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Nationalisation could have a negative impact on South Africa’s mining industry, especially if it is used as a form of BEE. To nationalise the country's mines requires resources which may extend far beyond the government’s capabilities. While BEE is widely accepted by foreign investors, nationalisation remains a real threat to the mining economy.
While it is generally agreed that a measure of further state involvement in the South African mining industry is inevitable, only time will tell what the nature and extent of that involvement will be. What is certain, however, is that the state should never view its potential involvement in mining as little more than a convenient means of fixing the past failings of black economic empowerment in this sector.
That’s according to Shaun Teichner, director at Werksmans Attorneys, who says that while black economic empowerment (BEE) in mining hasn’t fully achieved the broad-based empowerment objectives to which it initially aspired, it is no longer an unknown factor in the minds of prospective global investors and participants in the South African mining industry.
In fact, Teichner argues that there is relatively good buy-in to BEE by foreign investors, on condition that the rules and requirements of empowerment are clearly spelt out and always fairly applied.
“While BEE can still be a relatively curious concept to international mining investors, they have had the opportunity to see it in practice for some time now,” he explains, “and in most cases recognise it, in principle, as a worthy objective with the potential to contribute to the long term development and stability of South Africa.”
But as Teichner points out, the looming spectre of nationalisation holds no such appeal, particularly given the lingering uncertainty about the form it will take and the extent of state involvement in South African mining that’s likely to be imposed.
“While nationalisation may have the potential, albeit limited, to be the vehicle through which to more broadly share benefits of the country’s mineral wealth, historical evidence points to the fact that this type of approach is almost always accompanied by levels of financial, logistical and human resource demands that government is unable to sustain in the long term,” Teichner points out, “not to mention the massive risk it presents to alienate foreign investors.”
According to Teichner BEE, despite its many shortcomings, has never posed these kinds of challenges for government because it essentially limits their involvement in redistributing the wealth of the private sector to drawing up and policing policies and regulations. “Nationalisation is a vastly different animal that will not only place a massive fiscal burden on government,” he says, “but also significantly dilute its focus as a result of the contradictory goals its involvement in mining will undoubtedly cause.”
All that said Teichner is adamant that a decision regarding nationalisation needs to be taken, and taken quickly. “The only thing more devastating to our country’s mining industry than the comprehensive nationalisation of its mines is the prospect of enduring uncertainty about whether this is actually on the cards,” he says.
And he is firmly of the opinion that until a decision is reached, and the scope of any proposed state involvement is made clear, the industry faces the risk of a steady decline in international investment in the industry.
“While the general feeling within mining circles is that such full-scale nationalisation is unlikely,” he concludes, “the mere fact that conjecture and assumption is still the order of the day regarding the future of SA mining is having a negative effect on its global competitiveness.”