No nationalisation, more certainty and probably higher taxes

There are times when I’m impressed with elements of government and the ANC. It took them far too long, they allowed too much debate and uncertainty, but their ultimate conclusions on nationalisation and how to direct additional mineral wealth back into the fiscus, further develop a beneficiation industry around the mining industry are solid.

I always maintained that “nationalisation” isn’t necessarily appropriation of assets without compensation, although the popular views and worst fear-mongering viewed this as the only possibility. It’s refreshing to hear that “nationalisation” was considered on its merits against private operation of firms rather than just as a way to redistribute wealth. (Ok, at least one article wasn’t mad panic.)

The increase in taxes is also basically expected. Although new and changing taxes does add uncertainty, it provides a sense that the rules are being followed.  Tax rates on energy companies in many Middle Eastern countries is high – sometimes near 50%. So the government fiscus does benefit from the energy that belongs to all its citizens.

It’s also a, slightly sneaky, way of re-settting historical land ownership and mineral right royalties and licensing. If “we got it wrong and sold them too cheaply in the past, we can always recoup through higher or new taxes”. Maybe a little cynical but not surprising.

The real free market fanatics will no doubt be in uproar about higher taxes destroying jobs and misallocating resources. There is a debate here, but the free market fanatics all too quickly forget that it’s hard to argue that the value of the minerals under our country have been fairly priced. Those markets can easily be described as “failed markets” with a number of externalities involved.

Even the hardest neoclassical economist will recognise these are very real limitations on Adam Smith’s invisible hand.

Published by David Kirk

The opinions expressed on this site are those of the author and other commenters and are not necessarily those of his employer or any other organisation. David Kirk runs Milliman’s actuarial consulting practice in Africa. He is an actuary and is the creator of New Business Margin on Revenue. He specialises in risk and capital management, regulatory change and insurance strategy . He also has extensive experience in embedded value reporting, insurance-related IFRS and share option valuation.

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