Bloomberg News

ANC Targets Export Tax, Pension Funds in South African Plan

December 06, 2011

(Updates with comment from investor in 10th paragraphs.)

Nov. 23 (Bloomberg) -- South Africa’s ruling African National Congress is considering taxing exports and forcing retirement funds and insurers to buy state-owned companies’ bonds, according to economic plans to be discussed by the party.

An export levy is needed to “ensure security of supply” of commodities, while the government should put regulations in place to require bond purchases “as a matter of urgency,” the ANC said in two draft documents obtained by Bloomberg News.

Under pressure from labor unions and his party’s own Youth League, President Jacob Zuma has pledged to bring down South Africa’s 25 percent jobless rate by creating 5 million jobs by 2020. The government is pushing producers to process minerals locally to revive manufacturing and wants to expand rail and power capacity to address two of the biggest hurdles to investment in Africa’s largest economy.

“As a matter of urgency, the state should regulate for a substantial part of retirement funds to be invested in state- owned enterprises and development finance institution bonds and provide sovereign guarantees,” according to one of the reports, dealing with state companies. This will help fund infrastructure plans, it said.

Eskom, Transnet

The reports will be discussed by the ANC’s National Executive Committee, the party’s top decision-making body, this weekend. If adopted, the proposals may become the ANC’s policy recommendations to the government, which the party has controlled since the end of apartheid in 1994.

Eskom Holdings SOC Ltd., the state power utility, and Transnet SOC Ltd. are spending $72 billion over the next five years to ease an electricity shortage and improve railways. At the same time, surging demand for coal from India and China is putting pressure on South Africa to secure supply of the fuel for its own power plants.

ANC spokesman Jackson Mthembu declined to comment on the proposals when contacted by mobile phone today because the documents are still due to be discussed by the NEC. The committee’s recommendations will be debated at a policy conference in June and then put to the ANC’s national conference in December.

South Africa’s rand fell for a third day against the dollar, weakening 1.1 percent to 8.4701 by 4:06 p.m. in Johannesburg, extending the decline this year to 22 percent, the most of 16 major currencies tracked by Bloomberg.

Nationalization

The documents don’t refer to calls for the nationalization of mines and banks made by the ANC Youth League, led by Julius Malema, and don’t specify which exports should have quotas and be taxed.

Any restrictions may impact shipments from the world’s biggest producer of platinum, used in catalytic converters, and chrome. Impala Platinum Holdings Ltd., Anglo American Plc and BHP Billiton Ltd. are among exporters in the country, which also produces gold, diamonds, coal and iron ore.

“Very few of our industries would be able to pass on the cost to the consumer so it would be just an additional tax on the companies,” Ian Woodley, who manages 1.9 billion rand of resources assets for Old Mutual Plc.’s South African investment unit, said in a phone interview from Cape Town. It “could lead to a slowdown in investment.”

Chamber of Mines

South Africa should focus on ensuring manufacturers’ electricity and transport requirements are met rather than introducing taxes, said Frans Barker, a senior executive at the Chamber of Mines, who hadn’t seen the documents.

“If we want to encourage local mineral processing it should be done by addressing the constraints faced by manufacturers rather than some artificial way,” Barker said in a phone interview from Johannesburg today.

South Africa has already missed out on a boom in commodity prices such as gold, copper and iron ore, and the measures would further deter new investment, Siphiwe Nodwele, the chief executive officer of Johannesburg-based investment company Snic Group Ltd., said in an e-mail today.

The Public Investment Corp., Africa’s biggest money manager and the manager of South African government-worker pensions, and Old Mutual Plc, Africa’s biggest insurer, may be affected by any measures regulating pension and insurance funds.

Eskom, which supplies 95 percent of South Africa’s electricity, has 12 bonds with 91.2 billion rand of debt, according to data compiled by Bloomberg. Transnet, the state- owned logistics company, has 39.5 billion rand in bonds.

The pension proposal is a “terrible idea because it reduces fund managers’ ability to provide the security of long term buying power by the nation’s savers,” Ian Cruickshanks, head of strategic research at Johannesburg-based Nedbank Capital, said in a phone interview.

--With assistance from Renee Bonorchis in Johannesburg. Editors: Gordon Bell, Nasreen Seria

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net

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


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