Ratio Blog: Bad Governments Nationalise Badly
Thursday, 21 October 2010
I caught this headline in the corner of my eye on CNBC: ‘One mine, one school’. Julius Malema, the ANC Youth League’s pudgy, fighty manchild, was at it again. In a speech to students at University of Limpopo’s Medical University of Southern Africa, he argued that even if South Africa’s black citizens acquired shares under the Black Economic Empowerment (BEE) programme, they did not really own them since they needed banks to finance those acquisitions, so the banks effectively owned everything, which means that South Africa’s national resources were in the grasping clutches of the banks’ CEOs, white males golfing in London, singularly obsessed with accumulating ever more money. He then wrapped up this chain of reasoning with a neat and simple solution, customised for his audience: Nationalise the mines, because only this will make free education possible.“If one mine takes over this university in terms of funding… they can pay for all of you and still declare a profit.’’

Now I agree with him that BEE, despite the good arguments underlying it, has not exactly solved the problem of South Africa’s incredible inequality – it has created a few more rich people, but done little for the wider black population.

But it’s a little ironic that in his speech, Malema should slam ABSA Group CEO Maria Ramos (not exactly a white male) for her salary because, not unlike Kenya’s Mike Mbuvi Gideon Gidion Sonko, Malema seems a little vague on the origins of his own wealth: He had told journalists that his official ANC salary was ZAR20,000, which makes you wonder about his ZAR250,000 watch and his real estate holdings as well as his distinctly upmarket cars. The Uncyclopedia concludes that ‘this just goes to show that Julius knows how to get the most out of his salary’. Either that, or his companies’ government tenders might have an explanation. But that’s by the by.

In any case, Malema is not exactly an intellectual heavyweight, and we’ll ignore for now that he was a founding member of the Nkgape Mining Investments consortium. But his push for the nationalisation of South Africa’s mines does hit a nerve in many countries: It is any government’s right and duty to manage the exploitation of the country’s natural resources, and even though there isn’t necessarily one best way of doing this, the idea is of course that a country’s resources should benefit its citizens, not just a handful of the well connected as in Nigeria, Equatorial Guinea, Kazakhstan and many other countries where natural resource wealth co-exists with crushing poverty.

The argument that citizens should see more benefits from the rapid growth of its mining industry was also cited as a key factor by Tanzania’s government in enacting new mining legislation earlier this year. The new mining act increases government royalties, but also allows for government to take a stake in mining firms. Relations between mining firms, small-scale miners and people living in the mining areas had been tense for a while: mining firms have been accused of, amongst others, heavy-handed security, water pollution, and the displacement of local populations.

It doesn’t help that extractive industries are typically capital intense and require limited, but highly specialized manpower that is often not readily available in the host country. In Uganda, oil exploration firm Tullow have initiated a scholarship programme for oil and gas studies to help build this expertise in Uganda. But an analysis we published last year on Tanzania’s mining sector also cited mining firms’ complaints that doing business in Tanzania is incredibly difficult, slow and expensive. My colleague Rachel also observed: ‘The government has not provided the infrastructure necessary to support mining activities, nor has it used mining revenues to provide social services, linking back to the problem of social unrest.’

Tanzania tends to have a bias towards government-heavy legislation anyway, a legacy from its socialist years. And its socialist hangover, alongside a weighty bureaucracy, nicely feeds corruption to rival its Anglophone EAC members, just that Tanzania usually gets fewer headlines for it. This is really at the heart of the matter: ‘Tanzania’s greatest challenge is still posed by a highly corrupt state incapable of managing public funds so that they translate into tangible improvements for its citizens, nor of regulating smartly.’

And going back to expert problem solver Malema: Many companies with a large number of low-income employees already run facilities that typically fall within the responsibility of government, i.e. schools and healthcare facilities – just have a look at Kenya’s horticultural industry. But ultimately, who owns the mines doesn’t really matter so much: An incompetent or corrupt government, or worse still, an incompetent and incorrupt government, will never manage the mining sector to the benefit of the wider population, whether it nationalises the mines or not. It will never stop mining firms’ transgressions, and it will never use mining revenues for the benefit of its citizens. And Prof Ongeri can probably also tell a tale or five about free primary education budgets not, in fact, being used for free primary education.

Republished with the kind permission of the Star.

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