Let’s talk about parastatals not nationalisation

July 06, 2011


 

July 5 2011 at 05:00am

By Humphrey Borkum
In all my columns to date I have always focused on the JSE and related matters. However, Bobby Godsell has scolded business leaders for being too quiet over the ANC Youth League’s nationalisation plans, so I will use this column to address the issue.

I have known Bobby for over 30 years and I have a deep respect for him and his opinions. These are my personal views and not necessarily those of the JSE.

First, I would point out that many businessmen are not comfortable slugging out issues in public. They prefer to stick to their knitting and use networking and the law courts, if necessary, to settle disputes.

Second, I would emphasise that the most detrimental effect of nationalisation is that it discourages local and foreign investment – both of which are vital for economic growth.

Our mines and our banks are two sectors of the South African economy in which we are world class and they have played a major role in developing the wealth of this country.

The government has enough on its plate trying to fulfil its mandate of providing service delivery. To date it does not have a consistent record of running municipalities, public schools, transport or parastatals with competence.

It has neither the money, capacity nor expertise to take over the mines and the banking sector.

What annoys me about the youth league’s agenda is that business is perceived to be on the back foot trying to defend its corner. If the league lived in the real world it should be lobbying for the privatisation of all our inefficient parastatals.

In South Africa the postal service (Sapo), electricity generation (Eskom), our national airline (SAA), railway service (Transnet), weapons production (Denel), forestry services (Safcol) and some mining (Alexkor) could all be privatised

In my opinion, almost every company on the JSE is more efficient and competitive than any of our parastatals. If these parastatals were privatised the taxes they would pay would result in more money for better housing, schools and hospitals for the poor. At present they are a drag on the fiscus and it is the small base of taxpayers that have to pay for all the inefficiency.

I was interested to read that 50 of South Africa’s biggest companies contributed almost a quarter (23.51 percent) of the government’s tax receipts for the 2010 tax year.

These companies included the four big retail banks and nine mining companies. This merely reinforces the privatisation argument. There would be a gaping hole in government tax income if nationalisation were to go ahead.

We need to learn from other countries on the African continent that embraced nationalisation. Ghana nationalised its mining sector in the early 1960s in order “to maximise government revenue and employment generation”.

Instead, gold production fell from 915 317 ounces in 1960 to 282 299 ounces by 1984. According to the World Bank, the decline in gold and other mining sectors included failure to maintain the mines; lack of capital investment and skills; infrastructure deterioration; high inflation; deteriorating grade of gold ore; high absenteeism; low worker discipline; pilfering and illegal panning of diamonds.

Following the implementation of radical mine privatisation in 1993, gold production increased tenfold to 2.9 million ounces in 2009. During the same period per capita gross domestic product increased from $449 (R3 000 at current rates) to $1 571.

Nationalisation of the Zambian copper mines in 1969 provides important lessons about government involvement in industry. When copper prices and production fell sharply the nationalised copper mines became a drain on government resources instead of contributing to the government’s coffers. Returned to the private sector in 2000, copper production has doubled and mines are once again contributing to government revenue.

Governments owe their citizens good governance, which includes the creation and maintenance of a regulatory and policy environment that is conducive to sound business decision-making.

Loose talk by a junior politician has caused much uncertainty. This could make foreign investors hesitant and cause local long-term capital expenditure to be put on hold. Shelving the matter until December next year when a research team delivers its report to the ANC elective conference is not in the country’s best economic interest.

Unemployment is obviously a critical problem in South Africa. Apart from the privatisation of our parastatals, here are two issues I believe the youth league should be fighting for:
- vastly improved education system which would empower the youth to better compete in the real world and where possible become entrepreneurs.
- To relax the labour laws to allow lower entry-level wages for first time employment. If there were 5 million more people in the workforce today earning a modest R1 000 to R3 000 a month, between R5 billion and R15bn a month or R60bn and R180bn a year would be in the hands of the poorest families in South Africa.

For readers, politicians or business people who wish to gain a better understanding of all aspects of nationalisation, may I suggest you obtain the 164-page booklet Nationalisation published by the Free Market Foundation. Compiled by struggle veteran Temba Nolutshungu, this six-chapter study contains everything from an analysis of the youth league’s nationalisation proposals through to the economics of nationalisation and case studies from around the world of countries that have tried it. There is also a discussion on black advancement after apartheid.

In the first chapter, Free Market Foundation executive director Leon Louw examines the reasons why the league wants to nationalise mines and other businesses.

There is a thorough analysis of the Freedom Charter and also the comments and explanations of the senior members of the ANC who were involved in its drafting. This provides compelling evidence that the Freedom Charter did not, as suggested by the league, call for the nationalisation of the mines.

Here are two pertinent quotes. Ben Turok, one of the compilers of the Freedom Charter, said: “Is our mining industry a candidate for nationalisation? Mining companies are now international and can easily shift capital abroad… while Cuba and the Soviet Union were able to nationalise without compensation our prospects of doing so would be nil and payments would be huge. The case for nationalising the mines has yet to be made convincingly.”

The second is in regard to South Africa’s constitutional protections: “An important long-term consideration relating to the proposed nationalisation of the mines is that such an action would be in conflict with the constitution.

“The property that is protected by the constitution consists of not only the mines but also the homes, motor vehicles and everything else owned by every citizen of this country. They will voluntarily be giving up the constitutional protection of their property if they allow the government to amend the constitution so it can take over the property of the mining companies.”

Having lived all my life in South Africa and observed the enormous changes that have taken place throughout this continent socially, politically and economically, I think it is foolish for us not to take cognisance of the lessons of history.

To my knowledge, nationalisation has never worked in Africa or anywhere else and I see no reason for this to change.

The Free Market Foundation can be contacted at 011 884 0270 or 021 422 4982.

Humphrey Borkum is the chairman of JSE Limited.