The Role of The SA State in Mining With Cover

The role of the
South African State
in
Mining
Dr Mzukisi Qobo
The role of the

South African State
in
Mining
Dr Mzukisi Qobo
Vision of CPR Press: To liberate society through knowledge Mission: To be a leading producer of critical ideas
First published in 2011 by CPR Press 624 Jacqueline Drive, Garsfontein, Pretoria East, 0043, South Africa. Tel: (012) 993 0343 ISBN: 978-0-620-50757-8 Copyright CPR Press 2011 No part of this publication may be reproduced, stored in a retrieval system, or transmitted by any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior permission from the copyright owner. Opinions expressed and conclusions are those of the author and should not necessarily be attributed to CPR Press. Cover design by Marketing Support Services, Pretoria. Design, layout and typesetting by Marketing Support Services, Pretoria. Printed and bound by Bhubezi Printers, Pretoria.
Contents
Glossary of terms Foreword Introduction The politics of nationalisation The hand of history today The state miningcompany Lessons from outside Broad observations Models of stateparticipation in mining Models of regulation Conclusion Apendix 1: Table of interviews
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v vii 1 3 9 27 33 63 67 73 79 83
Glossary of terms
AEMF: Africa Exploration, Mining and Financing Corporation ANC: ANP: African National Congress Agencia Nacionaldo do Petroleo ANCYL: African National Congress Youth League BNDES: Banco Nacional de Desenvolvimento Economico e Social CEF: CM: Central Energy Fund South African Chamber of Mines
CNPE: Energy Policy Council

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The role of the SouthAfrican state in mining
CPRM: Companha de Pesquisa de Recursos Mineiras DMR: Department of Mineral Resources DNPM: Department of National Petroleum and Minerals DPE: IDC: Department of Public Enterprises Industrial Development Corporation
MPRDA: M inerals and Petroleum Resources Development Act MRRT: Minerals Resources Rent Tax NUM: PGMs: PIC: PRST: National Union of Mineworkers Platinum Group Metals Public Investment Corporation Petroleum Resources Super-prot Tax
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Foreword
This report is a product of an independent study funded by Xstrata South Africa. As a mining company, we obviously have an interest in any discussion that has implications for the mining industry, which is why we were encouraged by the call made by the African National Congress (ANC) for stakeholders to make contributions in dening the role of the state in the broader economy, and mining in particular. Following the ANCs call, our company applied its mind to the important question: How best can Xstrata add value to what popular parlance has termed the nationalisation debate? The temptation to communicate our narrow feelings as most companies often do,
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when there is a debate affecting a sector in which they operate was there. But we avoided it. We elected, instead, to commission an independent study by a research organisation that has no interests in mining the Centre for Politics and Research (CPR). We did so conscious of the possibility of research ndings that may not please Xstrata. Because the national discussion on the role of the state in mining is more important than narrow company interests, Xstrata is content neither to censor nor to prevent the circulation of the views expressed by Dr Mzukisi Qobo, author of this report. We hasten, however, to state that nothing in this report reects the views of Xstrata. We have made it plain to CPR that at no point shall our company be bound by the ndings of their study. We hope readers will not misconstrue this to mean that Xstrata is not appreciative of Dr Qobos thorough research. As the report circulates, I sincerely trust that various stakeholders in the discussion will derive value from the reections it makes, the models it highlights, and the constructiveness of its spirit. Andile Sangqu Executive Director Xstrata South Africa
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Introduction
In recent times, the mining industry in South Africa has come under a political spotlight. There are those, on the one hand, who call for the nationalisation of mines, and those who view such political demands as damaging to the countrys investment prole. Both sides seem very determined in their convictions. Beyond the ideological tit-for-tat between those who are for and those who are against nationalisation, there are voices of reason counselling that this matter should be handled with sobriety. Thus does the discussion become elevated to a higher plane, where more salient questions arise:
What role should the South African state play in the mining industry?
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Are there lessons our country can learn from the experiences of other nations that have grappled with this matter before? If the state were to play a more active role in mining, how could South Africa avoid the undesirable situation where the state plays the double-role of referee and player? and Are there regulatory options the country could explore in its quest for a fairer regulatory regime?
This report is a culmination of a study motivated by the urge to answer these questions. It is an outcome of eld research conducted in Australia, Botswana, Brazil and Norway. In the nationalisation debate that has been raging on our shores, these countries are among those that are frequently referred to as possible sources of advice as to how South Africa could better fashion the role of the state in the economy. As our eld research has conrmed, there are indeed valuable lessons for South Africa from these countries. For the purposes of contextualisation, the report begins with an overview of the domestic debate on nationalisation, and explores the implications for the mining sector. To put things in perspective, the local debate is placed in the context of international discourse on the subject. The experiences of the countries we visited are weaved into an exploration of possible options for South Africa. Hopefully, those grappling with the question of the role of the state in mining will nd value in this report.
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The politics of nationalisation

The domestic debate
The call by the African National Congress Youth League (ANCYL) for the nationalisation of mines in South Africa has created a great deal of uncertainty about South Africas regulatory framework and the predictability of its investment climate. When the African National Congress (ANC) decided to entertain the view of its youth wing in this regard, and took a decision to conduct a study on this matter, most observers were encouraged by the call for stakeholders to make contributions. While the ANC has instructed its structures and members to await the ndings of the party research, the
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call for nationalisation by the ANCYL continues publicly to be made. The ANCYLs position in this regard is based on an interpretation of the economic clause in the Freedom Charter, that: The national wealth of our country, the heritage of our people, shall be restored to the people; the mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole1 In respect of mining, the ANCYL discussion document on nationalisation envisages a total control of the value chain or vertical integration of mining activities under the states control from exploration to trading. For example, the ANCYL calls for the amendment of the Mineral and Petroleum Resources and Development Act (MPRDA) to allow greater state participation in the exploration, extraction, production, processing, trading and beneciation of mineral resources in South Africa.2 In the document, the ANCYL particularly stresses the phrase transfer of ownership to the people as a whole, interpreting it to mean legitimate governments control and ownership of the commanding heights of the economy or nationalisation. It then goes
Freedom Charter, adopted on 26 June 1955, Kliptown, Soweto, Johannesburg. A copy can be accessed from http://africanhistory.about. com/od/apartheid/a/FreedomCharter.htm ANC Youth League, Towards the Transfer of Mineral Wealth to the Ownership of the People as a Whole, A Discussion Paper of the ANC Youth League, In Umrabulo, No. 33, Second Quarter, 2010.
on to state the rationale for nationalisation, stating its intentions as being:

To increase the states scal capacity; To improve working conditions; To create a basis for industrialisation; To safeguard sovereignty; To transform the accumulation path of South Africa; and To transform South Africas unequal spatial development.
There are varying permutations of the structure of governments control in the mining sector as proposed by the ANCYL. The rst, which it most prefers, is total control or 100% state ownership achieved through expropriation and with compensation terms determined by the state. Thus, the league calls for the introduction of an expropriation Bill as the rst step towards expropriation. The second permutation entails a state mining company which can decide to enter into joint ventures with the private sector; capping the share of the private sector below 49%. The youth league proposal alludes admiringly to the arrangement between De Beers and the Botswana government, which constitute the 50-50 percent Debswana partnership. For South Africa, the ANCYL prefers the state to hold a controlling stake. Some within the ANC have cautioned that this debate ought to be handled delicately. For example, President
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Jacob Zuma is on record saying that Nationalisation is not government policy.3 Such important role players as the National Union of Mineworkers (NUM) have also expressed misgivings, arguing that South Africa has neither the money to nationalise with compensation, nor the constitution which allows asset seizure without compensation.4 For those watching from the sidelines of the political playing eld, this debate raises worrying questions about the security of land tenure and mining rights, as well as the long-term predictability of South Africa as an investment destination. For example, the South African Chamber of Mines (CM) has cautioned that nationalisation has never been an enduring, successful system anywhere in the world where it has been implemented, and that it is an antiquated and discredited practice that has impoverished many African countries.5 Unlike other economic sectors, mining requires long-term investment planning, especially given the upfront risk capital that is required, both at the level of exploration and development. It is also not a sector that permanently rides a super-cycle, which makes the risk factors all the more glaring. The impact of the debate
3 4 5 Jacob G. Zuma, Response to the State of the Nation Debate, 16 February 2011. National Union of Mine Workers, quoted by Martin Creamer in Mining Weekly, May 13-19, 2011. Sipho Nkosi, November 2010, quoted in Mail and Guardian, Chamber of Mines Warns Against Nationalisation, 02 November 2010.
on nationalisation should be understood against this backdrop. This debate can be misconstrued easily by observers who are outside of South Africa, and who could be inuential in shaping images of the country among investors. While South Africas Constitution has very rm provisions governing the treatment of private property ownership, under Section 25 (2),6 nothing can be taken for granted. The ANCYL has made a bold statement about changing constitutional clauses to facilitate nationalisation. In this regard, they have asserted that, Concretely, the African National Congress should utilise its capacity to lead society, parliament and government to re-introduce the Expropriation Bill in Parliament7 In a democracy, an open debate on matters affecting the public is healthy. The South African debate on the nationalisation of mines can be viewed in this light. However, imprudence in handling discussions that have a bearing on investment decisions can have serious consequences for the economy. While no one knows the full impact of the debate so far, none can deny the fact that it has generated anxiety among investors. Having
According to this provision, Property may be expropriated only in terms of law of general application (a) for public purpose or in the public interest; and (b) subject to compensation, the amount of which and the time and manner of payment of which have either been agreed to by those affected or decided or approved by a court. ANCYL Discussion Document.
a political debate on the best ways to manage or regulate any sector of the economy should also not give an impression of paralysis in policy or lead to doubts being cast on the stability of the macro-economic environment and investment climate. However, it should be kept in mind that it is far easier to damage a countrys international credibility than it is to build it.
The hand of history today

