Each year some people have the privilege of doing a political tour of South Africa. From Nkandla, President Jacob Zuma’s home in KwaZulu-Natal, through Johannesburg’s Constitutional Court, Stock Market, Soweto and other attractions to Parliament in the Cape, Hout Bay’s squatter camp and the lovely wine farms.
The tour’s emphasis is on politics and the political people of the country. They meet the players in politics, business, the media, health and education. Fortunately for us, former president Thabo Mbeki agreed to meet us at his Foundation.
Mbeki was in a wonderful mood, sharing his stories, answering our questions, asking a few of his own. Most fascinating for me was his answer when asked to explain why his liberation party moved away from nationalizing mines and banks.
“Well, we went to Cuba in 1986, and you know before our meeting Fidel Castro asked us to bring a copy of the Freedom Charter with us. But he asked it three times, three times!”
“We asked ourselves, we heard you the first time, why ask again?”
“He then told us when we saw him – with the document – that the government Cuban rum is called Cuban Club, and that it is owned by Cuba, it is the best rum, but does not do as well as Bacardi. The owners of Bacardi left Cuba in a hurry but had to leave the vats.”
“Fidel then said, ‘Now you know good rum is made by mixing old rum with new, but Bacardi left in a hurry, taking everything but leaving the old vats. Yet they set up in America and sold a completely new rum. It was not great, it lacked the Bacardi flavor, it was all new and all they had was the name,’ he told us.”
But it was enough.
“‘So,’ said Fidel, ‘we quickly went to France and Europe and registered the names of Cohibas and other cigars, so if those companies also left we would still have their names. ‘Now tell me, ‘ Fidel said, ‘how many mining engineers do you have in the ANC?’”
“We looked at each other and said we did not know if we have any, probably none at that time (1992).”
“Then he said that if we took over Anglo American and nationalized them, we would have to ask them to do the mining, to manage it and run the mines because we could not, and they would then deliberately mine badly, because they would be angry that they had been nationalized. ‘Rather wait a bit,’ Fidel told us, ‘then in 15 years or so you can start taking over as you develop the capacity.’”
“It made sense, so we went back and convinced our people.”
I asked why Mandela, when he first came out of jail, in his first speech in Cape Town, said mines and banks would be nationalized?
“When Mandela was released it was a bad mistake of ours. We had been in talks with government and they had agreed they would give us nine or 10 days’ notice before releasing him, they would call my home with a code name and message, like ‘it is going to rain on Sunday November 1’ and we would have time to prepare.”
“But I was away, with Oliver Tambo in London, so when Zanele (Mbeki’s wife) was called by this strange person with a fairly innocuous message for me she waited a few days and then told the wife of Oliver Tambo to tell me the message. His wife also waited a few days and then said to him ‘Oh, tell Thabo somebody called Zanele to say it is going to rain on Sunday November 1.’”
“I got the message and thought nothing of it. I had forgotten what that meant. Me, I made that mistake… Later I suddenly remembered and realized, it was our code agreed with the South African government, but by then it was the day before his release.”
“We quickly tried to write a speech but failed and those inside South Africa wrote the speech, but they had not yet been told how we had changed our minds on nationalizing the mines and banks despite what it said in the Freedom Charter. So that’s why Mandela said what he said.”
I was aghast. I had written several times to say it was at Davos that the first democratic president had changed policy on nationalization. Mbeki laughed.
“Davos being the place he changed his mind is really just one of many stories&#8230;”

