If you want to keep your country strapped for cash, here’s a simple formula: Debate ad infinitum the possible nationalization of the country’s largest industry.Discord in South Africa’s ruling African National Congress (ANC) has the party doing just that, resulting in stagnant government revenue and decreased private investor confidence. The industry at issue is South Africa’s stunningly lucrative mining of all sorts of precious metals and gems. The WSJ reports:
The ANC had suspended [its youth leader] Mr. [Julius] Malema for sowing discord in the party and bringing it into disrepute, charges that were related to comments he made last year calling for regime change in Botswana, a democratic and prosperous neighbor. While an ANC appeals committee Saturday found him guilty of those charges, it ruled that he could plead for a lighter sentence than the original five-year suspension.Spurred by Mr. Malema, the ANC has engaged in a loud and long debate over nationalization, dividing the party and frightening investors.
The government is faced with two options. It could nationalize the entire industry, which involves a lot of investment to complete the process but could bring huge revenue increases — if the government turns out to be able to operate them effectively (a risk, as a lot of loyal party cadres will expect some mine management sinecures even if they are better at party politics than at this whole mining thing). Or it could tax private companies more, a cheaper option that would still bring in modest funds. But doing neither leaves investors in a state of flux, unsure if the government is friendly to their business ventures.The allegedly corrupt President Zuma emerges the winner in the current power struggle, withstanding Malema’s pushes to oust him from party leadership. But the party nonetheless remains divided and increasingly unstable, a perilous state of affairs and something that investors will surely note.Worth noting: mining is a business in which foreign investors make very large fixed capital investments in hopes of a long term return. Political uncertainty affects the prospects for mining investments much more than, say, in tourism, where the upfront investments are lower and the payoff period is shorter. Fooling around with mine policy gets very expensive, very fast.