All investment is foreign
ULTIMATELY, all investment is foreign investment. What a South African bank lends to a citizen so that she may buy her family a home is obtained in part from foreign capital markets where all the world’s banks finance themselves. The price at which our banks borrow money abroad is a measure of the regard in which those foreign markets hold us. Now, anyone with a reasonable knowledge of the history of the economic polices adopted by the African National Congress (ANC) can see that it is unlikely that the type of nationalisation called for by the ANC Youth League will happen.
But the noisy debate surrounding it is certainly doing damage to the desirability of SA in the eyes of foreign investors.
Let us be clear. The nationalisation called for by ANC Youth League president Julius Malema and his comrades is not of the willing-buyer, willing-seller or market- related, fair-price expropriation sort. It is theft, plain and simple.
If you want to be pompous, you could refer to it as a complete disregard for property rights — one of the fundamental tenets of economics — without which all incentive to grow or invest in a business falls away. It would be mad for foreign investors — or any investors — to place their capital at such risk.
Truth is, if the government really wanted to buy out the mines, they could feasibly go to the market and purchase a controlling interest in them. Once they had ownership they could endeavour to turn a profit from them.
South African Communist Party general secretary Blade Nzimande has spoken out against nationalisation as proposed by the youth league, saying it would not address the interests of workers or the poor. He says that putting privately- owned assets in the hands of the state is not "inherently progressive" as it depends on which "class interests" are being advanced.
Mr Malema’s calls for nationalisation have been for reasons of equity: to "restore unto blacks what was stolen from them", yet there is only weak evidence to suggest that the government is capable of broad- based redistribution. Quite the opposite, in fact.
In the 17 years since the ANC came to power, unemployment has risen — especially among black youth — and SA’s Gini coefficient (a measure of inequality) has risen considerably. Redistributive policies such as black economic empowerment have created a new black elite that keeps getting richer while the poor continue to live in poverty.
Government attempts at job creation have also thus far failed to yield much in the way of results and they have been obliged to call on the private sector to step up in their place. Furthermore, while the social grant system is invaluable in alleviating poverty, increasing the size of the grants such that they would have a significant redistributive effect has been heavily criticised by the ruling party on the grounds that widening their scope would deprive people of the "dignity of work".
Whatever the plan may be, nationalisation is certainly not going to undo the wrongs of the past in any material way.
The simple fact is that politicians aren’t business people. There is just not enough competence in the public sector to manage the mines successfully if they were nationalised. It is no surprise that the National Union of Mineworkers doesn’t support it — they fear for their jobs. The mines aside, there is a mountain of evidence to suggest the state can barely run its existing enterprises in a way that generates profits and creates employment now, let alone if it had more of them.
In negotiating this furore, government must tread carefully. Without doubt, the discussion on nationalisation is doing significant damage to SA’s investment risk-profile and must be put down firmly or we will see a reduction in the quantity of foreign direct investment. It is hard to measure — investment not happening leaves no scratch marks — but you can bet it’s happening.
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