Firm footing key to mining wealth
Botswana case proves the sector flourishes under policy certainty
MODERN-DAY South Africa was built on mining. From the discovery of diamonds and gold in the late 19th century, mining spurred the development of railways, ports and roads, stimulated the manufacturing sector and established banking, accountancy and legal services.
With sound policy, mining can continue to help expand skills, foster innovation, encourage entrepreneurship and lay foundations for an increasingly urbanised, service-oriented and consumption-based economy.
Today, mining’s major contribution to society lies in five key spheres.
It helps to attract the foreign direct investment needed to establish new businesses and expand essential infrastructure.
Mining generates jobs, especially for people with limited skills. In 2015, mining provided 440 000 jobs, plus another 750 000 indirectly linked to mining. This empowered more than a million households to put bread on the table, and mitigated youth unemployment running at over 50%.
Mining generates export earnings that pay for oil and other essential imports. Without mineral exports, the current account deficit would widen beyond the current 4.4% of GDP. The rand’s value would drop sharply, leading to price increases on many basic goods and services.
Mining contributes to tax revenues through corporate income tax, mining royalties, VAT and customs duties. This supports the government’s delivery of essential services to millions of households.
Lastly, procurement by mining companies empowers the growth of thousands of small and medium businesses.
However, mining’s contribution has recently been diminishing. Since 2011, mining has shed about 145 000 jobs and a further 30 000 retrenchments loom. The decline to 35% of exports may be difficult to reverse.
Tax contributions have declined, as mining profits have fallen from 8% return on equity in 2011 to almost nil in 2015. This is because of falling global commodity prices, and also rising electricity and other costs.
In 2015 the UN Conference on Trade and Development noted sharp declines in “resource seeking” investment into southern Africa as the commodity super-cycle ended.
Of the $38-billion (R565-billion) invested into Africa across all industries, South Africa drew only $1.5billion, compared to $3.8-billion for Nigeria and $3.4-billion for Mozambique. In addition, many majors are reducing rather than expanding their operations here.
The mining industry spends R405-billion on goods and services and provides a vital market for Transnet and Eskom. If mining procurement shrinks, the knock-on effects will impact negatively on thousands of small and medium businesses.
Other African mining countries also confront the global commodities slowdown, but are doing better than South Africa. Even in the boom years from 2001 to 2008, South Africa’s mining industry shrank annually by 1%, compared with average growth of 5% in top mining countries.
Particularly stark is the contrast between South Africa and its neighbour Botswana, which has fewer mineral resources. In 2015, the Fraser Institute ranked South Africa 66th out of 109 mining countries, whereas Botswana ranked 39th.
Much of the reason for Botswana’s success is its mining legislation, which it amended in 1999 to remove policy uncertainties that were discouraging investment.
In the case of competing applications, in Botswana the licence is awarded to the applicant whose mining plan “will make the more beneficial
There is no conflict between the industry’s interests and the country’s prosperity
use of the mineral resources of the area”. A licence lasts for 25 years, is renewable for another 25 years, and can only be cancelled in limited circumstances.
Botswana has reaped substantial benefit from mining policy reforms. South Africa can do the same if it addresses mining policy that gives excessive scope for varying interpretation and uneven enforcement, and moots harsh penalties for non-compliance including stiff fines, prison terms for directors and loss of mining rights.
There is no conflict between the industry’s interests and the country’s prosperity. Sound policy would unlock massive new mining investment that would support job creation, establishment of new businesses and the higher tax revenue that the government needs for expanded social development. This is the future that the mining industry wants to make possible for South Africa.
Froneman is CEO of Sibanye Gold