Nationalization Is A  Rum Deal

The African National Congress (ANC) policy conference, held in Midrand at the end of June, has finally canned the proposed nationalization of the South African mining industry but mining executives and investors cannot relax just yet.
That’s because it remains as clear as mud: precisely what government intends doing about the far-reaching policy proposals contained in the document known as the State Intervention in the Mining Sector (Sims).
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The outcome is that the pall of uncertainty—which has hung over investors in the mining industry since nationalization was put on the ANC’s official agenda in September 2010, at its national executive meeting in Durban—is going to continue at least until the electoral conference schedule for December.
The reason for this is that Sims makes a number of proposals with far-reaching consequences for the mining industry—platinum miners in particular—with platinum group metals (PGM) being declared “strategic” along with others such as coal and iron ore.
Those proposals involve potential major changes to the way in which the mines are taxed as well as other measures aimed at increasing local beneficiation of certain minerals; greater black economic empowerment (BEE) stakes in mining companies and greater participation by the state in mining through the state-owned mining company (SMC).
The proposals include a Rent Resource Tax (RRT) targeting “windfall” profits which would be levied at a rate of 50% during times when mining companies earn more than a 15% rate of return on their investment.
“Let’s give the ANC leadership credit where it is due. My understanding is that the various fiscal proposals in Sims were not adopted at the conference and have been kicked into touch,” says Peter Leon, a Webber Wentzel legal expert.
“They will now be the subject of further debate between government and the mining industry ahead of the December conference. But the other proposals on beneficiation, the role of the state miner and the increase in BEE stakes in mining companies to 30% were all adopted and are now floating around. That creates more uncertainty which investors do not like, but I would rather have this situation than one where the conference had adopted the fiscal measures proposed in Sims.”
Such uncertainty is toxic to investment in the country’s mining business which typically requires the up-front expenditure of billions in capital projects over a period of years before any returns are made.
Government’s aim—as stated at the head of the Sims document—is to: “Maximize the developmental impact of the People’s Mineral Assets.”
But any regulations imposed which hold back mining development in South Africa will have severe negative impacts on the economy and unemployment if the all-important platinum sector is hit.
The mining industry remains a key component of the South African economy. The most important sector is platinum, which has taken over as the largest employer and biggest earner of foreign exchange, following the decline of the formerly dominant gold sector.
According to South African Chamber of Mines’ statistics, the mining sector spent R484 billion ($58.2 billion) during 2011: R430 billion ($51.7 billion) of which was spent locally with R88.7 billion ($10.67 billion) going to salaries and R47 billion ($5.65 billion) being spent on capital expenditure.
Mining corporate tax payments last year totaled R25.8 billion which amounted to 17.2% of total South African tax receipts.
In 2010, the mining industry employed 498,141 people of which 181,969 worked on platinum mines; gold mining ranking second with a workforce of 157,019.
Despite the development over the past decade of various open-pit operations as well as some shallow, mechanized mines the platinum business remains labor-intensive.
The reason for this is that, as with the country’s gold mines, attempts to apply mechanized mining to deep-level platinum mines have been unsuccessful.
The most notable example was Lonmin which—under previous CEO Brad Mills—tried to implement mechanized mining on some of its shafts. The results were disastrous as costs soared and production dropped.
Mills—who proclaimed himself to be a ‘mechanization zealot’—eventually quit. Most of the operations mechanized have been returned to “conventional” mining systems.
So any setback to the platinum industry is going to have a sharp impact on job levels which is anathema to the ANC—let alone the various unions.
According to the Chamber of Mines, the RRT is “unwelcome and insupportable” because it will impose a significant increase on the industry’s tax burden. It will also have a major detrimental impact on the ability of some mining companies to sustain their operations.
Profits earned in boom times are frequently used to invest in the expansion of existing operations and the construction of new mines.
Stuart Murray, CEO of Aquarius Platinum, spelt it out when I interviewed him last year.
“This is a boom and bust industry. The cycles are getting shorter, the volatility is getting greater and it’s getting harder to get a decent return out of new investments. A platinum mine these days starting out of the blocks probably needs to show a 40% gross margin. That kind of margin may appear obscenely high to someone who makes fridges but it’s not. You need it to cover the risks involved in a project in which you have to sink capital over a 10 year period,” he says.
Aquarius has been the worst hit by the current downturn in the platinum sector, which has forced it to close three of its mines. Other juniors such as Eastern Platinum have delayed expansion programs.
A potentially major development still pending is the outcome of the operational review being carried out at Anglo American Platinum (Amplats): the world’s biggest platinum producer.
Anglo American in its submission to the ANC over Sims said, “The Sims proposals will harm the mining industry without necessarily securing its envisaged benefits.”
In Anglo’s opinion, “with the exception of some noted proposals…the Sims report relies fundamentally on the wrong approach to achieve some laudable goals.”
Despite all the doom and gloom, various junior start-up miners—such as Lesego Platinum; Nkwe Platinum and Sable Platinum—remain intent on entering the business, on the basis that the platinum game is cyclical and the good times will return.
It remains to be seen what they will do should their perception change to one that the outcome of the Sims negotiations results in a higher risk profile because of lower returns in those good times.
Some observers believe the industry should cut production in the face of the current global oversupply of platinum, which has driven down prices but it’s clear the major producers are reluctant to do so. So far, only mid-tier producer Aquarius has been prepared to “bite the bullet”.
Apart from the industrial relations and political consequences there are major costs involved in shutting shafts as well as material financial risks if overhead costs are not removed completely but, instead, get passed onto the remaining operating shafts threatening their viability.
The other key deciding factor revolves around management’s assessment of how long the bad times may last. Lonmin management made it clear, during a recent media visit, that they were reluctant to shut down shafts if they expected the platinum downturn to last only a year.
Lonmin is currently reviewing its position with an announcement due later this year on whether it will hold back on future planned capital expansions.

