Nationalizing South African Mines: An Enonomic Assessment - Synopsis

Nationalization is high on the policy agenda in South Africa. This paper considers the case for nationalizing the local mining sector from an evidence-based perspective, which is derived from theoretical considerations and related to the known features of the South African mining sector and economy. A strong case against nationalization emerges, which can be summarized as follows. The mining sector is competitive and therefore a poor candidate for public ownership. Furthermore, the resources sector does not dominate the South African economy nor does it create the risk of a decrease in the competitiveness of the industrial sector via the unintended adverse impact of an appreciating real exchange rate due to a commodity boom (Dutch Disease). Nationalizing the mining sector will cost the government more than it receives. This is not only a bad idea in itself, but it will limit the scope for distributive policies on the national budget. The contemporary international experience demonstrates the risks of fiscal imprudence. Finally, nationalizing the resources sector will undermine support for those very market-based institutions required to achieve a higher long-run growth trajectory.