Ramaphosa plan will not cure mining woes
The mining industry’s woes are set to continue unabated despite the introduction of an economic stimulus plan by President Cyril Ramaphosa and the adoption of the new Mining Charter, a subsidiary of Fitch Group warns.
The mining industry’s woes are set to continue unabated despite the recent introduction of an economic stimulus plan by President Cyril Ramaphosa and the adoption of the new mining charter, warned a subsidiary of Fitch Group.
The stimulus plan announced in September is unlikely to revive growth in the country’s mining sector, despite a R400bn infrastructure fund pledge and renewed mining regulatory clarity, Fitch Solutions Macro Research warned on Monday in a research note.
Fitch Solutions is separate from the credit rating agency Fitch Ratings.
“Ramaphosa’s drive to spur growth in SA’s mining sector is unlikely to result in a significant revival of an industry in secular decline,” reads the report.
The World Bank and Fitch Solutions have warned that the stimulus plan will have a “limited” effect.
SA is estimated to have the world’s fifth-largest mining sector in terms of its contribution to economic growth, accounting for 8% in 2017.
However, the sector has taken strain from persistent uncertainty, which has adversely affected production.
“These proposals will be ineffective in kick-starting investment in the sector as the domestic construction industry is set to contract next year, while the new mining regulations remain restrictive,” warns Fitch Solutions.
Among the challenges for the sector are low prices that are forecast for strategic commodities, a contracting construction sector, restrictive regulations and high operational costs that will stunt investment into the mining sector.
The latest iteration of the mining charter, which was eagerly anticipated, was announced in September.
“While the latest version of the charter will provide muchneeded regulatory clarity, it will largely fail to attract new investment as it remains more restrictive than the regulatory framework currently in place,” reads the report.
In particular, the new charter will increase compliance costs for miners, “offsetting the temporary boost to investor sentiment and any subsequent pickup in investment” from greater policy certainty.
“Along with policy certainty, the development of a competitive strategy for mining is crucial to encourage investment in the industry,” said Minerals Council CEO Roger Baxter last week at the Joburg Indaba.
Baxter estimated that SA’s mining investment could almost double in four years if the country was once again seen as one of the most attractive mining investment destinations.
This could create another 200,000 jobs in the economy, with 50,000 direct jobs created in mining alone.
The mining sector took another beating at the beginning of the third quarter as it battled the headwinds from policy uncertainty and a challenging global environment.
While the sector contributed positively to the GDP figures in the second quarter, mining production fell 5.2% in July.
It is expected to contract in August, according to analysts.
About 9-million people have lost their income or source of support over the past 15 years, as a direct or indirect result of the contraction in the industry, Webber Wentzel estimates.
As miners announce more job cuts, this figure is expected to grow.
Fitch Solutions expects that there will be meagre growth of just 0.8% in the sector from 2019-2022.
THESE PROPOSALS WILL BE INEFFECTIVE IN KICK-STARTING INVESTMENT IN THE SECTOR