There are two motivations behind those who call for the nationalisation of mines in South Africa: (1) ideological orientation and (2) the role of history in determining the current state of the mining industry. While the former could be a matter of political passions, the latter is a reality that must not be swept under the carpet. The construction of ideology in relation to mining is linked to the historical fact that the development of the mining industry has been associated with the wanton land dispossession of Africans. Thus, the call for the nationalisation of mines is located within the broader ideology of African nationalism, which advocates for the restoration of land, economic and political rights to the African majority.
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Many of the emotions that inuence current discussions on mining have a great deal to do with history. In a context dened by role players who do not share similar historical and politico-cultural backgrounds, it should come as no surprise when stakeholders approach matters from fundamentally different standpoints. The historical truth that Whites were economically empowered and that Blacks were disempowered continues to shape the attitudes of different stakeholders. Although hardly acknowledged, the industrialisation project of the apartheid state depended largely on the mining industry. For the purposes of this report, we need not spend time trying to prove the symbiosis between the private sector and the apartheid state, as this is well documented. Being the main employer in society, this sector was important in determining labour relations for the whole country, and in constructing a workplace legacy for a future South Africa. Prof. Sampie Terreblanche is among the best and most respected political economists in South Africa. Here is what he says about the role of the private sector in the construction of a racialised workforce:
Despite the fact that organised business formally opposed inux control, most urban employers actually preferred to employ tribal African migrant workers in the large number of unskilled jobs available. They were much cheaper, and also far more docile.8
Terreblanche S., 2002, A History of Inequality in South Africa: 1652 2002, Johannesburg: KMM Review Publishers, p. 318.
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Given this, it should come as no surprise that Blacks compared to Whites are still on the lower rungs of the employment hierarchies of most companies, and the mining industry is no exception. Patterns of ownership also reect the hand of history. Indeed, the construction of this reality was facilitated by politics through legislation, which is why it is today impossible for a discussion on employment equity to take place without invoking history. The link between yesterday and today is too strong for the rust of time to erode. But there is reason to be wary of those who approach historical matters from an us-against-them standpoint, for we all have a responsibility to build a new country in order for our children never to be as burdened by history as we currently are. Unfortunately, our historical burden continues to weigh heavily on current discourses, and this has been evident in discussions relating to the Mining Charter. If progress is to be made in bridging the us-vs.them gap that continues to characterise discussions among mining industry role players, consensus would need to be reached on the key issues that generate animosity. These include:

