Nationalising South Africa’s mines will not solve the country’s economic problems and its massive unemployment rate of 26%. That is what the Free Market Foundation (FMF) claims after studying twelve countries that have a history of state intervention. The same countries are also being researched by the ANC to look into the possible benefits of nationalisation.

By Miriam Manna, Cape Town

Since the 2009 presidential elections, the so-called ‘nationalisation’ issue has been a hot topic of debate. The discussion was kick-started by Julius Malema, up until recently the leader of the youth league of the governing party, the ANC.

The hot-headed 30-year old was recently expelled from the youth league after being found guilty of various contraventions of the constitution.

Income generation
“The call for nationalisation is based on the assumption that a mining industry which is state owned generates more income for the government than when in the hands of the private sector,” explains Vivian Atud, lecturer at Wits University in Johannesburg and FMF economist.

“Malema and others assume that public ownership will benefit the people, that natural resources when nationalised will be used for the public good, and that mining profits will be distributed among more people more equally,” she added.

“They also claim that nationalisation will lead to greater efficiency and increased jobs. Proponents often refer to economically sound countries with some nationalisation history.”

Potential benefits
While the national authorities say that nationalisation is not on the cards, they gave a group of independent scientists the task to research twelve mining countries with a state intervention history: Chile, Norway, Sweden, Finland, Zambia, Brazil, Venezuela, Namibia, Botswana, Malaysia, China and Australia.

The aim is to find out whether nationalisation could be beneficial to South Africa. The outcome of the research will be released sometime next year.

The FMF in the meantime has conducted its own study, focusing on the same countries that are the subjected to ANC research.

Growth
The organisation’s overall conclusion is that state intervention has not really worked overseas, and has not been the driving force behind rich countries’ wealth and economic growth.

“Secondly, South Africa can’t be compared to most countries that are under scrutiny, simply because most of them have a much higher per capita GDP compared to South Africa. In addition, South Africa’s gini-coefficient, which measures the level of inequality, is much higher compared to the other countries,” Atud said.

Copper
One of the countries that are being studied on behalf of the ANC government is Chile. “Between 1955 and 1972, the authorities nationalized the copper mines – which led to a decline in production. That is why, from 1983 onwards, the state allowed the private sector to move in again after which the copper industry started to flourish,” Atud explains. “Chile teaches us that not nationalisation but privatisation stimulates economic growth and production.”

Then there is Sweden, one of the wealthiest countries in the world. “The things is that the Swedish government did not take private companies, like Malema wants to do, but started their own enterprises,” Atud says. “Sweden has become what it is now, because of its efficiency. That is a lesson South Africa should learn from this particular country.”

China
A third country that is being researched on behalf of the South African government is China. “You can’t really speak about nationalization in China, because everything was owned by the government in the first place. Before 1980 this set-up before did not result in fast growth but rather in a stagnant economy,” she pointed out, stating that China’s economy started to grow when more room was given to the private sector.

Nationalisation in Zambia did not work either. Between 1966 and 1999, the Zambian government nationalised the copper mines, which led to decreased output and a shrinking economy. “As a result, the Zambian authorities were forced to denationalise the copper mines after 1999. Since then the sector has grown again,” Atud explains.

Not a solution
All in all, most of the countries that are being surveyed on behalf of the ANC have not benefited from nationalisation, she adds: “It has not grown their economies. Based on that, nationalisation in South Africa is not a solution to its urgent economic problems. It will most likely lead to decreased productivity, declined efficiency, and will not create more jobs. What we need is stronger economic policies.”