Nationalisation of the Mines
South Africa has so many amazing mineral natural resources as well a profitable well-developed mining sector. The nationalisation of the mining sector is an argumentative topic in our country at the moment. It has been argued that income from the mining sector will advance several social and economic project which include resource redistribution, transformation and job creation.
The case for or against Nationalisation:
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Nationalisation is the process of taking on an industry or assets into government ownership by a national government/state resulting into public majority ownership.(www.dictionary.com) Repeated experience has shown that nationalised companies and industries consistently under perform their sector counterparts in terms of productivity profitability and services quality.
Private companies are accountable to their shareholders who are able either to disinvest in the companies and industries consistently under perform their private sector counterparts in terms of productivity, profitability and service quality. (www.thebudgetspeechcompetition.co.za) The state and effectively taxpayers, maintains permanently majority ownership of a company and which losses are incurred. The state finance department often intervenes in these situations as a result there, it exists as an incentive to maximise efficiency, productivity and profitability within the private sector. Nationalised enterprises face little risk of becoming insolvent and therefore incentives for efficiency and profitability are often lax or non-existent.
ARGUMENTS AGAINST NATIONALISATION
Several political groupings have instigated support for the idea of nationalisating the South African Mining Sector. Of these, the ruling party’s youth league (ANCYL) is the most prominent. In order to understand the nature of the nationalisation debate that’s been going on recently by the ANCYL , it is necessary to study their nationalisation proposal. The very first thing that would happen is that there would be a big outflow of capital out of the country, which would lead to a rapid depreciation of the rand. The weak rand would benefit some manufacturers in the short-term. “This would then cause high interest rates and inflation in the mid- to long-term This won’t immediately affect the poor since they don’t have debt with the banks. It’ll hit the middle-class hard because they have loans. A higher interest rate would lead to slower economic growth and a loss of jobs.(www.dailymaverick.co.za/
The ANCYL provides numerous motivations for mine nationalisation. These include the assertion that nationalisation increases the state’s fiscal capacity and leads to job creation as well as encourage the industrialisation plus improved working conditions. Most South Africans all feel that the nationalisation of the mines will only bring more negative than positive to our country.
There was a general agreement amongst economists that the role of state does not extend into the production of goods and services that the private sector can provide and pointed out that although the Youth League’s motivations are admirable in themselves, but they form part of an inconsistent mix of politically motivated social and efficiency goals. Political agendas often obstruct enterprises by disregarding economic realities and providing opportunities for political support. Nationalisation is regarded as a solution to problems such as unemployment, low wages, and social inequality. When such benefits are realised, they are seldom divorced from the negative aspects that affect the rest of the population and sector, including higher unemployment and prices and, lower wages.
Those advocating the nationalisation of the mining sector in South Africa are thus likely motivated by the short term benefits of such a scheme. Politically, short term benefits will certainly get more votes. This calls into question the motives behind the ANC youth league’s firm decision on nationalisation as the economics clearly show the potential long term damage to the economy. Historically, nationalisation has not fared well, particularly in developing countries. Theoretically, it has been shown that public firms are less efficient than private firms. Psychologically, the agency principal demonstrates the reasons for this lower efficiency. Empirically, studies have shown how private firms are more efficient after privatisation, and that nationalisation decreases efficiency. Lastly, efficiency is desirable in an economy, more-so than short term social welfare, as increases in short term welfare at the expense of efficiency lead to greater losses in social welfare in the long term. All of these findings are applicable to the debate regarding the nationalisation of the South African mining sector.(www.thebudgetspeechcompetition.co.za)
In conclusion, it is extremely likely that nationalising the mining sector would lead to a poor allocation of government funds, decrease efficiency within the mining industry, damage social welfare in the long run and damage investor confidence in the South African economy. The last cause would have disastrous consequences. Without going into detail, some of the more serious consequences of a loss of investor confidence include flight of capital from the economy, a weakening of the Rand, lower foreign investment and a reduction in GDP growth.(www.sowetanlive.co.za). The only positive spinoff remains a political one: An increase in the ruling party’s voter base in the short term. Economically, nationalisation of the South African mining sector remains a poor choice for the allocation of the resources of the South African government i.e. the tax payer’s money. The economic feasibility of nationalising the mining sector in South Africa, drawing attention to the declining contribution of the mining industry to the South African economy and declining employment opportunities, which suggest that nationalisation, will create an unnecessary burden for the government therefore I don’t agree to it.