Bloomberg News

S. African CEOs Told by Eunomix Nationalization May Happen

August 01, 2011

(Updates with comment from minister in 16th paragraph.)

Aug. 1 (Bloomberg) -- South Africa’s ruling party may institute some form of mine nationalization, a step that could throttle investments in the world’s biggest producer of platinum and chrome, according to a confidential report prepared for mining executives by a risk analyst.

A drive to seize mines, banks and land is being spearheaded by Julius Malema, 30, who won an uncontested second term as the leader of the youth league of the ruling African National Congress in June. The ANC in November instituted a study into the viability of nationalization. The findings will be the “key political issue” in party leadership elections in December 2012, Claude Baissac, the Johannesburg-based founder of country- risk consultants Eunomix, wrote in the report.

“The possibility of the ruling party voting for a major policy shift affecting security of tenure and ownership of the mines is now greater than at any point since the end of apartheid,” Baissac wrote in the report obtained by Bloomberg News. Mining companies “will now dismiss the prospect of nationalization, whichever form it ultimately takes, at their peril.”

South Africa is the continent’s largest producer of gold, supplies European and Indian power plants with coal and depends on mining for half of exports. In April 2010, Citigroup Inc. valued the country’s mineral resources at $2.5 trillion, the most of any nation.

Plunging Shares

“It is only our policy conference that is going to bring some finality to the matter,” Jackson Mthembu, a spokesman for the ANC, said in an interview from Johannesburg on July 29. “Studies are being conducted. We can’t therefore jump the gun.” Malema told reporters in Johannesburg yesterday that the party is studying how to implement nationalization rather than whether to go ahead with the policy.

An ANC vote for nationalization “would represent the crossing of the Rubicon for both the ANC and for the country,” Baissac wrote. Shares of companies “with a large exposure to South Africa would tumble. Foreign capital would rush out of the country, bringing an immediate collapse of the rand.”

On July 26, 2002, shares of Anglo American Plc, the biggest investor in South African mining, plunged as much as 12 percent after the Mines Ministry said it was considering a proposal that would require mines to be 51 percent black-owned. The rand declined as much as 1.9 percent against the dollar.

‘Important Issues’

Anglo American, BHP Billiton Ltd., Xstrata Plc and Rio Tinto Group operate in South Africa, also home to the world’s three biggest platinum companies and two of the four largest gold miners.

“I’ve seen the report,” Mark Cutifani, chief executive officer of Johannesburg’s AngloGold Ashanti Ltd., the world’s third-largest gold producer, said in a July 27 interview. “It is alarmist to some degree, but you have got to be careful not to dismiss it completely. Claude has been around for a long time. He does raise some important issues.”

The ANC proposed placing mines and banks “in the hands of the people” when it adopted a policy document known as the Freedom Charter in 1955. Nelson Mandela restated the party’s commitment to nationalization after being released from jail in 1990, a position he reversed prior to becoming president following the first all-race elections in 1994.

While Thabo Mbeki, Mandela’s successor, oversaw the passing of a law compelling miners to sell 26 percent of their local assets to black South Africans, he backed the sale of state- owned companies, including a controlling stake in the fixed-line phone monopoly, Telkom South Africa Ltd.

‘King-Maker’

In 2007 the youth league helped Jacob Zuma wrest control of the ANC from Mbeki, enabling him to become president 17 months later.

The “nationalization call can no longer be dismissed as an isolated outburst from the fringes, as the youth league has become an extremely powerful force in a dramatically different ANC alliance,” Baissac wrote. Malema “is indeed the king- maker.”

Opposition parties and the Congress of South African Trade Unions, a labor group that also helped propel Zuma to president, have called for a police and tax probe of Malema after Johannesburg’s City Press newspaper cited unidentified people as saying he was paid to help businessmen win government contracts. Malema has denied taking bribes.

Not Policy

Zuma, who has said he may seek a second term as party leader, and senior members of his Cabinet including mines minister Susan Shabangu have stated that nationalization “is not government policy.” Mathews Phosa, the ANC’s treasurer- general, said on July 28 that while the ANC shouldn’t meddle with successful companies it could back the creation of state- owned companies to compete with miners.

Malusi Gigaba, the country’s public enterprises minister, said in an interview in Johannesburg today that the nationalization debate is deterring investment and the government doesn’t have the ability to manage the mines if it took them over.

Malema has warned that the youth league will only back leaders who support its calls.

Baissac has been a political and economic analyst and adviser for more than 15 years, working as a researcher for the World Economic Processing Zones Association, an adviser to the World Bank and employee of Kroll Inc., the New York-based risk- analysis company. Eunomix experts advise companies, governments, the International Finance Corp. the United Nations and the World Bank, according to the report.

Starvation, Hopelessness

Since Baissac circulated his report in June, several senior mining executives including former central bank governor Tito Mboweni, now chairman of AngloGold and an adviser to Goldman Sachs, and Sim Tshabalala, chief executive of Standard Bank Group Ltd.’s South African business, have spoken out about the risks of nationalization.

Malema has paid little heed.

“An absolute majority of African youth are living in absolute poverty, starvation and hopelessness,” Malema wrote in a June 14 youth league newsletter. “All of us agree that the status quo is not an option. The ANC youth league has a political and economic program to address these challenges. What are the analysts, big business, communists, and neo-liberal sycophants saying should be the alternative?”

Political considerations, rather than economic rationale, will determine the how issue is resolved, according to Baissac.

“The ANC leadership contest is going to be battled around nationalization,” Baissac said in an interview. “It is a key marker of the future of the country.”

--With assistance from Sikonathi Mantshantsha and Nasreen Seria in Johannesburg. Editors: Antony Sguazzin, Karl Maier, Alastair Reed

To contact the reporter on this story: Mike Cohen in London at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus