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(BLOOMBERG) South Africa’s ANC Targets Mining Taxes in Policy Meeting

South Africa’s ANC Targets Mining Taxes in Policy Meeting
By Mike Cohen and Andres R. Martinez - Jun 26, 2012 5:59 PM GMT+0200

South African President Jacob Zuma called for a “dramatic” policy shift to create jobs and ensure wealth is spread more evenly in a nation where white males still dominate the economy 18 years after the end of apartheid.

“There is widespread consensus that we have been unable to reach the goals of a truly inclusive, non-racial, non-sexist society,” Zuma, 70, said in his opening speech to a gathering of ruling African National Congress officials near Johannesburg today. “The time has come to do something more drastic to accelerate change.”

The ANC will spend four days debating proposals ranging from a 50 percent mining windfall tax to wage subsidies for young people. A final decision on new policies will be taken at the 100-year-old party’s national conference in December, when a new leadership will also be elected.

Zuma, the ANC’s former head of intelligence, is seeking a second five-year term at a time when his labor union allies and jobless young people are demanding action to combat poverty and unemployment in Africa’s largest economy. Any attempt to extract more revenue from mining companies such as Impala Platinum Holdings Ltd. (IMP) and Lonmin Plc (LMI) risks undermining an industry battered by rising wage costs, power shortages and a global economic slowdown.

“You’re adding more to the camel and pretty soon you’ll break the camel’s back,” Patrick Mathidi, a fund manager at Momentum Asset Management in Johannesburg, said in a telephone interview. “We’re unlikely to get any good news out of the policy conference.”
Profit Tax

In 2010, the ANC’s Youth League persuaded the party to investigate the viability of nationalizing mines to help distribute more wealth to the black majority. While an ANC- appointed panel ruled out nationalization as an economic “disaster,” it recommended a 50 percent tax on profits of mining companies that earn returns of more than 15 percent.

“We must go deeper than to nationalize or not nationalize,” Zuma told delegates. The party “must deliberate on how the state can obtain an equitable share from the mineral resources and how communities can benefit more from these natural resources.”

Gold, coal and other mining products accounted for 38 percent of export earnings last year, according to government data. Output contracted 16.8 percent in the first quarter because of mine closures and strikes. The FTSE/JSE Africa Mining Index (JMNNG) of 21 stocks has dropped 7.6 percent this year, compared with a 5.8 percent gain in the FTSE/JSE Africa All Share Index. (JALSH) The rand strengthened 0.4 percent to 8.4493 against the dollar by 5:55 p.m. in Johannesburg, paring the decline this year to 4.3 percent.
Security of Supply

Perth-based Aquarius Platinum Ltd. (AQP), the world’s fourth- largest producer of the metal, shut mines in South Africa this month because of strikes and falling platinum prices. In February, Johannesburg-based Anglo American Platinum Ltd. (AMS) put a freeze on employment and cut its 2012 output target.

Other recommendations in the ANC’s draft policy documents include an export levy on coal and iron ore to ensure “security of supply” as the government tries to boost power generation and steel production. The ruling party is also considering forcing pension funds and insurers to buy the bonds of state- owned companies.

“There is clearly going to be a lot of rhetoric around the conference and people are going to position themselves around populist agendas,” Mike Davies, southern Africa analyst at risk-advisory company Maplecroft, said in a June 21 interview from London. “We see higher levels of state involvement in the mining industry.”
White Males

While the party that swept Nelson Mandela to power in the first all-race elections in 1994 commands the support of almost two-thirds of the electorate, it has struggled to racially desegregate the economy. White South Africans earn on average about eight times more than black citizens, who make up 79 percent of the population of 51 million, according to the South African Institute of Race Relations.

Under the negotiated settlement reached in 1994 “we had to make certain compromises in the national interest,” Zuma said. “We had to be cautious about restructuring the economy in order to maintain economic stability and confidence at the time. Thus economic power relations of the apartheid era have remained intact.”

While the country’s laws currently hamper the government from redistributing land, and vast tracts of farmland remained unused, any efforts to address the situation will be done within the confines of the Constitution, the president told reporters.

The government forecasts the economy will expand 2.7 percent this year, the slowest pace since the 2009 recession, as a debt crisis in Europe worsens, curbing demand from a region that buys about a third of South Africa’s manufactured exports. That’s less than half the 7 percent expansion the government says it needs to meet a pledge to cut the jobless rate to 14 percent by 2014 from 25.2 percent currently.

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net; Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

Labels: ANC, JACOB ZUMA, WINDFALL TAX

posted by MrK @ 2:37 AM