2012 output target.

‘Populist Agendas'

The ANC's policy documents include recommendations for an export levy on coal and iron ore to ensure "security of supply" as the government tries to boost power generation and steel production. The ruling party is also considering forcing pension funds and insurers to buy the bonds of state-owned companies. The ANC will take a final decision on the policies at its December conference.

"There is clearly going to be a lot of rhetoric around the conference and people are going to position themselves around populist agendas," Mike Davies, southern Africa analyst at risk-advisory company Maplecroft, said in a June 21 interview from London. "We see higher levels of state involvement in the mining industry."

While the party that swept Nelson Mandela to power in the first all-race elections in 1994 commands the support of almost two-thirds of the electorate, it has struggled to racially desegregate the economy. White South Africans earn on average about eight times more than black citizens, who make up 79 percent of the country's population of 51 million, according to the South African Institute of Race Relations.

Growth Targets

"We are going to see real change," ANC policy head Jeff Radebe said in a June 22 speech in Johannesburg. "We have the power to ensure that change comes. We acknowledge at the ANC, the triangle of poverty, unemployment and inequality. Unless decisively addressed they will reverse the gains we have made" since 1994.

The government forecasts the economy will expand 2.7 percent this year, the slowest pace since the 2009 recession, as a debt crisis in Europe worsens, curbing demand from a region that buys about a third of South Africa's manufactured exports. That's less than half the 7 percent expansion the government says it needs to meet a pledge to cut the jobless rate to 14 percent by 2014 from 25.2 percent currently.

The rand rose 0.2 percent to 8.4655 against the dollar as of 8:42 a.m. in Johannesburg today, paring its drop this year to 4.5 percent.

Wage Subsidy

ANC delegates will this week discuss the benefits and risks of subsidizing wages for young people to help reduce unemployment, a policy opposed by the Congress of South Africa Trade Unions, the nation's biggest labor federation, because they say it may lower wages. The ANC will also consider proposals to speed up the redistribution of land to black people.

Policy uncertainty and sluggish economic growth may be undermining investment as companies hoard more cash. Central bank data shows companies increased cash on deposit at commercial banks by 11 percent to 522 billion rand ($61.8 billion) at the end of April from a year earlier, close to a record 540 billion rand in December.

"The recessive policy choices of this government are making sure South Africa cannot be seen as a serious player in the global economy," Claude Baissac, the Johannesburg-based founder of country-risk consultants Eunomix, said in a June 18 phone interview.

South Africa to up the rent because nationalisation would break the bank

By Joshua Zapf

26 June 2012

The African National Congress (ANC) has proposed a tax on mining companies that should raise R40 billion for the South African government.

The Resource Rent Tax is a 50% taxation on any mining company's profits that exceed 15% return on their investment.

Sowetanlive reported that a concerned party, that includes mining giants De Beers, Namakwa, Anglo Gold, Gold fields, Wesizwe, Xstrata, Rio Tinto and BHP Billiton, warned the ANC "that proposals to increase tax levies on mining companies will result in mine closures, job losses, and place the mining sector at 'tipping point' of collapse."

The tax, which is to be debated tomorrow, was suggested at the behest of a 'State Intervention in the Minerals Sector' report as an alternative to nationalize, which is not a feasible alternative as South African cannot afford to pay the compensation needed to nationalize on a mass scale.

With the debate on the horizon it is expected that proponents will reaffirm that the tax simply allows the African nation a greater share of [historically] high earnings in the mining sector and that concerned mining company's will point out that this tax would likely cripple the region's already under-performing mining sector.

Mzukisi Qobo, a political risk analyst, figures that the debate should focus on something else, the need to foster confidence in an attempt to secure South Africa's future in the mining industry.

As quoted by Miningweekly, Qobo says "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."

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