Housing and decent living conditions for workers; Adult basic education and training as an imperative for human resource development; Employment equity; Procurement; and Ownership.
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Some might wonder why these issues generate disagreement. By the early 1890s, the livelihoods and economic sustenance of the majority of Africans had largely been destroyed through systematic measures that were put in place by the colonial regime in South Africa. In order to force Africans to work in the mines, the state imposed new taxes to be paid in cash so as to reduce the reliance of Africans on livestock. Essentially, this was an impoverishment scheme by the state, designed to benet the mining industry. Indeed, this is documented:
It [was] suggested to raise the Hut Tax to such an amount that more natives will be induced to seek work, and especially by making this tax payable in coins only; each native who can clearly show that he has worked for six months in the year will be allowed a rebate equivalent to the increase that may be determined by the state.9
This and other attendant decisions led to the proliferation of Black mineworkers who worked as migrant labourers in the gold mines of the Transvaal and later the then-Orange Free State. The socio-economic pressures created by the new tax system were made more severe by natural and health disasters that occurred in the early part of the 20th century. This conspired to worsen articially created conditions of destitution
9 Report of the Mine Managers Association on the Native Labour Question, 1893, cited in Calinicos, L. A Peoples History of South Africa Volume One: Gold and Workers, p. 23.
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within African communities, and drove many African men to seek work in the mines, in accordance with the designs of the colonial government and the interests of the mining industry. A variety of strategies were designed to secure labour. Offering nancial inducements to the Swazi monarch, the Native Recruiting Commission, set up by the Chamber of Mines, was able to diminish the severe labour shortage in the post-World War II economic boom. In turn, the Swazi King was assured of annual repatriations, owing from his generous donation of the Swazi workforce to South African mines. The insufciency of cheap labour was mitigated by casting the net even wider. By 1910, workers were being recruited from all over Southern Africa, including countries as far aeld as Malawi. To this day, the legacy of this strategy is still visible; nationals from other Southern African states still work in our mines, constituting 38% in 1997.10 The sourcing of labour from outside the borders of South Africa and from coastal provinces has contributed to the current shortage of proper housing for workers in the mining sector. The mining industrys thirst for migrant labour led mines to establish recruiting agencies in distant rural areas and neighbouring countries, originally opened to capital interest by military conquest. This is how native
10 Migration Information Source http://www.migrationinformation.
org/Feature/display.cfm?ID=689
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reserves were systematically made to evolve into labour reserves. After 1910, mine owners and white workers agreed on a series of policy and legislative measures to limit the participation of Africans at skilled and managerial levels in order to construct a remuneration regime that favoured whites. Post-1948, successive apartheid governments further protected white economic interests by constructing a homeland system that kept Africans away from centres of production, unless they provided cheap labour. The recruitment strategies of the mining industry also served to fuel tribalism. A closed compound/hostel system was designed and implemented to foster separate tribal identities, under the pretext of preventing anticipated conicts among hostel dwellers. This is how the blueprint for grand apartheid was provided by the mines. Contrary to convention, the system of apartheid was not an original innovation of the Afrikaners, as is generally portrayed. In fact, the experiment that proved apartheid workable was conducted in Kimberley more than sixty years before apartheid was implemented, ironically masterminded by an English man: Cecil John Rhodes. This is what happened:
In 1889, all 10,000 black mineworkers in Kimberley were accommodated in closed compounds. Some discussion ensued about the idea of incorporating white employees into the compound system. In his annual report in 1884, the inspector of mines proposed that it should apply to all mineworkers, but
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the idea was not pursued. Whites were permitted to live in the town, leaving blacks conned to segregated compounds.11
The racialisation of latter-day South Africa cannot be understood without considering its roots in the history of mining. The inux of African job seekers into urban centres created new racial complications. The proliferation of Black labourers into the Rand, for example, led White professionals to call for a colour bar, effectively asking for job reservations for Whites, especially highend jobs. This is how Blacks came to be conned to hard labour, regardless of experience and qualication. By the time apartheid was formally entrenched in 1948 and beyond, the mining industry had long established a culture of job reservation for its White employees. This colour bar also meant that White workers were given better housing and other social benets than their Black counterparts who were forced to live in squalid compounds under appalling social conditions. For decades since 1948, the mining industry continued to benet handsomely from the segregationist machinery of the state. For their part, Black workers had no civic rights; they were there simply to gratify and pander to the interests of mining houses. In its nal report, the Truth and Reconciliation Commission concluded thus:
11 Meredith M., 2007, Diamonds, Gold and War: The Making of South Africa, Johannesburg: Jonathan Ball Publishers, p. 157.
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Through punitive taxes in rural reserves and through land dispossession (the Land Act of 1913 and 1936), the black male worker was dislodged from agricultural subsistence farming and forced to work at the underground rock faces. This inux of a large black population instigated early stirrings of swart gevaar (black danger) and more broadly a fear of the threat posed not only to frontier political control but also to the stability and protability of diamond and gold mining.12
It should be recalled that migration regulations were rst drafted by the Chamber of Mines Native Labour Department in 1895, as a response to perceived state reluctance to organise a stable and constant labour supply. The then-President of the Chamber, Mr Lionel Phillips, expressed happiness that his Chamber had drafted the most excellent law which should enable us to have complete control over the Kafrs. Historically, the Chamber of Mines did not see itself as a docile political player; it played an active role in political issues. In its submission to a 1944 commission on native wages, the Chamber argued openly for the subsidiary means of subsistence, which essentially called for Blacks to be kept in homelands, from which they could be drawn whenever the need arose. This zeal for population control on the part of mining houses set
12 The South African Truth and Reconciliation Commissions Final Report, 2007.
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a precedent for the subsequent pass laws of the apartheid government. Indeed, this is hardly acknowledged today. That the mining industry played a role in social disruption is a well-known fact. The single-sex hostels, for example, tore family structures apart. African women who had accompanied their spouses to the compounds were endorsed out, or sent back to the homelands. And women were left to rear children and cultivate elds without the support of their men who worked far away in the mines. Workers who were incapacitated by occupational hazards in the mines were not adequately compensated to ensure their long-term sustenance after disasters. All of this wreaked havoc in the social affairs of Black people. The frequency and fatality of mine accidents were unbearable. Indeed, the mines should take responsibility for ignoring basic safety standards prescribed by the International Labour Organisation. By 1993, the mortality rate in the gold mines as a result of accidents stood at 113 for every 100 000 miners. This does not take into account the delayed deaths and disability resulting from the occupational hazards of underground work. The migrant labour system allowed employers to repatriate miners suffering from injury, silicosis, pulmonary tuberculosis and other work-related ailments back to their distant homes, where they would often die slow and painful deaths. Those who lived with mine-induced ailments did so on meagre pensions and without medical assistance from their former employers. Even though a curative treatment for pulmonary tuberculosis was
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available by the 1950s, mines continued to send sick miners home, with the result that up to 60% would die within two years, and their families were also infected. By the 1980s, only 10% of these workers effectively retrenched received the necessary treatment. Given this ugly past, it should be understandable why the National Union of Mineworkers (NUM) and South African Mining Development Association (SAMDA) would have such strong feelings on issues that have to do with history, and perhaps why the ANCYL has couched its call for the nationalisation of mines in such a divisive and racialist tone. In the main, this is what complicates the climate of discussions today. It should be recognised that, before these issues are acknowledged, and before readiness is shown by all parties to address the impact of this history, very little progress would be made in mitigating the tension that exists among stakeholders. Those that are seen as attempting to downplay the importance of the past are likely to isolate themselves in the eyes of key stakeholders in the industry and society. The question is: Can the mining industry afford such isolation? Yet, it would be wrong to paint a picture that does not take into account the developments that have unfolded after the demise of apartheid. Following the political settlement that led to the rst democratic elections in 1994, and the adoption of a new Constitution in 1996, there was consensus that existing ownership patterns in the mining sector could not be sustained. Consequently, the new South African government and the mining industry agreed on a Broad-Based Charter
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for Socio Economic Development for the Mining Industry (commonly referred to as the Mining Charter). The Mining Charter came into effect in 2004, and remained valid for ve years, with the understanding that it would be reviewed thereafter. It sought to transform the industry by increasing the participation of previously excluded South Africans (Blacks) at the ownership and managerial levels. The then-Department of Minerals and Energy had to build capacity to implementation the Charter, and to enforce the new Mineral and Petroleum Resources Development Act. While some progress has been made, there are divergent views regarding the success of these measures. Such stakeholders as the South African Mining Development Association, the National Union of Mineworkers and others are not satised with the slow progress made. Not only have ownership patterns effectively remained the same, the mining industry still lags far behind other economic sectors in respect of transformation, especially with regard to management control. Stakeholders in governments Mining Industry Growth and Economic Development Task Team agree on the following:
That earlier ownership transactions were not structured effectively to reduce BEE ownership dilution through complex debt arrangements. That the mining sector failed to grow during the commodity boom due to a number of constraints; including bureaucratic inefciency, deteriorating infrastructure
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and a generally wide trust-decit between the government and the mining industry. That the absence of a mining industry strategy had constrained the development of policies that would have ensured incremental benet for the country and improvements in the participation of previously disadvantaged South Africans. That much needs to be done to develop specic commodity value chains through beneciation further to grow the mining sector and its contribution to the economy while creating new, sustainable jobs.
Any discussion on the role of the state in mining needs to take these factors into account, and make a clear determination on whether accelerating current policy developments would not yield better results than other interventionist options.
A wider overview
A glance at countries that have undergone nationalisation around the world suggests that there could be better ways of managing the mining sector. Contrary to simplistic conceptions, the issue is more nuanced than the reductionist notion of nationalisation or privatisation. History is replete with examples of unexpected twists in policy. This was the case in Iran in the early 1950s, when populist sentiments were whipped up against the dominance of foreign interests in the hydrocarbon sector, leading to the nationalisation of Anglo-Iranians concession. It
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began initially as an innocuous demand by the government for a greater share of prots, a move that Anglo-Iranian (forerunner to BP) management brushed aside. Resource nationalism, expressed as a protest against foreign dominance in Irans oil sector, was initially championed by a coterie of nationalistic politicians who saw an opportunity to strengthen their hand in national politics. With the rising tide of populist support, their cause gained greater weight and respectability, thus enabling them to enforce nationalisation; no longer just wanting a share in prots, as was initially the case. Indeed, the 1950s, up to the 1980s, could be described as the reign of resource nationalism, particularly in many socialist-oriented countries across the world. The Iranian example may seem like a pale image in a distant past, which is why a leap into the recent past is necessary. The dawn of the 1990s marked a fundamental departure from nationalisation to privatisation in much of the developing world, with over 8 000 privatisations between 1990 and 2003, raising about US$410 billion.13 Yet recent times have seen a number of countries in parts of Latin America as well as in Russia embark upon nationalisation, or put in place regulatory regimes that place the state at the centre of economic activity, especially in relation to assets in mining and energy.
13 Ian Bremmer and Preston Keat, 2009, Fat Tail: The Power of Political Knowledge in an Uncertain World, London: Oxford University, p. 124.
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Since early 2008, in the wake of the global nancial crisis, Venezuela has nationalised hundreds of rms, spanning agricultural farms, steel, fertiliser production, oil, cement, and even retail. This has been done in the name of national development and, to some extent, anti-imperialism. The 2009 round of nationalisation that was announced by President Hugo Chavez was mainly a response to a potential macro-economic crisis as state-owned enterprises faced mounting debt. This was ostensibly to shore up spending on socioeconomic projects. In reality, it was a ploy to boost his political legitimacy when his popularity among voters had been seriously dented. Western companies such as BP, Exxon Mobil, Conono Phillips, Cargill and Cemex were on the receiving end.14 Much of Chavezs political legitimacy comes not from prudent macro-economic management or market-friendly policies, but from the supporters who derive benets from his social welfare largesse. Pitting the working class and the poor against the middle classes was a winning political card until recently when his popularity began to weaken with the deterioration of the domestic economic situation. In other words, populist nationalism was the soul that sustained the life of his political rule. In 2008, Russia passed a law declaring forty-two economic sectors as strategic, thus rendering them inaccessible to foreigners. Furthermore, foreign investors
14 Washington Times, Venezuelan Nationalization Continuing, 12 May 2009.
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are limited to 10% of equity in any Russian company that controls a eld containing more than 70 million tons of oil, 50 billion cubic metres of gas and 500000 tons of copper.15 Despite earlier privatisation that turned chaotic under Boris Yeltsin, and the clumsy inauguration of market reforms, Russia under the presidency of Vladimir Putin, especially at the height of the resource boom between 2000 and 2007, has experienced serious reversals in economic reforms and in its investment prole. State control is rmly entrenched in vital economic sectors. Closer to home, in the southern African region, two countries have recently announced policies that rattled the foreign investor community. In Zimbabwe, the ruling coalition government has approved an indigenisation law that requires foreign companies to cede 51 percentage of equity to locally-based companies, with the state selecting the actual partners a situation that could facilitate the allocation of opportunities to politicallyconnected cronies. It is a development that has also been seized upon by the ANCYL, which describes it as a very brave, militant, but correct methods (sic) of transferring wealth from the minority to the majority.16 Although not presented as nationalisation or expropriation, the indigenisation law creates regulatory uncertainty in Zimbabwe and forces foreign-owned companies
15 Ian Bremmer, 2010, The End of the Free Market: Who Wins the War Between States and Corporations? , Penguin: New York, p. 116. 16 ANCYL, Statement on the Visit to Zimbabwe, 16 April 2011: www.ancyl. org.za.
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to sell 51% of their ownership to indigenous businesses within ve years. Despite warnings that this law undermines property rights and could lead to the collapse of the mining sector, the Ministry of Indigenisation has moved ahead with plans to roll out the legislation, signed in March 2010. The targets are strategic resources such as gold, platinum and chrome.17 Similar practices were implemented post-independence in both Zaire (now the Democratic Republic of the Congo) and Zambia where foreign investments in mining were nationalised, and the proceeds were used mainly to service the patronage machine of the ruling political oligarchy. Not only were these countries marked by weak institutions, they also had no managerial capacities in place to run the acquired entities effectively. The new indigenisation law in Zimbabwe requires the ceded equity component to be transferred to a sovereign wealth fund or any of the government-owned entities such as the Indigenisation and Economic Empowerment Fund and Zimbabwe Mining Development Corporation. Foreign companies have been given forty-ve days to present their indigenisation plans since March 2011, and only six months to comply.18 In Namibia, a certain group of resources has been declared strategic, including uranium, copper, gold,
17 Andrew Meldrum, Zimbabwe Law Squeezes foreign-Owned Firms, Global Post, 12 March 2010. 18 Voice of America Zimbabwe Mining Firms Given Deadline to Comply with Indigenization Law, 21 March 2011.
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zinc and coal. A state mining company (Epangelo) has been created to hold monopoly ownership over these resources. Epangelo was established in 2009 with a capital injection of US$552,400 from the Treasury. The proposed changes in the mining regime exclude diamonds, which are to be governed by an arrangement similar to Debswanas, where the state will enter into a 50-50 percent joint venture with De Beers in a transaction that involves the payment of 375 million Namibian dollars (US$54 million) by the state for its 50% stake. In return, the state will receive about 260 million Namibian dollars in backdated dividends.
Some lessons
What, then, are the factors that drive countries into nationalisation? While the reasons are varied, the following seem common: Rising nationalistic sentiments and distrust of multinationals by ruling elites. This is often a reection of unhealthy relations between government and business broadly, and a perception that business is not playing its part in the national effort towards development. Weakening macro-economic environment characterised by dwindling tax revenues, a factor that undermines the legitimacy of ruling parties. Even in environments where macro-economic fundamentals are in place, as is the case in South Africa, growing anxieties about joblessness and poverty seriously
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undermine the popular standing of government. In such circumstances, nationalisation can be seen as a quick x. The need to manage the development of a sector seen as strategic towards generating outcomes that are closely linked to governments economic policy programmes such as beneciation, diversication and job creation. This is often precipitated by impatience with progress in the private sector. Intentions to open new avenues for enlarging the pie of patronage by ruling parties in order to be able to buy political allies. Joint ventures with favoured groups or rewarding political clients with managerial positions become a means of dispensing patronage.
From the cases considered, the weight of evidence suggests that nationalisation does not deliver manna from heaven; it does not lift whole masses of poor citizens, like a whirlwind, from poverty. Prospects for a successful nationalisation policy are made all the more complicated by the reality of deep inter-linkages between the national and the global economy. South Africa is one of the top mining countries under the glare of international investors. While it would be wrong to suggest that there is no space at all for creativity, caution would still be advised.
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The state miningcompany

