SA labour must stop pricing itself out of global market

SOUTH African mining companies are bleeding jobs at an alarming rate.

Last month, Impala Platinum declared that it would be going ahead with a planned restructuring, which will see 1 500 jobs being lost at its Rustenburg operation. This came after the world’s second largest platinum producer announced in August that it would be closing five of its 11 mines near Rustenburg and shedding more than 13 000 direct and contract jobs over the next two years.

Last week, Gold Fields reported that it had been losing R6 million a day since November 2, when the National Union of Mineworkers (NUM) began a strike at its South Deep mine.

The NUM is trying to halt the retrenchment of 1 100 workers, but Gold Fields chief executive Nick Holland maintains that the cuts are an essential part of a broader restructuring and are necessary for saving the remaining 3 500 jobs at South Deep.

Meanwhile, striking Gold Fields workers have lost more than R55 million in total wages and earnings as the strike stretches into its fourth week.

Concerns also remain over the sustainability of 13 000 jobs at Lonmin as Sibanye-Stillwater acquires the struggling platinum miner.

Lonmin recently informed the Competition Tribunal that it would run out of cash in 18 months, forcing it to reduce its workforce in an attempt to salvage its struggling operation.

These recent developments reflect a broader trend of employment contraction in the mining industry. Consider that in 2008 there were 519 943 formal workers in the mining sector, according to Statistics SA’s Quarterly Employment Statistics. In 2018, this figure was down to 451 638, a decline of 9 percent of formal mining jobs over a decade.

Meanwhile, “illegal mining” has grown. By some estimates there are up to 30 000 illegal miners, or zama zamas, working covertly in 6 000 disused mines across South Africa under extremely dangerous conditions.

What explains the decline in formal employment in the mining sector?

The high level of unionisation is one explanation. Mineworkers are the most unionised workers in the country, with a unionisation rate of 82 percent in 2016, having risen from 72 percent in 2011, according to Statistics SA.

The workforce is also very militant. The Department of Labour’s (DoL) Strike Statistics Database reveals that in 2017 there were 18 strikes in the mining sector, amounting to 143 808 working days lost. In the same year the DoL noted that 71.5 percent of all mineworkers took part in work stoppages, leading to more than R137m in lost wages for workers.

Despite perceptions to the contrary, wages in the mining sector are fairly high, averaging R22 939 per month in 2018.

Compared to other sectors, such as manufacturing (R17 146) and construction (R14 885), mineworkers who are lucky enough to have a job are doing relatively well. The Minerals Council of SA estimates that the sector provides R126 billion in annual employee earnings, which helps to support approximately 4.5 million dependants.

However, higher salaries mean higher payroll costs for firms and fewer jobs to go around. The Minerals Council reports that labour expenses make up 30.5 percent of input costs for the mining sector. Although mineworkers have for many years received above-inflation salary increases, these do not correspond with increases in production.

Mining is also feeling the effects of many years of regulatory uncertainty. Incalculable damage was done to the sector by compromised former Minister of Mineral Resources Mosebenzi Zwane.

While the third iteration of the Mining Charter was welcomed in some quarters when it was eventually finalised in September by the new minister, Gwede Mantashe, there are still a number of provisions which hamper new investment in the sector.

For example, applicants for new mining rights are burdened with a 30 percent black economic empowerment ownership requirement, of which 5 percent must go directly to employees and 5 percent to mine communities.

The Fraser Institute, a Canadian policy think tank, produces an annual survey of the global mining industry.

In its 2017 survey, South Africa moved up to 48th position out of 91 jurisdictions covered in the survey. However, South Africa performed poorly in Fraser’s Policy Perception Index, a composite index which measures the effects of government policy on attitudes toward exploration investment.

Here, South Africa ranked 81st out of 91 jurisdictions (only ranking above Zimbabwe and the Democratic Republic of Congo out of the fifteen African countries included in the survey).

SA also ranked a miserable 87th out of 91 countries for the labour relations component of the Policy Perception Index. South Africa’s mining regulation framework needs a fundamental revision if these scores are to improve.

Mining in South Africa has historically been a labour-intensive industry, but jurisdictions like Finland and Australia are moving rapidly towards highly productive, automated operations.

If South African labour continues to price itself out of the global market, we can only expect job losses to continue. Alternatively, government can liberalise the labour market and place fewer regulatory burdens on mining companies to unlock much-needed investment in the sector.

David Ansara is the head of Bespoke Projects at the SA Institute of Race Relations, a liberal think tank promoting political and economic freedom.