EDITORIAL PAGE — Privatization gains momentum

State mining is still alive in the western world, but privatization is gaining momentum. And that, in a nutshell, was the message delivered by Magnus Ericsson of the Swedish-based Raw Materials Group at a United Nations Conference on privatization held recently in Geneva.

State ownership of natural resources is well entrenched in some countries, but Ericsson points out that it is a relatively new phenomenon in the western world. It was only during the late 1940s and early 1950s that state control of mineral resources began to increase, with European companies such as Finland’s Outokumpu, Britain’s BP, and Sweden’s LKAB leading the way. The movement picked up steam in the late 1960s and early 1970s, and the rationale for these nationalizations was often linked to the use of natural resources as a lever for economic and social development.

By the late 1980s, however, the trend reversed and privatization began to gain momentum. The numbers tell the story. Total state control in the western world, measured as the percentage of the total value of all non-fuel minerals controlled by states, was 16% in 1975. The figure increased to 21% in 1984, and slipped to 20% by 1990. By 1993, the figure fell to 18%, which is still higher than in 1975.

Raw Materials Group (RMG) points out that the privatization trend appears to have picked up steam in 1994 and 1995, as programs to sell state-mining companies were initiated in several countries such as Peru, Bolivia, Argentina, and India. These initiatives were helped by increasing metal prices, which provided a good market to sell operating mines and new deposits.

The firm tracked seven major privatizations that took place this year and last, and estimates that these deals involved more than US$1 billion in straight privatizations and US$230 million in public offerings. RMG expects more privatization of mining assets to take place in the years ahead, mainly in France, Indonesia and Brazil.

RMG is less bullish about the trend to privatization within Eastern Europe and the CIS. Even though the total amount of planned investments now exceeds US$2 billion, the firm points out that “uncertainties” in this figure are important and withdrawals are frequent. The main reason for the hesitation is the lack of security of tenure as well as the fact that there are still strong forces to keep the mining industry in the CIS countries within domestic control.

But after taking into account the privatizations which seem likely to go ahead, RMG estimates that the level of state control by the end of 1996 will be about 14% of the total value of the western world’s non-fuel mineral production.

Even though state-owned mining is expected to decrease considerably over the next few years, the firm doubts that the nationalizations of the late 1960s and early 1970s will be completely reversed. RMG points out that a few state-controlled mining companies are successful, such as Finnish Outokumpu and Malaysian MMC, and that the survival rate of the others will depend on how the state acts as an owner.

The common denominator of successful companies, whether state-owned or privately held, is always competent management with a clear vision of the overall goals. When state-owned enterprises fail, it is usually because vision and competence were forced to play second fiddle to politics and patronage.