The Platinum Problem

Shortly after his controversial re-election in late 2011, president of the Democratic Republic of Congo (DRC), Joseph Kabila, promulgated a new agricultural law, which stipulates that farmland must be majority-owned by a national or a company whose majority shareholding is owned by the state or a Congolese entity.
Nationalization is also a hot topic in the DRC’s mining sector. In February, during the Mining Indaba in Cape Town, South Africa, the Congolese minister for mining, Martin Kabwelulu Labilo, made his disappointment clear: the investor-friendly mining code had not delivered the intended changes. Designed with the support of the World Bank in 2002, the mining code will be 10 years old this year and is likely to be reviewed. In 2011, Gécamines, the main public mining company in the DRC, announced a review of all its joint ventures.
These talks are the direct consequence of growing investor interest in land and mineral resources in Africa. National control is at the center of debates in countries like Gabon, South Africa, Zambia and Chad. And Africa is not alone—in Brazil, foreign-controlled companies cannot own more than 250,000 hectares and raw materials diplomacy is becoming official policy in Europe. In the DRC, the new agricultural law and the likely mining code review are serious sources of concern for business.
In the 1970s, to end Belgian domination of the economy, former president, Mobutu Sese Seko, made full Congolese ownership a mandatory requirement for every business in the country. The DRC’s nationalization policy lasted only three years, from 1973 to 1976. Without capital and expertise, this policy led to an economic disaster. Foreign owners and businesspeople disengaged from the country, and the new Congolese owners were unable to run the businesses. In 1976, foreign investors were allowed to own 60% of their business. Since then, joint ventures are the norm and land belongs to the state.
State intervention in the mining sector has left bad memories in business circles. The mining contracts review (2007-2009) was intended to correct the imbalances of former president Laurent Desiré Kabila’s mining deals, to increase state shareholding and to revive the mining pillar of the nation, Gécamines. Unfortunately, the opaque review process put an end to these hopes. Under the supervision of the late Katumba Mwanke, special advisor in the presidency, the contracts review turned into a money-making scheme for state rulers. The review made mining investors bitter and the DRC is now considered a risky place to invest.
Given this historical background and the presence of Zimbabwean president Robert Mugabe at Kabila’s inauguration, the return of the nationalization policy just after the president’s re-election is making investors nervous. The minister for agriculture failed to reassure foreign donors during a meeting in Kinshasa, despite arguing that only new investments in agriculture will be affected by this law. Some foreign investors are preparing for a legal battle, while others are ringing the alarm bell, even though no-one knows how seriously the law will affect agriculture. But beyond the logical preservation of their interests, this quick reaction is very important for African governments.
In itself, the claim for national ownership is not illegitimate. This is official policy in Saudi Arabia, Dubai and Qatar. In times of aggressive investment policy, the anti-colonial rhetoric of nationalization may be appealing to African governments, but the practices are questionable. Real wealth redistribution is the objective of nationalization, but it is often used as a pretext for the ruling elite to capture resources, turning foreign plundering into domestic plundering.

