Mine nationalisation: no answer to flames of anarchy – expert analysis - BizNews, 29 September 2016

In an open letter to the mining minister earlier this month, the ANC Youth League revived its earlier demands for mine nationalisation, saying there had long been a ‘strategic need for the nationalisation of the mines’.

 

By Anthea Jeffery

Nationalise for free education’ read a poster pinned to the tin shack that student activists had built on the UCT campus in February 2016 to buttress their demands for more student accommodation and an end to university fees.

Now, with arson attacks and violent protests spreading rapidly from one campus to another – in an attempt to make universities ‘ungovernable’ and buttress the demand for free education – the call for nationalisation is being echoed by others too.

In an open letter to the mining minister earlier this month, the ANC Youth League revived its earlier demands for mine nationalisation, saying there had long been a ‘strategic need for the nationalisation of the mines’.

Last Friday, Zwelinzima Vavi, Cosatu’s former secretary general, explicitly linked this demand to the call for free education, saying: ‘We should by now have nationalised all these mines and put them under the democratic control of the working people of this country, so that they can be used to ensure that education is accessible.’

Is mine nationalisation the solution that left-leaning activists would have South Africans believe? The contrasting experiences of Zambia and Chile shows how misleading these assertions are.

Zambia and Chile are both important copper-producing countries, and have similarly-sized populations and much the same land area. However, Zambia nationalised its copper industry in 1973, whereas Chile liberalised its mining laws and wider economy at much the same time.

In 1973, Zambia’s copper mines employed some 48 000 people and produced some 720 000 tonnes of copper, amounting to 15% of the global total. But after its copper mines were nationalised that year, production showed a steady decline.

File photo: A truck is loaded with rocks at an Equinox copper mine in Lumwana, Zambia.
By 2000, when the mines were privatised again, copper production had fallen to 257 000 tonnes and employment to 21 000 people. Real GDP per head had also dropped sharply: from $1 455 in 1976 to $892 in 2000, when the cost to the state of running the copper mines was $1m a day.

Reports the Brenthurst Foundation: ‘Nationalisation of the mines is calculated to have cost Zambia $45 billion in production losses, more than the total in aid received over the period. If Zambia had maintained its 1970 share of global copper production, it would now be producing 2.7 million tonnes a year’.

The privatisation of Zambia’s copper mines in 2000 helped bring in fresh investment, which in turn raised mine employment to 65 000 in 2014 and pushed production up to some 700 000 tonnes that year. However, this was still less than the 1973 total (720 000 tonnes) that Zambia had earlier produced. In addition, with copper production having increased in other countries too, Zambia’s tonnage made up less than 4% of the global total.

Chile, by contrast, embarked in the 1970s on free market reforms aimed at reducing state control and attracting private investment. Though it still has a state copper mining company (Codelco), the country’s mining law reforms helped promote a upsurge in private investment and economic growth.

In this new policy environment, Codelco’s production has doubled from what it was 20 years ago. But Codelco’s achievements are far outstripped by those of private mining companies, which have helped bring overall copper production up to 6 million tonnes. Of this total, two thirds is produced by the private sector. Writes the Brenthurst Foundation: ‘In 1970 Chile produced the same amount of copper as Zambia; four decades later, it produced eight times more.’

Mine nationalisation has helped to keep Zambia mired in poverty, while Chile has witnessed a great leap forward in economic growth and individual prosperity, as shown in the table below:

Similarities and differences between Zambia and Chile

Key points of similarity/difference             Zambia       Chile
Land area (sq km)                                    16.4m         17.6m
CDP (2011)                                              $27bn         $258bn
Copper production (1970/tonnes)                684,000       686,000
Copper production (2012/tonnes)                675,000       5 370,000
Poverty (% below poverty line)                    61%             15%
Extreme poverty                                        42.3%          2.8%
Life expectancy at birth                              49yrs            79yrs
Infant mortality (per 1,000 live births)           53                8
Child malnutrition (% under five)                  15                 1

Source: Brenthurst Foundation, ‘The Zambezi Protocol: Result of a dialogue on natural resource policy in Africa’, 22-24 April 2016, May 2016, p9

In wider international experience, mine nationalisation and/or the vesting of mining rights in state mining companies, as the Youth League also urges, have generally failed. Nationalised or state-run mines usually manage to produce only a fraction of what their privately-owned predecessors or competitors are able to achieve, while mine employment goes down and poverty goes up.

Key reasons for these failures include poor management and mounting inefficiency, the weakening of competition, and difficulties in raising funds – especially where governments face many other demands on the public purse.

However, the most important obstacle is generally an absence of good governance. State-owned mining operations tend to be captured by small and privileged elites, which use them for their own gain rather than to promote the national interest or to help the poor.

Given the inefficiency, waste, and self-serving corruption already evident at many of South Africa’s state-owned enterprises, mine nationalisation here is unlikely to succeed any better than it has in Zambia and many other countries.

Far from successfully funding free university education – or meeting a host of other socio-economic needs – nationalisation will reduce mining production, employment, and tax revenues.

Mine nationalisation could also freeze investment in other sectors of the economy and push the rand into free fall. Poverty and inequality will then grow, leaving all but a small political elite far worse off than now.

The free market reforms embraced by Chile in the 1970s show the path that South Africa should take if it wants to reap the full benefits of its mineral wealth and other strengths. Only if it liberalises its mining laws and wider economy, as Chile has done, is South Africa likely to make a similar great leap forward in economic growth and individual prosperity.

Dr Anthea Jeffery, Head of Policy Research, IRR. 

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