One of the ways in which the ANC has sought to calm anxieties over nationalisation has been the activation of the state mining company, the Africa Exploration, Mining and Financing Corporation (AEMF). Accordingly, at the end of its meeting on December 8, 2010, Cabinet announced a decision to form a state mining company from the nucleus of the AEMF, which was a wholly-owned subsidiary of the Central Energy Fund (CEF). It is worth noting that plans to activate the state mining company predate the nationalisation calls by the ANCYL. The state had been involved in mining or mining-related activities in the form of the state diamond trading entity and Alexkor.
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In addition, the state mining company will be the main driver of the states interests in mining activities, with other entities such as Alexkor consolidated under it. This places the state in a powerful role as a policy setter, a regulator, and an active mining player competing with private sector players. When launching the state mining company, President Jacob Zuma stated that: The role of the state cannot merely be conned to that of a regulator. The state must actively participate in the mining industry to ensure that our national interest is protected and advanced. Beyond the more general pronouncements there has not been a clearly spelt out rationale of the need to establish a state mining company and the specic goals this seeks to advance. There are questions that the existence of a state mining company raises:
What is the appropriate regulatory framework required to mediate competition between a state entity and private sector actors? What are the compelling national interests underpinning the extra-ordinary step of setting up a new state-owned enterprise in the mining sector? Have costs and benets of the establishment of a State-Owned Enterprise (SOE) in mining been carefully weighed?
We highlight these questions without going into detail on each of them as a cautionary note on the possible challenges that the state mining company may have to
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contend with in future. This caution is given greater credence given the signicant losses of another SOE in mining registered in 2010. Alexkor, for example, announced that it had to shed jobs as it had made losses. The state should tread gingerly in order not to increase the burden of SOEs on the scus. In principle, the mining sector has not opposed the idea of a state mining company. In fact, while it has serious misgivings about nationalisation, the sector has generally welcomed the formation of a state mining company, with the proviso that such a company should not be treated differently from the rest of the players in the private sector. Indeed, the wheels of the AEMF are already turning. It has received 27 mining rights and awaits a decision on the rest of its application for 128 rights. Its major project is the supply of 840000 tons of coal a year to Eskom for the next fteen years from the Vlaksfontein coal mine in Ogies. This R130 million coal mine is said to be funded by the Industrial Development Corporation (IDC), Public Investment Corporation (PIC) and the African Development Bank. The interests of the AEMF seem wide-ranging. In its licence applications, it has expressed interests in chrome, cobalt, gold, iron, copper, lead, manganese, nickel, lithium and diamonds.19 Some policy experts in
19 Lionel Faull, State widens hunt for mineral wealth, Mail and Guardian, 26 November 2010.
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the IDC believe that Platinum Group Metals (PGMs) should be regarded as strategic, as South Africa controls over 80% of the worlds reserve, and given that this resource plays a critical role in fuel-cells technology and other industrial applications.20 While a comprehensive regulatory framework governing the relationship between the state mining company and the rest of the private sector is yet to emerge, the decision taken by the ANC to locate the AEMF in the Department of Public Enterprises (DPE) is a step in the right direction. This is meant to create a space between the regulator currently the Department of Mineral Resources (DMR) which issues exploration permits and mining licences, and the state mining company. Also encouraging is the decision to strip the state mining company of all special privileges or exemptions. These exemptions relate to the granting of mining and prospecting permits, and the locking-in of certain minerals for long-term security of supply. From the outset, it is important to avoid even a whiff of bias towards the state mining company. There are other important issues that need further clarication. These relate to the need for the establishment of an independent regulatory authority, as the state may nd itself conicted in its multiple and simultaneous
20 Interview with Mr. Lumkile Mondi, Chief Economist, IDC, Pretoria, South Africa.
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roles as a policy setter, regulator and an active player in mining. There is an imperative to formulate corporate governance standards for the state mining company and to ensure accountability and transparency in its operations. Indeed, South Africa can learn a great deal from the experiences of other countries.
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Lessons from outside

Botswana
Botswana is a mining economy that is generally wellregarded for the transparency of its policies for the mining sector. It is also favourably regarded with respect to its investment climate. The country actively promotes inward foreign direct investment in its economy and in the mining sector in particular. Although mining activity is highly concentrated in the diamond sector, and less dynamic than major mining economies such as Australia, Canada, South Africa and Brazil, the country is broadening its investment promotion approach. Government is not heavy-handed about
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regulation. Because diamonds dominate the economy, the government is keen to attract as many investors as possible to develop other potential mining activities.
State involvement in mining

Diamonds represent the main production activity in the country, accounting for 30% of GDP and 80% of export earnings. Since the 1960s, the government has increased its stake in diamond ownership, rising from less than 20% to 50%. The government is a partner in Debswana, which is a joint partnership with South Africas De Beers. The Botswana government owns 15% of De Beers, from which it derives dividends over and above the revenue generation from Debswana of about 50%. The rest of De Beers is owned by Anglo American (45%) and the Oppenheimer family (40%). The diamond sector plays a very important developmental role in Botswanas economy. The windfalls, in the form of excess foreign exchange reserves, are channelled to a sovereign wealth fund entity called the Pula Fund. The Pula Fund was established in 1994 under the Bank of Botswana, and is used to invest in foreign currencydominated assets within an acceptable range of risk. The revenues generated on the back of commodities windfalls are harvested towards social services such as education. The structure of state involvement in the mining sector is expressed through the 50-50 percent joint venture with De Beers, as well as through the practice of taking up to a 15% stake in every mining development that
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government considers protable. In such developments, the government pays for its share. Yet it does not interfere with the mining operations, allowing concessions to be run efciently. From various discussions with mining experts, particularly government ofcials in Gaborone, it was clear that there was deep appreciation on the part of government of private sector expertise and competence in running mining operations. The government appreciates the high levels of risk involved in mining investments. It is also aware of the levels of capital commitments as well as human capital and technology investments that are required in the sector, and that the private sector has the capability to undertake such risks and investments. For government, the main interest in managing natural resources is to expand the countrys economic potential and to achieve growth and development objectives. Are there lessons that South Africa can draw from Botswana with respect to how the state gets involved in the mining sector? No microscopic scrutiny is required to discern the fundamental differences between South Africa and Botswana. The former is much more integrated into the global economy than the latter. The trafc of Botswanas two main commodities (beef and diamonds) ows almost entirely in the direction of one economic player: the European Union. South Africas economy is as diversied as the fork of its export markets. However, there are some important lessons that South Africa can draw, especially in keeping a healthy distance between the state and the mining sector, and
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building condence in the predictability of the investment environment. In the case of Botswana, for example, diamonds are regarded as strategic, as they are the source of human security in that country. Hence, there is need for an exceptional regime in the form of Debswana in accommodating state involvement. Outside diamonds, the state plays a role as an investor with a strong focus on returns on investment. As pointed out above, government takes up to a 15% stake in every mining activity it deems protable at the point of granting a development licence. For example, in the Tati Nickel mine the state has a 15% share and Russias Norilsk 85%. The limitation in Botswana is the absence of a dedicated investment company that sets targets and actively manages shareholder interests. Botswana authorities are very sensitive about the countrys image as an investment destination. They strive to preserve an investor-friendly climate, with a number of incentives in place to encourage mining activity in the country. Government has even invested in modernising storage for geological information and data. One of the possible changes in the future will have to do with the precise role government plays as an investor. According to Kgomotso Abi, Acting Permanent Secretary in the Ministry of Minerals, Energy and Water Resources, in 2009 a study titled Organisation and Methods Review21 was commissioned by the government
21 Based on an interview on 4 March 2011.
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of Botswana. The aim of the study was to review governments role in the mining sector and how it should more effectively manage its shareholding. Although the review is yet to be approved, one of its recommendations was that there should be a mining investment company that would be a lot more focused in managing governments equity in various mines. It was further recommended that the proposed company would perform a role akin to that of an asset manager, looking after the 15% interest of the state in all the companies in which it is invested. This is partly occasioned by the fact that the state has limited capacity to participate effectively on the different boards of mining companies in which it is invested and seeks to nd better ways of actively managing its mining assets with a long-term view. These discussions have not advanced much and it may be a few years before such a state mining investment company is established. The government of Botswana has not expressed any interest in nationalising its mines. In fact, this is prohibited. The countrys political stability and emphasis on foreign investment would make such a stance unthinkable. Government enjoys the gains it makes through levying royalties and taxing diamond mining. The 1999 Mines and Mineral Act and Income Tax Act of 2006 are the main legislative frameworks regulating mining companies in Botswana. The Mines and Mineral Act vests mineral rights in the state. Greater clarity of what this means in relation to the private sector is expressed through governments explicit commitment to securing
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land tenure for private investors, which is a very important feature of the 1999 mining code.
Regulatory model
In Botswana, regulatory oversight is provided by the Ministry of Minerals and Water Affairs, with no sophisticated regulatory framework in place. The general principle that prevails is that the state creates a regulatory environment that upholds environmental and health standards, generates appropriate levels of revenue from the rents derived through mining, and adequately rewards the private sector through ensuring that it gains a fair rate of return on capital. With respect to specic regulatory practices, the tax structure in the diamond sector is very steep. The overall marginal rate is set at 81% (this includes corporate tax, royalties and super-prot tax). The tax rate is xed and non-negotiable, but royalties can be deferred when a mine is making losses.22 Previously, government had discretion to take a free equity stake of 15% to 25%, but this has changed since the late 1990s with the introduction of new mining legislation. Now government takes up to 15% on a commercial basis. Government usually does not bother with smaller mines. Where it takes 15% equity, it is entitled
22 Interview with Keith Jeffries, former Deputy Governor of the Botswana Reserve Bank, Gaborone, 2 March 2011.
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to an equivalent dividend, and does not interfere in the operations of the company in which it invests. The Ministry of Minerals, Energy and Water Resources has two departments performing different roles with respect to mining exploration licences and mining development permits. The Department of Geological Survey, under the Ministry evaluates applications for exploration, advises the Ministry on the granting of exploration licences, and monitors compliance with licence conditions. The Department of Minerals, on the other hand, grants mining development rights. It is at this point that government makes a decision to exercise its option to take 15% equity, for which it pays a fair market value.23 Other important aspects of regulation in Botswanas tax and mining code include reducing scal burden on marginally economic mines; provision of secure titles to mining rights, where exploring companies have a right to progress through the full cycle to mining development; variable income tax rate, based on project protability and 100% capital redemption, i.e. depreciation of capital expenditure; unlimited carry-forward of tax losses; foreign exchange retention; zero-rated import duties on mining equipment and spares; tax allowance on 15% of dividends distribution to resident and non-resident shareholders; free repatriation of prots; abolition of the
23 Interview with Kgomotso Abi, Acting Permanent Secretary in the Ministry of Minerals, Energy and Water Resources, Gaborone, 4 March 2011.
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governments right to a free 15% stake in mining activities (it has the option to purchase this and be treated like any other shareholder); reduction of royalties and their payment on the sale of all minerals or mineral products from 5 to 30% (with precious stones charged 10 and 5% respectively); and simplication of the granting and renewal of mining permits and licences.
Norway
The case of Norway is different from the other three case studies this report covers. In Norway, we looked at state involvement in and the regulation of the energy sector, focusing in particular on Statoil and Petoro. Norway is often mentioned as a good case of how the state governs natural resources for the benet of its people while maintaining a credible regulatory framework. There are four major factors that shape the regulatory environment in Norway: (1) the history of oil and gas development; (2) the existence of a rudimentary regulatory framework in the hydro-electric sector and in sheries in the early 20th century, which was adapted to energy regulation; (3) public interest issues, including economic development and safeguarding of the countrys economic sovereignty; and (4) the countrys future beyond oil.
State involvement in natural resources

