Nationalisation in South Africa: Which Way are We Going?

By Glenn Ashton · 11 Aug 2010

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Nationalisation been returned to the agenda, causing disquiet amongst investors and miners and a quickening in the pulse of the left.

We cannot allow Malema to dominate this discussion. Besides raising the issue he has imparted little meaningful analysis and has provided neither nuance nor insight.

This issue requires careful examination if we are to advance beyond delivering spoils to well-connected cadres, while leaving the people in poverty. 

The Freedom Charter did mention the people sharing the wealth of our nation. It did not state this wealth should be nationalised but as Jeremy Cronin has noted, taken in context, it may as well have. 

More relevantly, the Freedom Charter says “the people” shall “share” the wealth, not that politicians and well connected cadres should take control of the wealth as has happened in several cases here as well as in many failed nations. Malema’s asinine comments on cadre deployment illustrate the lack of insight inherent in ANCYL prognostications.

It is a primary role of the state to manage the economy in order to equitably distribute the wealth of a nation. The state must supply infrastructure, manage resources and the economy so that everyone can maximise their potential. Certain resources must remain managed by state owned enterprises (SOE’s). Our water supplies, railways, electricity supply and similar other essential utilities may fit this profile, as they do in other developed and developing economies. The current debate around an integrated national health insurance system is also relevant.

Instead of becoming mired in theory we need to examine how nationalisation works in practice. How well are these resources are managed? How do our SOE’s stack up? Do they comply with international best practice through applying management structures similar to the King 3 good corporate governance guidelines or the OECD guidelines for SOE’s?

Even the shallowest analysis reveals that our SOE’s fall short of best practice; Armscor, SAA, Transnet, Eskom and the SABC each are profoundly malaised. It is hypocritical for the government to insist that private corporations follow best practice if SOE’s are not similarly structured, managed or monitored. In fact higher standards should apply to SOE’s, which manage public resources using our money.

While many people have received power and water reticulation, significant proportions cannot afford them. Consequently theft of Eskom power is rampant. Water quality is generally poor, with water supplies under threat. Would Eskom allow this were it a private entity? Would water be allowed to go to waste in more focussed corporate environment? Can we excuse such differing standards of management between the private and public sectors?

This is not to say that we should privatise SOE’s. Yet publically managed facilities are often run wastefully through inefficient management. This is a global problem but locally much of the blame can be laid at the door of both cadre deployment and a lack of continuity of political vision. The political sea changes between the Mandela, Mbeki and now the Zuma years are remarkable. 

The supposedly leftist backed Polokwane putsch was no more than mutton dressed as lamb. Since the populist Zuma regime took charge, signalling a more transparent, people-centred model, things have fallen back into the same rut. The SABC sinks ever deeper into its sycophantic mire. Eskom is rapidly running out of capacity while obstructing competition and renewable energy. Serious systemic problems remain evident in the parastatal and SOE matrix. 

Extrapolating from this, would the nationalisation of our mines necessarily be a good thing? It is informative to examine our only nationalised mine, Alexcor. This potentially profitable diamond mine limps from crisis to crisis. Even during boom-times before the global economic crisis, Alexcor incurred huge losses, continually bailed out by the state. Its future looks grim.

Many nations whose mines were nationalised present a similarly unflattering picture. The entire Zambian economy went into a tailspin after its copper mines were nationalised under Kenneth Kaunda. Private capital was invited back to return the sector to profitability to salvage both the industry and the single commodity economy.

On the other hand the nationalisation of copper mines in Chile has evidently had benefits for both workers and fiscus, in what is essentially a soft form of nationalisation - a form of sweetheart public-private partnership - which was set in motion in the 1950’s and continues to date. 

Another widely nationalised mineral is oil. Its extraction has driven the transformation of Middle Eastern nations, but the benefits have been unequally shared. Plutocracies remain in control of these undemocratic states with limited trickle down benefits such as improved education and health. 

Africa’s oil wealth has been widely plundered, either by kleptocracies like Nigeria, Sudan, Chad and Equatorial Guinea, or plutocracies such as Angola where several wealthy families have benefited. The benefits of oil have bypassed most Africans. Stiglitz, Sachs and Humphries recognise this strong association between resource wealth and the likelihood of weak democratic development, corruption and civil war in their book “Escaping the Resource Curse.” 

