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FEBRUARY 5, 2012, 11:21 A.M. ET

South Africa Appears to Move Away From Mine Nationalization

By DEVON MAYLIE

JOHANNESBURG—South Africa's ruling party appears to be pivoting away from the charged politics of mine nationalization, in a bid to reassure investors and rev up a weak economy.

Over the weekend, the African National Congress met and reviewed a report it had commissioned last year on state intervention in the mining sector. Although the government hasn't publicly released the report or come to a final decision, a person familiar with the contents said it recommends against state mine takeovers—in essence, buyouts funded from government coffers. Instead, the report favors the less-costly approach of increasing taxes on miners as a way of deriving more benefit from the country's mineral wealth.

In a separate development Saturday, the ANC upheld a November decision to suspend the party's fiery youth leader, Julius Malema, who had campaigned publicly for the state to take back the country's mines to redress inequalities.

The ANC had suspended Mr. Malema for sowing discord in the party and bringing it into disrepute, charges that were related to comments he made last year calling for regime change in Botswana, a democratic and prosperous neighbor. While an ANC appeals committee Saturday found him guilty of those charges, it ruled that he could plead for a lighter sentence than the original five-year suspension.

Spurred by Mr. Malema, the ANC has engaged in a loud and long debate over nationalization, dividing the party and frightening investors.

In a closely watched 2010-2011 survey by Fraser International, a Canadian think tank that ranks countries' attractiveness to mining firms, South Africa dropped to just a few spots above Zimbabwe. Meanwhile, foreign direct investment to South Africa plummeted in 2010 to a quarter of what it was the year before. It has since rebounded, thanks to a single investment by Wal-Mart Stores Inc. last year.

South Africa's economy is in critical need of foreign capital. The South Africa Reserve Bank estimates growth this year of just 2.8%, lower than 3.1% in 2011. South Africa is also lagging behind most other major economies on the continent, including crisis-wracked Nigeria.

Mike Jones, chief executive of Canadian miner Platinum Group Metals Ltd., which is developing a platinum mine in South Africa, said that in the past year several shareholders that had a stake of 10% or more in the company pulled out. He believes Mr. Malema inflamed the nationalization debate to a point that it became a serious concern for his partners.

"He has created a significant perception of risk for South Africa in the international community," Mr. Jones said. Despite Mr. Malema's suspension, Mr. Jones said he believes investors won't be ready to "embrace" South Africa until the passage of some time and more clarity on the government's position.

South Africa isn't alone in having a mining debate. Across Africa, governments have intensified talks over the issue to increase revenue and create jobs from their mineral wealth. These debates, taking place from Guinea in the west to Tanzania in the east, are expected to lead to policies that may push up mining costs on the continent. If the policies deter investors, many of whom are already struggling with sluggish earnings due to slow global growth, output of key minerals used in everything from car parts to mobile phones could slow, according to Philippe de Pontet, the director of Africa research for Eurasia Group.

The potential policy changes will feature prominently at Africa's premier mining conference that kicks off Monday in Cape Town, bringing together government ministers and investors from around the continent.

Because of his outsized influence in South Africa, the continent's largest economy, Mr. Malema's political fate also will be a hot topic.

Although his calls for nationalization appear to have lost traction, the problems affecting the huge black underclass he championed haven't gone away. The issues of high unemployment and increasing inequality will continue to dog the party and could eventually see some form of increased state involvement in mining take hold, analysts say.

"If the ANC continues to fail to deliver on the job-creation front, what will follow is political instability," said Aubrey Matshiqi, research fellow at Helen Suzman Foundation. "The ANC needs to make some difficult choices."

The ANC will make a final decision on mine nationalization by the end of the year at its policy conference.

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