Statoil, Norways agship oil company, is 70% owned by government and 30% by private investors. It is dually
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listed in Norway and New York. What is remarkable about it is the fact that it operates as if it were a private company and at arms length from the state. There is an agreed-upon principle that the state will not interfere in Statoil activities. It does not receive any special treatment from the government. Instead, it is tightly regulated, both by Treasury ofcials and the Department of Mining and Petroleum. Statoil has developed the same risk appetite as private companies, and is happy to operate on a loose leash from the state. Statoil competes with 40 other private companies on the Norwegian Continental Shelf without state support or any special provisions. The regulatory framework is transparent. The main objective of government regulation is to harness the value of the rents generated from oil towards national prosperity and to preserve oil wealth for future generations. The taxation rate on oil and gas is above the corporate tax average of 28%. It is set at 80% of gross prot. The Ministry of Finance stressed that they regard oil as a source of rents that need to be heavily taxed for the welfare of the people of Norway.24 More than taxation, the government decided early on that it will not be a passive revenue collector but will be actively involved in the ownership of oil discovery in Norway through Statoil. Government experimented with royalties for a
24 Interview with Bjorn Fromm, Investment Manager: Ministry of Finance, Oslo, Norway, 4 April 2011.
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while, especially in the early stages of the development of Norways Continental Shelf in the 1960s, but later decided that better value could be generated through a super-prot tax. This was after many years of developing institutions and understanding the complexities of the sector through its own involvement using Statoil. The Norwegian state has a strong bargaining leverage against multinational companies since its regulation evolved early on in the early phases of the development of the Continental Shelf. Government understood the value of oil discovery well in advance and pressed multinational companies for higher taxation. The key argument of the state was that the wealth beneath the earth belongs to the people of Norway and future generations; and that the state has custodianship over it. Statoil was thus formed in 1972 to pursue state interests in the oil sector. Government owns up to 40% equity of all oil concessions it regards as protable. It purchases its stake through taking risk on investment and operational costs at the development phase of the eld. It does not interfere at the operational level, and merely acts as a shareholder. Government views oil extraction as having the effect of making the country poorer in the long-run, thus necessitating asset replacement in order to ensure wealth preservation in another form such as an Oil Fund created through taxation. This is regarded not so much as tax, but as an endowment for future generations. According to Bjorn Fromm, Investment Manager at the
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Ministry of Finance in Norway, the prots generated in resources far exceed the private sectors risk capital and efforts committed to production. In other words, they rise above the normal rate of return, constituting super-prots. Given the fact that oil is a non-renewable resource, it behooves the state to generate out of it a corresponding value of assets that could be invested in other funds abroad and channelled towards economic development. The tax generated from oil is ploughed into a specially created Oil Fund to ensure that oil money does not leak into the economy and thereby induce inationary risks. The Oil Fund is then invested in asset acquisitions abroad, mainly equities, bonds and, more recently, real estate, and with a base target of 4% return on investment. However the Fund performs, the government can take no more than 4% of the returns annually from the fund as a budget support mechanism. As a way of attracting investors in Norway, government also compensates 78% for losses incurred during oil development. This is available to smaller independent companies who are looking at exploring and developing oil elds. It is also a way of encouraging this small segment of players to be active in Norways oil and gas exploration and development. As such, the state guards its national oil and gas elds jealously, while at the same time providing quality standards with greater transparency in regulating the sector. Apart from Statoil, the state also exercises its shareholder power through another state-owned entity
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Petoro, which was formed in 2001. Petoro looks after the States Direct Financial Interest (SDFI), which represents state assets in mining. This entity also monitors Statoil production activities as a shareholder. Government is a 100% shareholder in Petoro and a 70% shareholder in Statoil. This allows the state to give more room to Statoil, thus enabling it to be efcient and competitive, while actively managing its equity in oil companies through Petoro. Petoro does not operate any eld, except as an investor. It also does not own an operating licence. Petoro acts more like an asset manager on behalf of government as a shareholder in various oil companies in Norways Continental Shelf. This asset acquisition arrangement also enables the state to receive its share of dividends.
Regulatory model
During the early phases of oil discovery in Norway, the state made oil elds available to multinational companies, in a move motivated largely by the need to attract much-needed technology to get the resource beneath the ground. From early on, government had a regulatory framework adapted from its hydropower concession policy, whereby government would take equity for every concession given to the private sector and simultaneously impose a tax. Today, whenever government issues licences, it gives licences to a consortium of three, with one of the companies designated as an operator and the other two
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as investors. This is meant to keep private companies in check. Government also participates as the fourth investor in such arrangements. This is done in order to monitor the accuracy of cost declarations (that could be off-set against tax), which in turn helps government to make accurate calculations for tax purposes. There is also a national pricing board, which sets price norms for oil, irrespective of the going price on the international market. There is a variety of regulatory instruments that exist in the sector, which are irrelevant in the sphere of minerals in South Africa. Without covering these in detail, we would point to the tax regime. One powerful tool of regulation that the Norwegian government uses is 80% average weighted tax. This includes a corporate tax of 28% and rent tax or super-prot tax. The portion of the super-prot on which government levies tax is the private sector component. It is worth noting that the Norwegian government generally does not trust revenue statements or declarations by companies, which is why it insists on issuing price norms. There are more than 200 oil eld licences in Norway, and government compares declarations across all the elds, and monitors discrepancies. Companies that are found to have misrepresented their costs and earnings could be disqualied in the next bidding rounds. Further, the government is entitled to receive information on demand from all investors participating on Norways Continental Shelf. Norway has developed a sophisticated tax regime allowing it to exercise a much bolder
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authority in regulating the industry. Monitoring revenue declarations by companies is a demanding responsibility that requires a great deal of sophistication. Apart from a transparent and stable investment climate, Norway boasts very strong institutions, including those that perform regulatory functions. It also constantly pushes the frontiers of knowledge and technology development to ensure that the country is not heavily dependent on oil, but that it becomes an innovator and a leader in technology. One of the most attractive areas in Norways model is that of establishing a state-owned investment company rather than a state-owned mining company. Combining this with an appropriate tax structure could allow government to generate the revenues it needs for social development without creating risks in the investment climate.
Australia
In Australia, mining and petroleum regulation is shared between the Commonwealth, which is more like a federal government, and the various states. There are different pieces of legislation at state level that regulate the resources sector. Each state has its own Mines and Petroleum department that takes into account federal regulatory frameworks, Commonwealth codes and relevant regional legislation. Queensland and West Australia are the major mining states, and, combined, they produce over 65% of the
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mining industrys export revenues. Other states such as South Australia drew on the West Australian model in developing their mining sector. One of the great advantages that West Australia has, for example, is its rich geo-scientic information, which tends to minimise investment risk.25 Since in the case of Australia the state is not involved in the mining sector, except as a regulator, this section only focuses on regulatory aspects. At the Commonwealth level, overall regulation aims at promoting competitiveness and facilitating the achievement of social and economic welfare goals. Australias Mining Act is designed to:

Ensure clarity on approval processes for exploration and mining; Promote increased private sector investment; Guarantee transparent and predictable procedures for access to land; Protect security of mining tenure; Safeguard the predictability of regulatory processes; and Facilitate community and stakeholder involvement.
There are also state-level pieces of legislation governing mineral extraction and development. Constitutionally, the states own the resources beneath the earth. To
25 Interview with Tim Grifn, Deputy Director General, Department of Mines and Petroleum, West Australia, Perth. 18 May 2011.
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extract maximum value, they have a royalty system in place. At the state level, the basic royalty charge is set at 10% and is levied on a sliding scale from 10 to 7.5% to 2.5%, depending on the level of processing. This is to encourage companies to undertake some form of processing before they market their products. In West Australia, for example, the three commodities on which royalties are levied are iron ore, coal and gas. The rationale behind royalties is that resources beneath the earth belong to the states; they are assets of communities in the states where they are in abundance, and thus should serve to generate revenues for the states. These royalties give states a regular ow of income from year to year, and enable them to plan comfortably ahead. Thus one senior government ofcial at the state level characterised the move by the Commonwealth to institute a super-prot tax in place of royalties as a revenue grab or nationalisation. This would have re-directed the income ow away from states to the Commonwealth government. The actual royalty calculation and collection is based on the percentage of the total sales value at the shipping point. What this means is that ofcials will look at the shipped invoice value and then levy the appropriate royalty level accordingly on a sliding scale. For example, crushed material attracts 7.5% royalty levy; concentrate material, 5%; and metal, 2.5%. This is aimed at incentivising some processing or value addition before commodities are shipped for export markets. Value-addition generates additional jobs in mining states.
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One area that Australia failed to manage well in rethinking its regulatory framework is that of stakeholder engagement. An example of what could possibly go wrong when stakeholder interests are ignored was evident when, in 2010, the Australian government proposed a super-tax on prots generated from the exploration of non-renewable resources. This was happening in the context of the so-called Henry Tax Review undertaken by Prime Minister Kevin Rudd, who subsequently lost his position owing largely to the mishandling of the mining regulation issue. It was only after the federal government re-negotiated the terms of the proposed tax regime with leading players in the industry that condence was restored.26 In June 2010, when it had become clear that the federal government was suffering an image crisis, a consultative process was set in motion. This involved government, business and tax experts. It was constituted in the form of the Policy Transition Group. The sphere of government at the level of states was also incensed at Rudds proposal as it was never thought through and properly canvassed. A powerful coalition involving representatives of mining companies, trade unions, and state ofcials stood rm in opposing the super-prot tax that would have seen mining companies taxed upwards of 40%. An imposition of this tax
26 Interview with Reg Howard-Smith, West Australia Chamber of Mines and Energy, Perth, 17 May 2011.
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would have led to states losing a critical component of the revenue they derived through royalties. A lesson for South Africa here is not to politicise regulatory change, especially in so crucial a sector of the economy as mining.
Minerals resources rent tax

