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ANC to call for higher mining taxes

Friday, 07 December 2012   (0 Comments)
Posted by: SAIT Technical
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By Franz Wild and Anne Swardson (Business Report)

Executive summary (SAIT Technical)

Enoch Godongwana, the economic policy head of the ANC, said that the party would ignore concerns or rating agencies and call for an increase in mining taxes to ensure that the lives of poor black South Africans improve. Moody's and S&P recently downgraded South Africa's debt, citing slower economic growth after mining strikes. A proposal to raise mining taxes will lead to additional downgrades in the first quarter of 2013.

Full article

The ANC would ignore the concerns of rating agencies and call for an increase in mining taxes, Enoch Godongwana, the party's economic policy head, said yesterday.

The ANC must ensure that the lives of poor black South Africans improved or risk giving an opportunity for populist leaders to stir up social unrest and erode the ANC's dominance, Godongwana, who heads the ANC's economic transformation committee, said.

"Unless we do some radical transformation, we'll create fertile ground for an uncontrollable revolution,” he said.

Moody's Investors Service and Standard & Poor's (S&P) recently downgraded South Africa's debt, citing slower economic growth after mining strikes and political pressure to raise state spending.

The ANC holds its electoral conference this month, with nominations showing that President Jacob Zuma may face a challenge from his deputy, Kgalema Motlanthe, amid calls for radical policy change to tackle a 25.5 percent official unemployment rate.

"It does nothing for the competitiveness of South Africa and trying to get foreign direct investment,” Peter Attard Montalto, an economist at Nomura in London, said.

If the proposal to raise mining taxes was adopted at the ANC's Mangaung conference "that will lead to additional downgrades from Moody's and S&P in the first quarter”.

In August workers at Anglo American Platinum, Impala Platinum and Lonmin, the three biggest platinum producers, defied unions by striking for higher pay. Julius Malema, the expelled leader of the ANC Youth League who campaigned to nationalise mines, used the demonstrations to help boost his support and criticise Zuma.

Moody's lowered South Africa's credit rating by one level to Baa1 and kept it on a negative outlook on September 27, saying the government was unable to "handle the current political and economic situation.”

S&P cut its rating by one level to BBB two weeks later, citing concern that the strikes would stoke unrest.

"We're kind of in a Catch-22 situation because there are people who listen to Moody's and when we go out there and raise money, it becomes expensive,” Godongwana said. "We may take a hit. We've got to make a choice: do we please S&P and Moody's, or do we deal with the constituencies we're facing? We're walking that tightrope.”

While Godongwana ruled out the ANC conference agreeing to any form of mine nationalisation, he said increased taxes on mining was possible. The party had not identified which minerals would need higher tax as delegates needed to consider the effect on the mines, he said.

"It may well be that we will not increase tax on gold because most of the gold mines are marginal,” Godongwana said, referring to their profit margins in comparison to other types of mines.

South Africa is the biggest producer of platinum and chrome and the fifth-largest miner of gold. The country has an estimated $3.3 trillion (R29.2 trillion) of mineral wealth, including coal, gold, copper, platinum and palladium, according to the Department of Mineral Resources.

The proposal for a new resource rent tax was "both unnecessary and unwise,” Cynthia Carroll, Anglo American's outgoing chief executive, said on Tuesday. "The combination of the corporation tax system and the existing royalty regime already ensures that the state takes its fair share from the profits the mining industry earns.”

The cost of protecting South African government debt against non-payment using credit default swaps over five years has jumped 17 basis points since the start of the mining strikes on August 10, signalling a deterioration in risk perception.

The rand fell 7.8 percent against the dollar in the same period, the most of 16 major currencies tracked by Bloomberg. It erased earlier gains after Godongwana's comments, dropping as low as R8.8064 to the dollar, and was bid at R8.781 at 5pm.

Godongwana said the ANC had to improve how it ran the government, fixing a "very, very bad” education system and clamping down on corruption.

He added that 18 years after the ANC won power by leading the fight against apartheid, elitism, patronage and corruption had crept into the party.

"Being in government and having access to resources has eroded our value system. We've got to have some serious introspection.”



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