Nationalization: Myths and Possibilities
Wouldn't it be nice if South Africa, like its sparsely populated neighbour, Namibia, could strike oil in vast quantities off its western coast and forever change the dynamics of its fiscal dispensation? This question is not as pie in the sky as some pessimistic observers may feel. The Namibian oilfields, just north of its border with South Africa, have many billions of barrels according to educated estimates. If the Namibians eschew the example set by their northern neighbour, Angola, whose oil revenues do not filter down to the poor of that nation, and instead follow the example of the Norwegians, who have used steady oil revenues from known off-shore finds to make the people of Norway into an egalitarian well-to-do occupants of a chilly near utopia (give or take one or two crazy right wingers), then the achievement of equality in one state in Southern African could be assured. The canny Norwegians keep their sure fire winners for the people and let private enterprise take its chances on the less likely oil wells. Likewise, should South African off-shore oilfields provide a huge bonus, the use of the Norwegian model of nationalization could benefit ordinary people tremendously, to the ultimate benefit of advancing the sustainable development of our democratic order.Unfortunately, the focus of nationalization arguments, raised mainly by the Youth League of the ANC (ANCYL), and based on a particular interpretation of the Freedom Charter which has not been embraced by the ANC itself since it came to power in 1994, is not new resource development efforts, but the existing mining, farming and banking sectors. These may well be regarded as lower hanging fruit by those bent on using nationalization as a new means of advancing the achievement of equality in SA, which is both a goal of our constitutional dispensation and a sine qua non for a peaceful and prosperous future. A country in which there is great disparity between the few who have wealth and the many who do not, is a country in which a revolution is a distinct possibility, as can be seen from historical developments in France and current affairs in Libya.
Make no mistake; a revolution will be needed to effect the kind of nationalization for which the ANCYL argues. This is because the idea is to recover so-called "stolen property" without compensating those expropriated in the process. This is contrary to the way in which the Constitution has been negotiated and formulated. Any form of expropriation under the current dispensation requires that the party expropriated must receive "just and equitable" compensation upon being deprived of ownership of the property earmarked for expropriation. This is what section 25 of the Bill of Rights requires and any extra-legal attempt to circumvent the recognised property rights in the Bill of Rights is bound to be struck down in court as invalid for its inconsistency with the Constitution. The deal that was done when the new SA was born demanded a supreme Constitution under the rule of law, and it requires respect for the property rights of all.
The only way in which expropriation without compensation could ever be effected legally would be by way of an amendment to the Constitution. No political party commands the majority necessary to effect such an amendment, nor is it likely, on present ballot box trends, that any party will have the necessary majority any time soon. Were such a majority to be achieved in the future, the effect of a vote in favour of expropriation without compensation would be destructive of all private investment (whether foreign or local) in the economy of SA. No sane and sensible investor wants to build up an investment only to find that the success of the enterprise is "rewarded" with an expropriation without compensation.
SA simply can not afford to pay appropriate compensation for the current value of mines and banks; with farms, the funding available is limited. The revolutionary alternative will also have a hugely dampening effect on investment in the economy, as has recently been experienced in Zimbabwe following the nationalization of farms and other enterprises in that unhappy country, the second poorest in the world. There are millions of Zimbabweans living precariously in SA because the alternative for them is to stay at home and starve. The output of the Zimbabwean economy has been deleteriously affected by the nationalization programme of the Mugabe government and the rule of law is virtually non-existent since the introduction of the quasi-legal land invasions as a vote winning ploy. Half of the GDP is plundered according to Eddie Cross. The SADC Tribunal has struck down the land policies of the Mugabe regime as illegal and has in turn been disbanded, in scandalous fashion, for doing so. Any non-consensual form of expropriation that is dreamt up for SA is likely to be a kiss of death for the economy; private investment thrives where there is respect for the rule of law and protection of private property rights. The converse is also true.
It was accordingly surprising that under cross-examination in his hate speech trial, Julius Malema, the newly re-elected president of the ANCYL, pointed to Zimbabwe as a shining example of what he called "a democratic state" in which expropriation without compensation had been effected. It is surely a misnomer to refer to the stubborn ability of Robert Mugabe to cling to power by stealing elections and worse as a democracy. Even if his policies are regarded as populist, they can not, on any objective measure, be held up as a means of improving the lot of the ordinary people of Zimbabwe, who once lived in the bread-basket of Africa and now, in much diminished numbers, populate one of the worst basket cases of the continent.
Operating mines, farms and banks is a risky business. The mines, in particular, require great expertise and a massive investment of capital to turn a profit. At present the fiscus in SA enjoys a greater share of the profits of successful mines via taxes than do the shareholders of the mines themselves. This occurs at no risk to the taxpayer. It is hard to imagine how nationalized mines and banks could ever outperform their privately owned counterparts. The state, as can be seen from tough experience in parastatals, has neither the means nor the expertise to take the type of entrepreneurial risks that are required to succeed in a competitive enterprise. This has seldom been sustainably achieved elsewhere in the world, indeed the international trends have been in favour of privatisation, not nationalization. The experience in Zambia, where previously nationalized copper mines have been privatised and now make a valuable contribution to the success of the economy, is a salutary one as far as SA is concerned.
Rather than learn from our own failure in this regard, let's be sufficiently wise to learn from the experiences of our neighbours and find more imaginative and potentially successful ways of promoting the achievement of a more equitable economic dispensation in which the yawning chasm between the haves and have nots is sustainably narrowed via education, training and mentoring.
If nationalization is to occur with compensation to those expropriated, the state will have to look for "windfall" sources of funding. These do exist. The undoing of apartheid-era misappropriations could net as much as R 27 billion and the cancellation of the arms deals tainted by corruption will see an inflow of about R 70 billion. If these claw-backs together net a windfall of say R100 billion, the state might be in a position to actually buy a mine or two. Any other means of acquisition is fraught with dangers, even though SA's very own Norwegian style nationally owned oilfields off the west coast do beckon alluringly.
Paul Hoffman SC
26th July, 2011