The Minerals Resources Rent Tax (MRRT), which is currently under debate in Australias legislature, replaces the abortive super-prot tax initially introduced by Kevin Rudd in 2010. It is widely believed by industry leaders that political factors inuenced the introduction of the super-prot tax.27 Rudd is said to have timed this legislative change to coincide with elections, and thus to gain political capital at the Commonwealth level, and at the expense of mining companies and various states. The major mining companies such as Xstrata, Rio Tinto and BHP Billiton led the charge in challenging these changes, and forced Rudd to agree to a toneddown version that became the MRRT. This will now be introduced in 2012 after a period of consultation. The rst draft Bill was due to be released in June 2011. One of the arguments that companies have been making against the super-prot tax is that they were not protable for 20 years before the resource boom,
27 This is based on a condential interview with a former consultant with one of the big three Australian mining companies, Perth, 19 May 2011.
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which only began in 2000, and yet they continued to invest in the mining sector and pay their royalty dues to state coffers. What is dangerous about introducing major reforms in the climate of a commodities super-cycle is that this becomes evidently driven by political expediency rather than considerations of the future or what is appropriate to create stability and predictability in the sector. Countries with resource abundance such as Australia, South Africa, Brazil and many in Africa, are familiar with the massive windfalls generated by mining companies as a result of accelerated industrialisation in China and India on the back of which the super-cycle or resource boom is generated. Countries would be best served by adopting a longterm view as booms do not last forever. In the case of South Africa, most companies missed the rst supercycle that took place between 2000 and 2007, owing largely to challenges associated with an infrastructure decit. It was also due to declining investments in the sector arising from legislative changes related to the MPRDA, as well as the confusion occasioned by the shift from old order to new order mining rights. After the Commonwealth government came under heavy pressure from the industry, it made re-adjustments. The Australian government agreed to lower the tax burden from 40% to 30% as well as to a process of consultation that would later be driven through the Policy Transition Group. A number of concessions that companies extracted include a 30% extraction allowance
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for iron ore, and 25% for coal. In addition, companies have full rebate of the royalties paid at the local level before paying the 30% minerals resources rent tax. For smaller players (junior miners) who would have been severely affected by Rudds regulatory regime, there is a blanket exemption. Most of them are in commodities other than iron ore and coal. It is these commodities that will be governed by the minerals resources rent tax. The rest of the commodities (apart from oil and gas, which are governed by a different regime) will continue to enjoy the status quo regulatory framework, where they only pay royalties to the state. It is these two commodities iron ore and coal that generate two-thirds of the export revenues and command a signicant dollar prot for companies. And it is these that the Commonwealth government was largely after; mainly to fatten its revenues for political expediency at a time of elections. Even though there is a settlement on how this is managed, one of the major contentious issues between states and the Commonwealth government is the vested constitutional ownership of natural resources, which states rightly claim. Further, Australia does not have a commodities-backed sovereign wealth fund or a heritage fund performing a role as a store of wealth for future generations. The super-prot tax was not designed with such a long-term view in mind. The application of the minerals resource rent tax system is not going to be without difculties as taxation by its very nature is complicated. One of the complications
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is with regard to monitoring the veracity of the debt structure of the company against which they write off tax obligations. Currently, with respect to royalty collection, government audits a sample of companies to determine their production performance. Government carries out an assessment of ports and examines companies public disclosures. Indeed, one of the difculties here is to undertake thorough verication across different commodities that are traded differently: iron ore and coal. The second complication has to do with the fact that the major companies such as BHP Billiton are fully integrated, from mineral extraction and development to owning railway lines and ports. This may likely be the trend in the sector, driven mostly by competitive pressures. Mining companies are increasingly becoming major infrastructure players. This creates difculties from a tax point of view, as the bulk of their income could be generated on the back of infrastructure, as well as the fact that infrastructure development is a cost that could be recorded against earnings in the companies income statements. Isolating all these factors and administering a fair tax system will requires a lot of institutional capacities, especially tax expertise. A key lesson for South Africa from Australia is the importance of designing a regulatory model that guarantees investor certainty through the involvement of private industry players. It is also important not to under-estimate the extent to which certain critical capacities at the policy and administration level would
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be required to manage change in the sector. Political pronouncements are not the same as the reality of constructing a regulatory architecture with all its complications. Crucially, consultations with industry players help to build condence and to lend credibility to the nal policy framework. As in Australia, a standing consultative structure comprised of government representatives and those from business would be an important guarantor of credibility in the system.
Brazil
The complexity of Brazil as a country is also reected in the regulatory mechanisms of its economy. The energy and mining sectors are notorious for their cumbersome and inefcient regulatory structures. Brazils energy sector is signicantly in the hands of the state, through Petrobas. Accordingly, important policy decisions were, under President Lula da Silvas administration, taken at the presidential level. The main petroleum regulator, Agencia Nacional do Petroleo (ANP), which was established by an Act of Congress in 1997, is dominated by political appointees. Its regulatory activities cover oil, natural gas, and the biofuel industry, and it exists under the oversight of the Ministry of Minerals and Energy. The ANP mainly develops tender processes, promotes licences, and grants rights to oil and gas exploration and development. It is a powerful regulatory instrument in the sector. The other regulatory mechanism that was
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also created under the same law is the Energy Policy Council (CNPE), which makes decisions on which blocks to be offered for contestation. To a considerable extent, there is transparency in the contracts signed with private companies in the oil and gas sector. The very essence of the regulatory change in 1997 was to promote greater competition and enhance transparency in the sector.
State involvement in mining