These examples clearly illustrate the necessity to carefully analyse relationships between nationalising and privatising our wealth. The latter marked our early development, now the pendulum appears to be swinging the other way. Then it was public private partnerships and privatisation, now its not.

We do need to utilise our extensive mineral wealth so the people can share in its benefits. The recent spat between Kumba and Arcelor-Mittal is most instructive in where we have been, where we went wrong and where we may be headed. 

Arcelor-Mittal and Kumba arose from the privatisation of Iscor, the nationalised iron and steel corporation. Our newly elected democratic leadership were persuaded that selling these crown jewels was important to establishing legitimacy and credibility through cementing economic stability as per the Washington Consensus. Accordingly Iscor was unbundled and sold off at bargain basement prices to international capital. 

Thus a marginally profitable, primary industrial and mineral beneficiating SOE, funded by taxpayers, was exploited to enrich internal and externally controlled transnational corporations. Local industries were negatively impacted as Arcelor shifted to import parity pricing, making local steel manufactured products globally uncompetitive. Consequently we lost countless jobs to China, where steelmaking is protected. For example Cadac, an innovative local company, outsourced its products to China, impacting job creation.

Attempts to regulate and manage this untenable situation failed as Arcelor Mittal's monopolistic muscle, built on the backs of South Africans, has proven untameable by blunt anti-monopolistic instruments like the Competition Tribunal.

A similar situation occurred with Sasol, another SOE devised to beneficiate our extensive local resources of coal. Sasol, since being privatised has been found guilty of at least four cases of price fixing and profiteering, often at the expense of our national economic growth. 

If we are to nationalise the means of production, it would appear wiser to nationalise industries involved in beneficiating our extensive natural resources. Steel, coal, manganese, chrome and many other valuable minerals are capable of creating not only primary work opportunities through processing before export, but downstream secondary and tertiary industrial processes can be supported by further beneficiation. Instead, well-connected politicians and retired or yet to retire public servants foster deals that will line their own pockets, perpetuating a neo-colonial relationship.

We have seriously misplaced our economic priorities, mainly through ill-considered short term political planning and lack of continuity. Even Kgalema Motlante recently pointed out that too many politicians and leaders pursue self-gratification, ego and conspicuous consumption, rather than foster the democratic revolution they claim to support. 

Some of our strategic economic choices have been bizarre. Subsidising an externally owned corporate aluminium industry with cheap electricity, in a country that mines absolutely no aluminium (bauxite) ore at all amounts to nothing more than giving away 10% of our electricity capacity for possibly a few thousand jobs. This is pure insanity.

Nationalising certain resources is not necessarily a bad idea. The litmus test is what is selected and how it is implemented. Instead of privatising road networks at the cost of the citizenry, we should inject greater resources into our neglected rail networks and other pro-development SOE’s. Yet we effectively gave away the entire Sishen-Saldanha railway line to corporate interests, cutting our nose to spite our face. The contradictions between our intentions and actions are telling.

Our attempts to beneficiate bling natural resources like gold and diamonds demonstrates our lack of imagination and insight. Expecting our artisans to compete against Chinese, Indian, Belgian and Italian experts is foolish. 

Instead of ostentatious pipe dreams we need to create basic industrial opportunities. We need cheap steel. We need to be able to produce the materials for modern magnets for the coming sustainable energy revolution. We can use our platinum to make energy generation cleaner and more efficient. We need to ensure our products are transported efficiently and using sustainable transport such as rail and state owned shipping, just as China does.

But to sidetrack this important debate by barking at the moon about nationalising our mines, without properly considering the real implications is not only unhelpful, it is counterproductive. It is time for proto-demagogues to make space for a rational debate around not just nationalisation but about privatisation and how SOE’s are managed. 

If we need to take back Iscor, let’s do it. If we need to sell off the railways to make them run properly, let’s do it. But do we need to sell our manganese to the Russians at bargain basement prices? Do we need to give our iron ore to China, by competing against Australia, in a race to the bottom? 

Our real priorities are to create work and opportunities for South Africa and for South Africans. We need to remember we are a developing nation and a nation in which a real national democratic and economic revolution must continue. Let’s box smart, not stupid.

Ashton is a writer and researcher working in civil society. Some of his work can be viewed at Ekogaia - Writing for a Better World. Follow him on Twitter @ekogaia.

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