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Striking Miners, Plummeting Currency: Few Good Options for South Africa

The labor turmoil in South Africa is spreading to the financial markets, and South Africa’s currency, the rand, is plunging against the weak U.S. dollar.

For political economists, Africa wonks, and geopoliticians, this is bad news. Just as the fabulous mineral wealth in South Africa’s mines serves as an engine for the whole economy, labor relations between miners and the mining companies reflect many of the forces that threaten to rip South Africa’s precious democratic experiment to bits.

We’ve written about these problems before. For now at least, the government doesn’t seem to have an answer. The government desperately needs to keep mine profits high so that it can cream off a lot of tax revenue while keeping investors happy.

That basically means squeezing the mine workers in order to transfer some of the wealth they produce to programs that would ostensibly benefit the majority of South Africans who still live mostly outside the formal sector and the modern economy. (We say “ostensibly” because a certain amount of corruption and inefficiency plagues the South African government machine.)

But the miners are well organized and have a history of militancy dating back to the struggle against apartheid and beyond. The miners want the government to squeeze the foreigners and investors more and the workers less—even nationalizing the mines outright.

There are three problems with that politically attractive course. The first problem is that, if the government really did nationalize the mines, it would have to either expropriate them without giving their owners fair compensation, or it would have to pony up and pay a hefty price. The first alternative would thoroughly mess up South Africa’s relationship to the global economy and expose its nationalized companies to all kinds of legal actions around the world. The second would saddle the country with immense debt that would take years to pay off and consume all or even more than all of the hoped-for new revenue.

Second problem: the government probably can’t run the mines very well anyway. The mine unions would immediately start to use their political clout to influence the decisions by the government about how the mines should work: pay, numbers of employees, benefits, and so on. The unions would take a bigger and bigger share, and the mines would become less efficient and profitable for the new government owners. Corruption would definitely play a larger role as political pressures over contracts and suppliers came into the picture. The government is much better off with private owner-operators.

Third problem: mining is a capital-intensive business and new technologies and techniques are constantly required to keep mines productive and profitable. If the mines are nationalized, the government would have to come up with these investments on its own; foreign investors wouldn’t be that interested in making new investments in mines they’ve just been stripped of. Furthermore, government-run companies are almost always bad at managing these kinds of investment and development programs.

In a country with stronger institutions and a greater degree of public understanding, the logical course would probably be to weaken the power of the miner’s unions. In South Africa that is unlikely to work, partly because of the political, economic and symbolic importance of the mine unions, and partly because the workers themselves are already more militant than their leaders. Breaking the “official” unions will only open the door to more radical and informal leadership groups.

And so the rand is down and the hair of government officials is turning gray. Via Meadia has a short term recommendation for readers: South Africa is one of the most wonderful places in the world to visit. From the cultural and scenic glories of Capetown to the glorious coastal drives, the mountains in the heartland, the haunting deserts up to the stunning wilderness areas and the national parks, which have some of the best game viewing on earth. This is one trip that should be on everyone’s bucket list, and the tourist areas are not being affected by the mining unrest. Go now while the rand is cheap, and have one of the greatest experiences in a lifetime.

And by going there and spending your money, you will be doing your part to help keep South African democracy and prosperity alive.

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