The state is not strictly involved in mining in the sense of having a state-owned entity, but has an interesting relationship with Vale. Vale is Brazils agship mining company that is favoured by the state, but also in tension over strategic focus. Still, government sees it as having an important role to play in helping to achieve the countrys development goals.28 Government, as a shareholder through BNDES, makes its preference very clear in the Vale Board. Although it was established by the state in 1942, it underwent signicant privatisation in 1997. There is tension between a greater role for the state in the economy and leaving the market space open to the private sector without interference. Brazil has been straddling the two lanes since Da Silvas administration,
28 Based on an interview with Guilherme Cardoso, Head of Mining Division, BNDES, Rio de Janeiro, 19 March 2011.
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although overall macro-economic policies are broadly market friendly. In the area of mining, there is tension between Vale and the government, and recently government used its shareholder representation to force the resignation of its CEO, Roger Agnelli. There are four areas of tension that are worth highlighting: conict of perspectives between the companys shareholders and government; cost-cutting by Vale during crises, while government would have preferred it to be keeping employment levels high; the building of ore carriers in Asia when government would have preferred the company to do so in Brazil; and Vale minimising its tax royalty payments when government expected it to contribute more.29 Further, government has been putting pressure on Vale to increase its investment in steel production domestically, compared to its international activities in iron ore mining. This is perhaps where sometimes developmental objectives come into conict with efciency objectives. Steel production would guarantee increased employment domestically but lower the rate of return for shareholders since, unlike iron ore, steel is not enjoying great demand as a result of erce competition from Asia, especially from China and South Korea. In recent times, even before the spat between the government and Vale, the mining sector was targeted
29 Barclays Braderspar Analyst Report, written in November 2010. This section also beneted from a discussion with a Financial Times reporter based in Sao Paolo, 17 April 2011.
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for a major regulatory overhaul, to bring it into line with domestic development objectives. All this occurs in the context of governments greater assertiveness in the domestic economy.
Regulatory model
Currently, Brazils regulatory framework is complex, with authority divided between municipal, state and federal levels of government. At the federal level, regulatory authority is divided between the Ministry of Mines; the Department of National Petroleum and Minerals (DNPM); and the Companha de Pesquisa de Recursos Mineiras (CPRM). The relevant code governing mining activities in Brazil was rst established in 1967, and amended in 1997. According to law 9314 of the mining code, signed in January 1997, all mineral exploration licences and development concessions are issued by the Ministry of Mines and Energy. Mineral resources beneath the earth are, according to the 1988 Constitution, vested with the federal government. This is in stark contrast to Australias Constitutional authority that gives states rather than the Commonwealth (or federal) government ownership right of minerals. When companies go to Brazil to undertake mining activities, they have to be established in accordance with Brazils company law, with headquarters and senior management based in Brazil. This then makes them eligible for licences for exploration and production. Another area
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that is complex and often subject to various disputes is that of mining-related environmental laws. These regulations are shared between various states, but they vary depending on which states a company operates in. Tax varies for mining companies, depending on regions where activities are located. The different kind of taxes paid by mining companies in Brazil include corporate tax at between 10 and 15%; and compensation for exploitation of mineral resources (CFEM), otherwise known as royalties. The ceiling for royalties is 3% depending on the commodity that is mined: bauxite manganese attracts 3%; iron ore, 2%; and gold, 1%. Royalties are shared between municipality (taking 65% of collected royalties), state (23%), and federal government (12%). The process underway, aimed at modernising Brazils regulatory architecture, entails a number of objectives or steps to be taken. The rst seeks to put in place a 20year national plan of geology and mining and mineral processing. Currently, there is no such plan. Having a clearly dened plan would serve as a good indicator for the future direction of the mining sector in the country, and would enable the private sector to plan ahead. This would also serve as a platform for structured dialogue with the private sector: it infuses both government and the private sector with one mind regarding the trajectory of mining development in the country, and its place in the world. The second goal regards transforming the Department of National Planning and Mining (DNPM) into an
58
agency that oversees the regulation of the mining sector. The current practice is that this takes place at the Ministry of Mines and Energy. This allows for a degree of independence in regulating mining. The structure of the agency that will be put in place is not clear yet, but it is envisaged that it will absorb the existing DNPM. It will be staffed by technical experts rather than political appointees, with a strong mandate to promote specic aspects of mining most likely the development of a supplier base for the downstream sector. The third objective is to create a National Council of Mineral Policy whose focus will be to update the existing mining code, and set clear long-term policy outlines for the sector. This policy council will be headed by the Minister of Mines and Energy, and report directly to the President on matters of policy and strategy. Fourth, the current mining licences will be replaced by mining contracts that will be valid for up to 35 years. In addition, there will be a consideration of change in mineral royalties. Part of the function of royalties would be to deploy them as incentives for shifting the pattern of production from raw extraction and exports to beneciated products or downstream development a government objective tied to employment creation. As such, royalties will be high on unprocessed commodities and even higher on the downstream sector. This strategy failed in Australia largely due to cost competitiveness from Asia, lack of innovation in technology, and an insufcient skills base. It is not all that clear how it will succeed in Brazil or in South Africa. Strikingly,
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Brazils industrial policy in general, and that aimed at beneciation in the mining sector in particular, bear similarities. Fifth, there will be competitive bidding for permits in the sector, in ways that are similar to the oil and gas sector regulated under the ANP. This new approach will signify a shift from the existing practice conducted on a closed-shop, rst-come rst-serve basis. Exploration licences will be limited to a maximum of ve years, non-renewable. Failure to use them will trigger expiry and forfeiture. Finally, the mining changes put emphasis on extensive community engagement for major projects. More edifying for the private sector is the fact that these measures will have a reasonable transition period before they come into force so as to allow for proper adjustment. What all these changes will amount to is a new policy and regulatory framework for the mining sector, with a strong emphasis on modernisation and investment promotion, as opposed to the existing one which is cumbersome and lacks in transparency. Given that legislation overhauling mining regulation is still under consideration, it would be premature to make a conclusive judgment as to particular lessons that South Africa could draw from Brazil. However, it is already apparent that efcient institutional coordination and the avoidance of political interference (apart from tensions with Vale which have since subsided) are among the key principles that inform the Brazilian review process. Further, putting in place a long-term
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plan, developing a clear objective to modernise the sector, and the simplication of permits and licences are, perhaps, some of the aspects of Brazils regulatory reform that could be relevant to South Africa.
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Broad observations
Our research into the four countries Botswana, Norway, Australia and Brazil suggests that there is no one particular model that can be copied and implanted in South Africa. Different models that exist in the countries we studied reect a number of factors that are essentially country-specic, namely historical evolution of regulation and learning from the past, the existing political system as well as socio-political arrangements that are in place. Norway, for example, had a long experience in the regulation of its hydro-power sector and sheries as early as when it achieved its independence from Sweden in 1905. Over the years, along with other Scandinavian
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countries, it has developed a strong social-democratic tradition that was deeply sceptical of the private sector, in particular big multinational companies. It is largely these historical factors and the political culture that, to a considerable extent, shaped Norways approach to the oil and gas sector. This enabled the country to develop expertise over time, and to engender national consensus that natural resources are nite and necessitate prudent management of rent taxation for future generations. This is a reection of a deep social consciousness, which is an outcome of the peculiarity of Norwegian history. In Australia, this was not to be so; short-term political expediency trumped the need for a carefully designed framework to manage resources in ways that balance the interests of states and the Commonwealth government. Further, insufcient attention was paid to the need for the mining industry to contribute to national welfare while not undermining the need to ensure an investor-friendly climate. Botswana has performed fairly well, even though it has some deciencies. The country has been able to project itself as investor friendly, improving its business climate and competitiveness, as well as tapping into its natural resources for both scal purposes and to preserve intergenerational equity via the Pula Fund. Such thinking was absent when Prime Minister Kevin Rudd of Australia initially introduced the super-prot tax in his country. Brazil, however, is caught in a moment of indecision, as government wants to re-assert its authority in the
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Broad observations
economy and the resources sector in particular. On the other hand, it styles itself as investor friendly and seeks to modernise the regulatory codes. There is certainly going to be a change in the way the mining sector is regulated. How deep these changes will be implemented and to what extent they create an investor-friendly environment is yet to be seen, especially after President Dilma Rouseff ran roughshod over Roger Agnelli, the former Vale CEO. In the South African context, there are critical questions that warrant urgent consideration:
In the context of a mining sector BEE project that has registered little progress in addressing historical ownership and managerial patterns, is it possible to address the question of the role of the state in the sector without dealing substantively with the question of ownership? Are there not policy and other state interventions that could better achieve our social objectives without injuring the credibility of South Africas investment climate? The mining sector currently provides about 1 million jobs in core, downstream and side stream activities; it accounts for almost 20% of our national revenue; and is responsible for 55% of all exports. Is there evidence showing how, if adopted, nationalisation would improve this situation? Assuming logically that nationalisation would result in reduced holdings for foreign and domestic private
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investors, how condent would our country be that the very investors who would have lost their stakes as a result of nationalisation would invest their money elsewhere in the South African economy? If nationalisation were adopted, would it be a stretch to imagine that it would discourage foreign direct investment in other areas of the economy? What impact would nationalisation have on South Africas strategic geopolitical relations; especially where the support of other countries in the world is required for the purposes of advancing our foreign policy agenda in such multilateral forums as the United Nations, global nance and trade institutions, etc.?
Before South Africa makes a decision on state participation in the mining sector, these questions need to be dealt with sufciently by all stakeholders to ensure that other strategic imperatives of the country are not unwittingly compromised.
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Models of stateparticipation in mining

Model 1: State mining company
Even though the state mining company is housed under the Department of Public Enterprises, it is possible that it could receive favourable treatment with respect to the issuing of licences, especially since its mandate has been dened in both commercial and non-commercial terms. Because it does not operate strictly on a commercial basis, as would a private sector company or an asset management company, it is likely to distort competition. To ensure a level playing eld, the state mining company would have to be subjected to the same regulatory
67
standards as any other company. It should not receive any form of preference or exemptions, especially with respect to conditions for application, granting of exploration licences and mining rights, as well as requirements pertaining to Broad-based Black Economic Empowerment (BBBEE), environment, labour and social plans. Where the state has identied certain commodities or a group of commodities as strategic, and exclusively reserved for the state mining company, this should be done in a transparent manner. Such proclamations should not be used as a Trojan horse to benet favoured groups, both domestic and foreign, at the expense of others. The very existence of a state mining company would, therefore, require the establishment of an independent regulator to regulate the industry, instead of the Department of Mineral Resources.
Model 2: Converting the state mining company into an investment vehicle

To generate substantial benets from the mining sector, the state could reconsider the role of the state mining company. As in the case of Norway, the South African state mining company could be refashioned to act as a public mining investment vehicle. This investment company could play the role of an asset manager, drawing on extensive private sector experience in the implementation of its investment strategy. The experience of Petoro in Norway would be of great assistance. The
68
state investment company could then use the returns it generates from its investments to build a commodities fund (sovereign wealth fund) that would be a store of intergenerational equity as well as to meet the kind of developmental targets set out in the ANCYL document. The mining investment company would invest not so much to generate gains for budgetary purposes, as this could induce a pro-cyclical scal stance; but mainly for asset replacement, i.e. to preserve intergenerational equity. Government may want to absorb into its budgetary planning a certain percentage of the returns generated by the sovereign wealth fund. In Norway, there is a dedicated sovereign wealth fund that invests in equities, bonds and real estate abroad, with a percentage (4%) of the returns absorbed into Treasury for budget purposes, while the rest is preserved. As a sovereign wealth fund vehicle, the state mining company could invest domestically, regionally, and abroad. As a minimum, it would have to be transparent in its operations, and account to the public, including making public disclosures of its investments. Acceding to the IMF Santiago Principles that were adopted in 2009, and participating in the Sovereign Wealth Working Group, would help the country to draw on some of the best practices from around the world. There is existing expertise in South Africa on investment management. The IDC has taken equity in both medium-size and major private groups in the mining sector. This expertise, together with the IDC loan book, could be fruitfully committed to the mining investment company.
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The advantage of this model is that it poses far less sovereign risk than would a state mining company. It would also militate against major losses and obviate the need for intermittent bail-outs by the Treasury, as has been the case with a number of state-owned enterprises in the past, such as South African Airways, the South African Broadcasting Corporation, and Transnet.
Model 3: From royalties to super-prot tax

A clearly dened tax system that is properly canvassed with industry would be a lot more transparent than the royalty system. This could be done regardless of the existence of a state mining investment company. This should not be viewed as a mechanism to cover for dwindling revenues, but for locking resources into a commodity fund (sovereign wealth fund), that is managed by the Treasury. The best model in this respect, discussed earlier, is Norways Oil Fund. The fund, which is the second largest in the world valued at US$500bn is under the care of expert fund managers who invest in stock, bonds and real estate around the world, with a view to generating good returns.30 An improvement in the tax system could also help in generating revenues for the state. This would need to be
30 This is based on an interview with Bjorn Fromm, an Investment Manager for the Treasury of Norway, Oslo, 4 April 2011.
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thoroughly canvassed with the private sector and other key stakeholders. Further, sensitivity would need to be shown to perceptions regarding South Africas steep tax structure. A resource rent tax that is designed alongside the minerals resources rent tax in Australia could be another option. In the case of South Africa, the royalty system would have to be phased out. Such a tax should be put in place for the purpose of transparency and also to harness commodity gains towards a sovereign wealth fund. The technical shape of such a tax policy could in the end yield outcomes that do not unfairly prejudice the private sector. It is here that, perhaps, the Australian experience becomes instructive, especially its post-Rudd expression. What would need to be factored into policy engagements on the evolution of a resource rent tax is an appropriate transition period. A reasonable transition period, say ve years, would allow for easier adjustment. It would also provide a good space for consultation with industry and to test congruence with the overall spirit of the MPRDA as well as with the objectives set out in the New Growth Path regarding industrialisation and economic development. A semi-structured consultative forum adapted from Australias Policy Transition Group could help a great deal as a condence-building measure in South Africa. From the moment this is announced to the nal stage of implementation, it should not take less than ve years for deliberations to be concluded and a new tax regime to be introduced. The services of independent tax and legal expertise would need to be decided upon also in
71
the early stages of the process. The principles would be to secure greater developmental gains in the exploitation of mineral resources; sustain a positive investment climate; and build strong condence between government and industry. While the government would determine the objectives behind such a fund, investment decisions and execution could be left to asset managers working with technocrats at the National Treasury. Undoubtedly, this would require substantial capacity building as well as clarity with regard to the lines of accountability and authority in managing the affairs of such a fund.
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Models of regulation
Model 1: Regulation by DMR
This is the model currently obtaining in South Africa, where the mining sector is regulated by the DMR. This is consistent with most countries around the world. It is difcult to nd a case model where this is not the case. However, the spectre of a state mining company raises questions that cannot be avoided regarding the playing eld in the mining sector. Because government is responsible for setting public policy and regulating the commercial space, when it assumes an ownership role it can nd itself in a conicted position. Given the sensitivities in the sector, occasioned by high risk levels and longitudinal decision-making, having
73
the DMR regulating both the private and the state-owned mining company would not generate sufcient condence. It is, therefore, clear that a different mechanism is required.
Model 2: Semi-independent regulator

