Posted at 12.28.2018
South Africa is currently engaged in a heated debate on whether to nationalize the country's mines, the outcome of which will greatly affect the continuing future of the economy as well as the well being of an incredible number of individuals. Nationalization is "the act of taking assets into state ownership. Usually it identifies private assets being nationalized. "(wordiq. com). Nationalisation is generally regarded as a means of redistribution and as a means of protecting strategic industries. However, it does entail various costs and challenges. In this article, I'll highlight various areas of nationalisation, elaborate on key aspects, and present my concluding remarks on this topic.
History of nationalisation in South Africa
During the Apartheid era many enterprises were nationalised, for example ESKOM and the steel industry. This was done in order to protect these strategic industries in their infant stages, as well as to guarantee South Africa's ability to sustain itself, in light of the sanctions being drawn up up against the Apartheid regime. Nationalisation was area of the monetary policy under the rule of the National Party. Beneath the leadership of the ANC, party officials started lobbying for the nationalisation of various industries. Actually, the Freedom Charter which states "'the mineral wealth below the soil, the banks, and monopoly industries will be transferred to the ownership of the people as a whole" is employed as basics argument by ANC Youth League leader, Malema for nationalisation of the mines. In fact, Malema emphatically proclaimed that "Naitionalisation will become ANC policy"
Advantages of Nationalisation
Advantages of Nationalisation include greater income and distribution of wealth to members of society. Currently South Africa is one of the very most unequal societies in the world and nationalisation will bridge the gap between rich and poor. Furthermore, nationalisation brings about the federal government playing a more active role in distribution as private enterprises do not always consider the welfare of the country's inhabitants. The country's minerals could further benefit the domestic economy rather than being exported. The revenue generated from public enterprise would form part of total government revenue, thereby increasing amounts available to devote to social welfare such as education and welfare. In case the mines were turned to the federal government, more job creation could take place and skills development would be initiated. South Africa's economy could become wealthier as treasured resources would remain within the country's borders.
Disadvantages of nationalisation
However, nationalisation does come at various costs. Some of these costs include the general procedure and running of the mines, possible shutting down of the mines, as well as developing the mines. If the government has not shown any signs of profit, these costs will still have to be incurred, which could be detrimental to the economy and the physical condition of the individual South African. Government debt would increase at tremendous rates which will spill over and cause great fiscal deficits. Furthermore, it distorts various prices and it might lead to corruption as the government officials might be shopping for their self interests. South Africa could become less competitive with other mining giants such as China and Chile, if by nationalisation, minerals aren't extracted through least cost techniques. Logistical issues, such as transport and storage could become an issue if the government has not set into place agreements and contracts with suppliers. Many nationalized enterprises lack the necessary technological and human capital and they are not put through the discipline of the marketplace. Nationalisation entails huge startup costs which could take a long time for the enterprise break even. Another disadvantage of nationalisation is a reduction in the corporate taxes received by the federal government which could cause the South African citizen paying more taxes in the event of the nationaisation of the mines not being successful.
South Africa's experience
The state run national broadcaster, the SABC has been suffering from, financial woes, lacked the required leadership and has suffered huge losses to viewership numbers. Nationalisation also causes uncertainty in the financial markets as corporate require a host which is financially, politically and economically smooth without much interference from government. . Resources are scarce, therefore during this time period; resources could become depleted, resulting in huge losses for the South African economy.
Eskom, being truly a nationalized enterprise because the apartheid era has experienced many setbacks and financial failures in recent years. Being a government enterprise, one can argue, that one structures within the firm, do not operate as effectively as it could, if it was at the mercy of market conditions. For instance, Eskom's inability to sustain and maintain various power plants and meet consumer demand have resulted in numerous black outs and price hikes. Actually, prices hiked to 23. 6 percent and Eskom suffered various losses. The editor of Tax Central blames this loss of 'bad management'.
"Eskom's financial loss came even following the power utility upped its tariffs in 2008 and again this year. The business warned that there was also a funding shortage of R80bn necessary for expansion. 'Eskom is working urgently with both government and Nears to close this gap and it is confident that this can be done' said Eskom chairman Bobby Godsell. " Clearly Eskom has been inefficient. Being a public sector enterprise there's a lack of accountability.