Resource Capture  In The DRC

American civil rights activist, Reverend Jesse Jackson, is no stranger to South Africa. He came to Africa many times as he led radical African-Americans against apartheid in the 1970s and 80s.
<div id="attachment_322" style="width: 211px" class="wp-caption alignleft"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-322" class="wp-image-322 size-medium" src="/wp-content/uploads/2017/04/DSC_0241-201x300.jpg" alt="" width="201" height="300" />Reverend Jesse Jackson</div>
The Baptist minister, who was also a US presidential candidate in the late 1980s, landed at OR Tambo Airport in Johannesburg in January as a guest of honor for the centenary celebrations of the African National Congress. It was a South Africa very different to the one he encountered three decades ago.
“The contrast between arriving in [what was then] Jan Smuts Airport and [what is now] OR Tambo airport, that in itself is hugely impactful, beyond this generation’s imagination. Back in 1979 there were no black pilots or flight attendants. The only blacks you saw were pushing brooms, they were under great intimidation and walking around with pass books in their hands.”
In 2012, the political issues of South Africa are far from over. This time around, Jackson, who marched alongside Dr. Martin Luther King Junior in the 60s in the civil rights movement,  landed in the heat of debate over one of the great issues of Africa: nationalization.
For many months in Africa’s biggest economy, there has been argument over whether South Africa should nationalize its crown jewels like the mining industry. Radicals like suspended ANC Youth League leader, Julius Malema, who is appealing his suspension from his post as president, has called for nationalization now in the cause of helping the poor with education and employment.
Jackson says it needs to be on the ruling party’s to-do list.
“The idea is to somehow create a fairer distribution of resources. [ANC] must determine the timetable for that, but too few people own too much wealth and too many have too little. Therefore, there must be some plan for re-investment so you have a fairer distribution of drinkable water, housing, healthcare and education,” says Jackson.
When Jackson reached the ANC celebrations, South African president, Jacob Zuma, used his speech as an indication that the party may want to put the issue to bed, saying government had acquired the state’s resources and would be using them appropriately to the people.
In August 2011 Mineral Resources Minister, Susan Shabangu, said: “Foreigners will not invest in South Africa; Nationalization is a bad idea… The correct question should not be whether or not we nationalize; the question, in my view, should be: How do we make use of our vast mineral wealth to eliminate [poverty, inequality and unemployment]? Is this perhaps not a more productive debate?”
Shabangu’s comments came to the dismay of many young black, unemployed South Africans as well as activists like Jackson.
“This is government induced wealth and neglected poverty so South Africa’s having to overcome centuries of mal-distribution of opportunity. Some of your best minds were driven out the country, others were not allowed in the country. So you cannot dismiss the devastating long term, continuous resonation of the economic apartheid system. This South Africa is different today; you are now free but unequal. Freedom required the will to sacrifice, to overcome barbarity and indecency. Now the challenge is equality, which requires a different set of skills,” says Jackson.
The nationalization question will be decided in December 2012, at the ruling party’s elective conference, which will also be held in Mangaung, Bloemfontein.
For now, Jackson says, the country’s democratic progress is headed in the right direction, but there is still a lot to learn about transparency, checks and balances.
“It’s still early in the morning for the new South Africa,” he says.

Tag: Nationalization

FORBES AFRICA SOCIAL MEDIA

Nationalization Is A Rum Deal

The Platinum Problem

Resource Capture In The DRC

Caring Is Sharing, Says The Good Reverend

Nationalization Does Not Help The People