It may well be that the horse has already bolted from the stall while we devote energies trying to tie it in. We, therefore, need to have a sense of realism about what is possible at this stage, given that the state mining company has been launched and given blessings by President Jacob Zuma at its rst operation in Vlakfontein, Ogies, near Mpumalanga. The very existence of a state mining company requires a great deal of regulatory clarity. Any suggestion that this entity is favoured over the private sector could inict serious damage on South Africas credibility as an investment destination; and this could see a further slide in the countrys global competitiveness ranking. It is, therefore, important for the state mining company to adhere to exactly the same set of regulatory practices as the private sector. It has to observe the MPRDA and all relevant legislative requirements. It is for that reason that the introduction of a semiindependent mining regulator is necessary. The Mining Regulator would be established by law of parliament, and vested with the authority to regulate the practices of both the state mining company and those of the private sector. This new body would operate independently from the DMR. It would be run by a Board whose
74
members would be appointed in accordance with corporate governance principles, taking into account their professional backgrounds and expertise. The appointment of the Board members would be through an open process of nomination, with the Minister of Mineral Resources (the policy setter) and the Department of Public Enterprises (representing the shareholder) jointly responsible for nalising the composition of the Board. The role of the Mining Regulator would be to ensure fair competition in the mining sector, and guard against biased treatment or abuses of the state mining companys political proximity. The Regulator would thus be empowered to issue licences, administer nes and suspend licences. Importantly, the Regulator would work to safeguard transparency and accountability in the mining sector. The downside of this proposed model is that developing legislation to clarify its governance and mode of operation may take longer, and could be subject to political contestations by groups that prefer an unregulated state mining company on account of its developmental commitments. Similarly, having both Ministers exercise political oversight on the Regulator could create gridlocks in decision-making. But this could be avoided by dening roles clearly.
Model 3: Competition Commission

This model would entail using the existing Competition Commission in regulating the mining sector. The
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Competition Commission is mainly responsible for economy-wide regulation, and has a clear mandate to discipline market abuse, economic concentration, and collusion on price and market sharing. Its primary objective is to create fair conditions of trade for small and medium companies and to protect consumer rights. Currently, much of the focus of the work of the Commission is in sectors such as food, retail, construction and infrastructure. Enhancing the role of the Competition Commission, making it sector-neutral, and extending its powers to discharge regulatory functions in other sectors could be another approach to ensuring effective regulation of market conditions in the resources sector. As such, it should be the role of the Competition Commission to investigate and curb the abuse of market power or high levels of concentration in the mining sector, treating both the state mining company and the private sector non-discriminately. There may be circumstances where the Commission may want to create exceptions for new market entrants, which is the practice currently, in order to promote greater competition and new investment; such exemptions should favour commercial reasons rather than extraneous considerations. In the event of public-interest exceptions regarding the state mining company, such should conform to conditions set out in the guidelines of the Commission rather than be based on contingency. To ensure the effectiveness of the Competition Com mission in performing its role, the Commission would
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need to be granted a status of a super regulator, which makes nal determination on disputes or issues pertaining to anti-competitive market practices. Accordingly, its economy-wide regulatory functions would be synthesised with sector-based regulation. If this model were adopted, it would require amendments to the Competition Act, to reect this all-encompassing role, and the necessary technical and administrative capacities would need to be built into its new structure. There would, no doubt, be difculties in ensuring that this model functions optimally. One of these relates to the fact that in a number of sectors of the economy, including minerals, energy, and telecommunications, licences are issued to operators, hence the need to have an instrument to perform such a function. It would be beyond the scope of the Commission to do so. South Africas mining sector is well-developed and advanced, and thus requires a dedicated and sophisticated regulatory body. Undertaking extensive functions of economy-wide and sectoral regulation may hamper the effectiveness of the Competition Commission, bogging it down to vexatious disputes in the sector. Given its explicit developmental role in the South African context, an over-extended role could divert its focus and harm the interests of smaller players such as the small and medium enterprises. A massive role like that could generate unintended consequences with adverse impact on economic development and competitiveness.
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Conclusion
We believe it is possible for South Africans to move beyond the ideological tit-for-tat between those who are for and those who are against the nationalisation of mines. It is for this reason that we considered it important to undertake the study that culminated in this report. From the four countries we have studied Australia, Botswana, Brazil and Norway it is clear that, however its domestic debate on nationalisation is nally settled, South Africa will need to draw lessons from the experience of other nations. If the debate is to yield constructive results, it would have to be reframed from the us-vs.-them approach that has hitherto characterised protagonists in the discussion.
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The eyes of all patriots should be on what is good for the nation. Indeed, it is often easy to frame economic debates in a manner that pits the state against the private sector, as if the interests of the two are perforce mutually exclusive. We do not share this view. While the state and the private sector will not always agree on the details of every specic issue, a unity of purpose around strategic national objectives is possible. These include:
The need to nd lasting solutions to such daunting developmental challenges as economic growth, employment creation and poverty alleviation; The imperative to enhance the prole of South Africa as a preferred investment destination; The urgent necessity to revamp infrastructure and modernise our national logistic systems; and, with regard to mining, The need to improve operational conditions, enhance the credibility of the regulatory environment, and attract more investors into the sector.
One of the important lessons we have gleaned from our research is the need for the private sector to be proactive in engaging with the countrys development challenges, as well as the need for government and the private sector to work closely together. Journeying through the different countries, there are clear lessons to be drawn from each of the countries we have studied. However, it is not possible to cut and paste a model as a template for South Africas regulatory
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Conclusion
framework or for how the state should be involved in mining. Each of the models is a product of history, socio-political factors, and the nature of state-society relations developed over many years. Having discussed each of the cases in detail, and looking at both the nature of state involvement in the mining sector and the regulatory frameworks in existence, we have presented options that we thought could be useful for South Africa. In line with our intentions to enhance the debate, we do not express any preference regarding the options, but avail them for the nation to choose what it deems sound. Beyond presenting it simply as a response to a national dialogue, we hope that this report will, in a modest way, serve to demonstrate the commitment of non-state actors to be part of a collective search for solutions to the challenges that confront South Africa. Simply stating an aversion to nationalisation is not the same as making a convincing case against it. As the ndings of this study show, the state elsewhere does play an active role in the economy. What is critical, though, is to put in place regulatory frameworks that promote fairness and integrity. In this regard, we have presented options for South Africa to consider. In an open democracy such as South Africa, it should be expected that, from time to time, there will be sharp differences on public affairs. Sometimes the debate can be noisy. Who said democracy was silent? However, national maturity meets its litmus test when the moment comes for those debating to pause and consider
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the merits of each others points of view. When such a moment comes, facts, reason and a commitment to progress are often what nations fall back on. This report was drafted with that objective in mind. The study was born out of our desire to get South Africa to pause, to consider facts, to demonstrate adherence to reason, and to show commitment to progress. We hope the debate on nationalisation will derive value from this report.
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Apendix 1: Table of interviews*

Name Position former Deputy Governor of the Reserve Bank (now an Independent Consultant) Mining expert at the Botswana Institute for Development Policy Analysis Head of Industrial Relations: Debswana Country Date
Keith Jeffries
Botswana 2 March 2011
Roman Grynberg
Richard Vanga
* This is not an exhaustive list of interviews. Off-the-record discussions were also held with a number of important people, both in the public and private sectors, who spoke on condition of anonymity.
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Position Acting Permanent Secretary: Department Kgomotso Abi of Minerals, Energy and Water Resources Geologist and mining Consultant; former mine manager at Tati Thuso Dikgaka Nickel; and former Director at the Department of Minerals Senior Manager at Brynjuluv Klove Statoil and leader for Sub-Saharan Africa Investment Manager: Bjorn G. Fromm Ministry of Finance An Independent expert on oil and gas regulaHelge Rygg tion, and a professor at the University of Oslo Energy and Alexandre Siciliano Infrastructure Research Manager: BNDES Guilhermo R. Head of Mining Cardoso Section: BNDES
Name
Country
Date
Norway Norway
4 April 2011 4 April 2011
Norway
6 April 2011
Brazil Brazil
19 April 2011 20 April 2011
Chief Executive Ofcer: Reg Howard-Smith Chamber of Mines and Australia Energy, West Australia Nicole Roocke Director: Chamber of Mines and Energy, West Australia Australia Deputy Director General: Department of Australia Energy and Petroleum Director: Royalties Australia
17 May 2011
17 May 2011
Tim Grifn David Norris
18 May 2011 19 May 2011
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The role of the South African State in Mining

In recent times, the mining industry in South Africa has come under a political spotlight. There are those, on the one hand, who call for the nationalisation of mines, and those who view such political demands as damaging to the countrys investment prole. Both sides seem very determined in their convictions. This report is a culmination of an international study that seeks to make a constructive contribution to this important national debate.
Dr Mzukisi Qobo is an acclaimed political economist. He is a Senior Research Fellow at the Centre for Politics and Research, and lectures International Relations in the Department of Political Science at the University of Pretoria.
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