Under the rule of Mrs. Indira Gandhi, banks in India were nationalized, a few of these banks were, the Central Bank of India, Bank of Maharashtra and Dena Bank. The banks were nationalized after the partition in order to help the government realize its socio-economic objectives. Other reasons were to lessen the private banking monopolies and have greater regulation of India's financial markets and banking system. However, it had not been entirely successful as various limitations such as; increased expenditures led to inefficiencies and increased costs. Many government officials interfered in the administrative activities of the banks and corruption was rampant. Having less competition amongst the banks and poor infrastructure led to India's bank operating system failing to perform optimally through the 1980's.
African economies that have dabbled in nationalisation have fared very poorly. A prime example is the Zanu PF's confiscation of white farmer's land in Zimbabwe. These farms were transferred to the neighborhood people who became the new owners of the land, however, weren't able to maintain or use the resources proficiently as they had limited knowledge and skills in agriculture. In Botswana, the nationalisaton of the diamond mines sometimes appears as a classic example of a private-public venture that benefits various stakeholders. However, Botswana continues to be rampant with poverty and extreme inequality. Clearly this partnership only benefits a select few.
Hugo Chavez wished to nationalize the united states and turn it into a social state. He has nationalised telecommunications, electricity, steel companies and some major oil companies (Ingham, 2009). The Venezuelan economy has grown significantly under Chavez's leadership. He has managed to distribute the mineral resources of his country and reduce and redress the imbalances that existed amidst the rural poor and the urban rich. Being a hotbed of oil wells, Venezuela has benefited from the steep rise in the costs of oil and the profits derived from the nationalisation are being used in various social programmes, such as healthcare and education.
According to Julius Malema in a speech given in the Western Cape, "The federal government revenue that is generated from taxes will never be in a position to build better lives for everyone South Africans. Government cannot solely rely on taxes to deliver better services to most our people. South African will never be able to deal with the housing backlog, free education access, better healthcare, security and safety, employment of particularly youth if we aren't in control of the main element and strategic sectors of the South African economy. The wealth of South Africa should benefit all who reside in it. " He mentioned further that nationalisation was in accordance with the aims of the Freedom Charter, however, Suzan Shabagu fired back at Malema, stating that nationalisation hasn't been part of ANC policy and that nationalisation won't happen 'in her lifetime. ' With such conflicting views within the state, one wonders the way the programme of nationalisation of the mines will be successful, if the aims and conditions cannot even be agreed upon.
Clive Coetzee, Kwazulu-Natal Treasury economist mentioned that the mining industry supports the four macroeconomic goals, economical growth, employment, a low inflation rate and a surplus in the total amount of payments. He further states that in 2008 around 500 000 people were employed in the mining sector which contributes to 6, 1% of total non-agricultural formal employment. This is with no indirect ramifications of mining; if these effects are considered another 500 000 jobs will probably exist. I believe the private sector already has the necessary capital as well as human resource proficiency to keep and sustain this sector. Therefore there is no reason to nationalize the mines in South Africa
If nationalisation is usually to be successfully implemented various pre-requites and conditions will be required, and these have to be plainly defined and stated. The aims and goals of nationalisation have to be elaborated comprehensive. Information on how nationalisation will benefit the united states as well as corporate entities have to be communicated. Planning needs to incorporate a wide selection of aspects, and specific details need to be revealed. Increased clarity on whether nationaliation will be undertaken with or without compensation, and in the former case, where will the funds result from? Will the state issue bonds, or resort to other ways of finance? The federal government will have to set up committees to deal with various contingency cases and ensure that the transition is well-managed. Relationships with various stake-holders have to be considered together with enviromental impacts, and an assessment of the redistubion process. All these entail significant costs, and the government must enter the specifics. In the long run, the question remains do the huge benefits outweigh the expenses?
In Conclusion, there is a lot controversy surrounding the problem of nationalisation and there is much doubt regarding the government's ability to perform efficient enterprises, given their poor historical performance in managing state enterprises. Focus should be on clarifying the goals and objectives before nationalisation may become feasible. Nationalisation is, and will not be feasible, unless strict policies are placed into place. Furthermore, the South African public is far too intelligent to believe in the promise of the proverbial pot of gold by the end of the rainbow.