GOV­ERN­MENT’S UN­NERV­ING CAPRICE

Finweek English Edition - - Companies & markets - DAVID MCKAY

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.

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