GOVERNMENT’S UNNERVING CAPRICE
THE HUE AND CRY in the wake of the SA Treasury’s task team report, widening the windfall tax proposal to the resources industry, surely looks a tad overdone. Panic is not what was intended.
You can see this from the document itself in which the authors suggest that any windfall tax legislation on super profits in resources should be a refinement on the existing Royalty Bill. By writing separate legislation “... it may give rise to future windfall tax investigations on other commodities and increase investor uncertainty,” the report states.
There’s also quite a large presumption that a supercycle really is at play in the mining sector, with unprecedented high metals prices here to stay. That’s quite a leap of faith to make. Surely, there must be some doubt whether windfall profits would ever be triggered.
It’s obvious, however, that Government does not sufficiently understand how sensitive (and punch drunk) foreign investors in SA resources believe themselves to be.
“The door has just closed on SA, and the Government hasn’t even realised it,” says one UK banker. “The attitude is ‘keep waving, keep waving’ and get the hell out of there as quickly as possible,” he adds.
The improvement in SA mining investment in the fourth quarter suggests divestment isn’t yet happening in SA mining, for all its legislative shocks. And there needs to be understanding among foreign investors that African governments just want more of the action.
There are several examples of African governments wanting to tap the resources cycle to build the fiscus. In February, Zambia lifted a sales royalty on mining companies – including companies that had signed royalty stabilisation agreements – to 3% from 0,6%.
In the Democratic Republic of Congo (DRC), meanwhile, state interest in deriving more from resources has manifested itself in wanting to list the state-owned firms, such as Gecamines. This is because governments have seen much higher values imputed to assets private companies buy from them when they are listed in Toronto or London.
Moreover, failing to quickly develop assets is resulting in many foreign investors losing the right to mine them. That’s because African governments want to benefit from the mining bull market before it disappears; many parastatals just need the money.