What it’s all about?
Will the natioalisation of large parts of Mzansi’s private sector, especially the mining industry, benefit our country’s economy or not?
This question has been at the centre of a multi-decade burning debate between the South African private sectorand the ANC/Cosatu/SACP tripartite alliance.
According to the alliance, nationalisation should beseriously considered as policy option to address the country’s challenges of huge income inequalities, unemplotment and poverty. The private sector, however, is of different opinion. Nevertheless, no party has yet provided any form of research evidence to prove its point. But, what exactly does nationalisation entail?
Jean-Pierre Dupuis from the statistics directiorate of the Organisation for Economic /co-operation and Development (OECD) defined nationalisation as “the taking of control by the government over asstets and over corporation’ in a reasearch paper presented at the fourth meeting of thr Task Force on Harmonization of Public Sector Accounting, hosted by the International Monetary Fund (IMF) in Washington DC, on 3 to 6 October 2005.
According to Dupuis a goverment can nationalise private assets or corporations in two ways ]. The first is to confiscate the asset(s) which is tantamount to uncompensated seizure of assets. The second is by purchasing most or all the asstes from the current owners at a price which is close to the market price. This is the most common way of nationaliisation. Though some forms of nationalisation – if doe properly and for the right reasons, such as saving a country’s economy – may be advantageous, nationalisation will, in the way it is contemplated for Mzansi, have disastrous sonswquesnces. It will negatively affectt the economy through various channels.
Exploring the impact via the exchange rate channel, sound reasoning yields the following chain of events: Foreign and demoestic investors will be scared that they might not be compensated approprialy for their investments. They will consequently sell their rand investments and this will cause the rand exchange rate to weaken sharplt against other currencies. A weaker exchange rate will be certainly increase the price of goods and services leading to higher inflation, thereby making consumers poorer as their rands will be able to buy less than before. Judging from the Mzans’s recent history, this will lead to strikes for higher salaries and wages, increasing inflation even further. THis will force the Reserve Bank to increase interest rates, making credit more expensive and less accessible. Many home and asset owners will, under such circumstances, lose their properties and vechiles and they will be forced to dismiss their already vulnerable employees, such as domestic and farm workers. As costs of goods and services become more expensive due to higher import costs and salary increases, companies will have to retrench workers. Job losses mean less consumer purchasing power, reducing profitmaking opportunities for companies. This may lead to a vicious circle of tax, cost and job loss increases. As the goverment will receive less tax income, it will not be able to provide services and make welfare grants to the poor.
Alternatively, they will have to resort to increasing taxes on those still having a job. However, this will further reduce consumer spending which, in return, will lead to further job losses. As mentioned this will lead to further job losses.
In short, nationalisation will most certainly lead to higher unemployment and povert and further increase income inequality in SAfrica.
By guest writer Johann vanTonder.
*edited to suit SAfrica Vibe target – full article can be found on http://www.uasa.org.za/