South Africa mine take-over debate pushed out with Malema

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The nationalisation debate of South African mines that rattled investors will likely be sent into the political wilderness along with its leading advocate, ANC Youth League President Julius Malema.

Malema, once seen as a potential leadership challenger in South Africa’s ruling party, was expelled from the African National Congress on Thursday for five years for bringing the party into disrepute.

Although he can appeal the sentence, he will be hard pressed to be reinstated to the party that brought him to prominence, Reuters reports.

Malema’s likely departure from the political scene opens space for those who back more measured plans to use the country’s vast mineral resources to help improve the plight of the poor majority, whose lives have improved little since the ANC took over power when apartheid ended 17 years ago.
“People like Malema try to come up with easy solutions to build their own support,” said Zakhele Ndlovu, lecturer in political science at the University of KwaZulu-Natal.

Economists, politicians and even mining executives themselves say more has to be done to better use the country’s mineral wealth to help the poor. But the debate has been overshadowed by Malema.

His proposal for the state to take control of mining firms has appealed to many poor blacks who say too little has been done to redistribute wealth concentrated in the hands of whites.

Since the end of apartheid, the poverty rate has hovered at around 50 percent while unemployment is stuck at about 40 percent of the adult population.

Senior ANC officials have said Malema has been damaging the country’s reputation and tarnished the country’s image as a promising emerging market investment destination. The talk of a mining takeover has undermined confidence in the sector that accounts for 6 percent of GDP.

In a sign of the international worries, ratings agency Moody’s on Wednesday cut the outlook on South Africa’s A3 rating on concerns that pressure from black voters wanting greater economic redress for the ills of apartheid could erode the country’s finances.

The ANC Youth League, which Malema still leads until the appeals process is over, still publicly backs his cause. It said in a statement its “leadership and entire membership remain unshaken and resolute in its call for the eventual transfer of wealth from minority hands to the majority of our people”.

But Malema himself told a rally of supporters on Thursday he expects to be succeeded by someone with less radical views.
“If the president of the youth league is suspended for five years, the next president of the youth league will not be as radical as the suspended president because he will be scared that if he also speaks in the interest of the poor and the youth he will also be suspended,” City Press quoted him as saying.

CYNICAL MOTIVES

A top ANC official who has butted heads with Malema, Secretary General Gwede Mantashe, has far different ideas about using mineral wealth. He said the ANC is looking at examples around the world of tax regimes, joint ventures and public-private mixes that could be used to fund anti-poverty measures.

Mining executives say they accept the need for a system that will benefit the wider public. Martin Kingston, an investment banker and chief executive of Rothschild South Africa told a seminar this week: “These resources need to be exploited for the benefit of all citizens of South Africa, on a sustainable and viable basis over the short, medium and long term.”

The state’s bill for Malema’s plans for taking over mining firms would be enormous and could bankrupt the country. The market capitalisation of listed mining companies in South Africa is equal to about two-thirds of GDP, or twice the annual national budget.

The next test for resource nationalisation comes at a major ANC meeting in about a year. Malema is expected to be on the outside looking in at the likes of Mantashe and senior members who back more pragmatic approaches.

But given the party’s reputation for inertia, the likely outcome of the meeting will be a call for more study.

For many investors, the biggest problem in the mining sector is not Malema but regulators willing to approve sweetheart deals that benefit the politically connected at the expense of the free market.



Critics have also said there was a cynical edge to Malema’s plans, which saw him win support from investors seeing nationalisation as a way to land government bailouts for bad bets they made in mining firms.
“Malema is not speaking on behalf of the left wing. He is speaking on behalf of a particular group connected to business and politics,” said Steven Friedman, director of the Centre for the Study of Democracy at the University of Johannesburg.