South Africa Considers Nationalization of Mines and Banks

African National Congress Youth League conference in South Africa featured the President Julius Malema as well as President Jacob Zuma. Malema won re-election easily over the youth wing of the ruling party., a photo by Pan-African News Wire File Photos on Flickr.

JULY 1, 2011, 11:41 A.M. ET.

South Africa Considers Nationalization

By DEVON MAYLIE
Wall Street Journal

JOHANNESBURG—The nationalization debate in South Africa is gaining "alarming" momentum and that is causing investors to shy away from putting needed capital into the country at a time when the European Union crisis will start to have an impact on developing country economies, the head of the South African Chamber of Commerce and Industry said Friday.

The youth league of the ruling African National Congress is leading the calls to nationalize mines and banks without compensation. This week, the country's largest trade union, Cosatu, reaffirmed its long-held belief that mines should be nationalized.

The nationalization debate is picking up ahead of the ANC's national committee meeting in 2012 where a government-sponsored research team will present results from a study it's currently conducting on the topic.

"Support that Cosatu has recently shown for nationalization will dampen foreign investor enthusiasm for South Africa at a time when the worsening political crises and financial woes of EU states are likely to inhibit economic growth in developing countries," said Neren Rau, the chief executive of the South African Chamber of Commerce and Industry.

Foreign direct investment inflows to South Africa in 2010 fell to $1.3 billion, just a quarter of the level in 2009, according to figures from a report by the United Nations Conference on Trade and Development.

"There very well could be a debate coming in the future over how to nationalize mines, and how to pay for it," a spokesman for Cosatu said. "It has been our policy for many years, long before the youth league's policy."

The youth league president Julius Malema said last month that the league believes banks should be nationalized to provide the funding to run nationalized mines.

Mining companies are now organizing to try and present a case not to nationalize mines. The government and the Department of Minerals say it's not policy, but they haven't ruled it out becoming so in the future.

"Business has to date accepted the president's assurance that nationalization is not on the national agenda," Mr. Rau said. "The open challenge to the view of the president from within his own party and the recent support given to nationalization by Cosatu add to the conflicting messages."

David Brown, the chief executive of Impala Platinum Holdings Ltd., which operates platinum mines in South Africa, said this week that the concern around nationalization is causing investors to already avoid the mining sector in the country and that will trickle down to a reduction in mining output.

"Risks associated with future South African mining are increasing significantly as seen by outside investors," Mr. Brown said. "Investors are getting cold feet."