State participation in the mining sector is a throwback to the socialist mind-set that once formed the premise of many national companies. Few West African nations have contemplated setting up an organization to oversee and harness their country’s natural resources. The free market system has trumped state sentiment in ensuring that the sector is managed effectively and efficiently by private companies whose main aim is to create shareholder value.
In Africa, there have been several attempts to establish state-owned organizations to oversee the commercial development of natural resources. In 1986, Burkina Faso established the Comptoir Burkinabe des Metaux et Precieux. Structural Adjustment Programmes brought operations to a grinding halt. Globally, state-owned enterprises have seen two renaissance periods: initially in the 1960s and 1970s and recently in the early 2000s with Chinese companies taking the lead. Fears about the efficiency of how the states have been run have been the main sticking point for many critics.
Although no West African country has, or has had, a state-owned mining corporation, we should not dismiss the model as being archaic or ineffective. The DRC’s state-controlled Gecamines has adopted a model which allows for private participation. It allows the government to retain a stake in its mines while accruing the benefit of private sector expertise. In South America, there is the state-controlled and Chilean-based Codelco, which has successfully navigated through national politicking to remain a mainstay. The countries where state-controlled organizations existed have benefitted from legislation and regulations that allow for private enterprises to co-exist in a cohesive environment, which in turn leads to growth. The private sector provides experience and technical expertise, while also not being hampered by politics.
<a href="http://www.forbesafrica.com/investment-guide/2017/08/10/learn-walk-water-want-grow-start/" target="_blank" rel="noopener">Learn To Walk On Water If You Want To Grow Your Start-Up</a>
Government must also understand its role in laying a foundation for the commercialization of its resources, rather than meddle in the affairs of private enterprises. The Debswana model in Botswana serves as a good example of a successful government and private partnership. The temptation for government to meddle in the affairs of business threatens to disturb the very fibre of the business, potentially making is a commercial disaster.
Zambia’s copper industry is an example of government poking its nose where it is not needed. Though, through no fault of their own, the price of copper plummeted to a 20-year low at the time of the state-owned corporation’s closure, the government was forced into selling its assets at a loss.
Many advantages can come with a state-owned mining company, such as having the backing of a government, but governments often don’t have the requisite technical expertise. In the past, African countries with state-owned mining companies have lacked the commercial nous to navigate through trying times and have had to resort a fire sale of assets.
Investor confidence is built on the stability of a government. Also, a private company needs to know that the government will not move the goals posts to suit their own agenda.
<a href="http://www.forbesafrica.com/investment-guide/2017/07/06/african-darling-investors/" target="_blank" rel="noopener">An African Darling For Investors</a>
The ability to navigate through the volatile terrain of the mining sector, where the prices of your resources are dependent on world events and driven by consumption, requires a strong hand from government to mitigate other uncontrollable factors, such as demand for metals, prices, as well as macro and micro economic factors. The objectives should also be clearly set out to ensure that the majority and not a handful feel the benefit of resources.
With the support of the World Bank, Nigeria’s mining sector may thrive. The World Bank’s work with the government can strengthen the sector and see mining become a key component in the revitalizing the nation’s fortunes. Despite Nigeria not hosting any international mining companies, by helping local mining companies, who to date are have received little assistance from banks, remains the country’s best bet.
This support can kickstart the growth of Nigeria’s mining sector and replicate the success of their West African neighbors. &#8211; Written by Richie Seun Johnson

Private Money Worth Its Weight In Gold

South Africa has a history of underperforming state-owned enterprises, including the ‘big four’: Denel, Transnet, Telkom and Eskom. According to the National Planning Committee on the National Development Plan, these companies account for approximately 77% of employees in state-owned enterprises and make up about 91% of the asset base of the top 30 state-owned entities.
These entities have evoked discontent from the public, Eskom in particular. They have accumulated large losses, always ready to ask for a helping hand from the government. Like an absentee father who spoils his son to make up for the time he does not spend with him, our national treasury is only too pleased to support these enterprises in the form of bailout packages.
This has led to a call from certain factions for these state-owned enterprises to be privatized. A paper titled Privatisation and Nationalisation Cycles by Roberto Chang and others looks at a model built around a basic trade-off between equality and efficiency. It argues that greater equality is attained under public ownership of a natural resource or state assets, while more efficiency is achieved when the ownership and administration of the resource or company are in private hands.
The connection between ownership and the equality-efficiency trade-off is given by the set of incentives for the efforts that each regime provides to economic agents. However, it should be noted that greater equality does not necessarily translate into greater welfare. Imagine a situation where national income would be distributed equally among all South Africans. Equality would leave many worse off. Greater efficiency is required. The reality is that there are greater sets of incentives at play which drive efficiency when operating a privately-owned company, among them maximizing the profits and equity of the shareholders. The sets of incentives are not as strong in state-owned enterprises.
One source, who asked to be unnamed, says that during her time as HR Manager at the state parastatal, South African Airways (SAA), she had to deal with numerous high-level government officials dumping their family and friends résumés on her desk and instructing her to find positions for them within the organization. She says that most did not have the required skills and qualifications. It comes as no surprise that SAA is one of the most inefficient state-owned enterprises. Unfortunately for South Africans who pay taxes on their hard earned incomes, the government continues to bail out the airline with no regard for its dismal performance. These are some of the pressing issues that make privatization of state-owned enterprises attractive.
On the other hand, the breaking up of the Soviet Union led to the emergence of Russian oligarchs in the late 1980s and early 1990s, when state firms were privatized particularly in the oil, gas and mining sectors. These oligarchs emerged under Mikhail Gorbachev’s political movement for the reformation of communism, which is widely thought to be the proponent that led to the dissolution of the Soviet Union. Today, post-Soviet oligarchs usually include relatives and close associates of government officials and are among some of the wealthiest people in the world. David Satter, author of Darkness at Dawn, asserts that “what drove the process was not the determination to create a system based on universal values but rather the will to introduce a system of private ownership, which, in the absence of law, opened the way for the criminal pursuit of money and power.”
Privatization has challenges and opportunities, which if implemented properly would go a long way to correcting the inefficient operation of state-owned enterprises.
There needs to be a conversation surrounding the viability of privatizing state-owned enterprises and possible partnerships with privately-owned companies. If privatization is proven to be viable, it will go a long way to optimizing productivity and reducing costs, but perhaps more importantly it could reduce government bailouts and save taxpayers money.

Tag: State-owned

FORBES AFRICA SOCIAL MEDIA

Private Money Worth Its Weight In Gold

Will Privatization save us money?