No necessity to reinvent the policy and regulatory wheel

AFTER the publication of the State Intervention in the Minerals Sector (SIMS) report — and on the eve of the African National Congress (ANC) policy conference — there could be no better time for the partners in the industry to come together in consultation about the future.

The policy choices SA will make over the coming weeks and months will have a profound effect on the future of the mining industry. Those choices must be made wisely. We are at a crossroads. There is a clear path that will lead to prosperity and there are blind alleys we must avoid.

With the threat of nationalisation behind us, there are still important policy choices to be made. In making those choices, the government and political parties must be guided by the need to create a climate for mining that is globally competitive, making SA the destination of choice for mining investment.

The proposals contained in the SIMS report must be considered against that objective. The starting point is the need for policy stability and predictability. Mining companies make huge capital investments for the long term. They simply will not make those investments if there is a fear of arbitrary and unpredictable regulatory change.

For policy makers, there is always a temptation to believe policy reinvention will find the magic answers that have eluded us in the past. But so often the solution lies in implementing effectively the policies that are already in place, rather than tearing them up to make way for something new.

This is the case in relation to the fundamentals of mining regulation in SA. A huge amount of work has been done by the government. We should build on those foundations, not change them. In the words of Mineral Resources Minister Susan Shabangu: “The fundamentals that we have built since 1994 have been correct. The building blocks are there.” To change those fundamentals now, in the manner proposed in the SIMS report, would be extremely damaging to international perceptions of SA — par- ticularly if the change involved tampering with the constitution. The path to prosperity lies in completing the implementation of the regulatory framework already in place rather than in creating something new.

A stable regulatory framework, fairly and efficiently applied, needs to go hand in hand with a simple, stable and fair fiscal regime. The system of taxes and royalties needs to provide for a fair and appropriate sharing of risk and reward. It needs to encourage the responsible development of the mining sector and to recognise the long-term and capitalintensive nature of the investments the industry makes. The SIMS report contains proposals for a new resource rent tax. It argues that the proposed new tax is necessary to ensure that the state benefits appropriately from the profits the mining industry earns.

Yet the existing royalty regime was introduced for exactly this purpose. Combined with the existing system of taxation, it already ensures a fair distribution of the benefits of mining. Further changes to the fiscal regime would create a grave risk of making SA internationally uncompetitive.

The next important task is to ensure the provision of the physical infrastructure the mining industry needs. For too long, the development of SA’s mining industry has been hampered by infrastructure bottlenecks. To develop to its potential, the industry needs adequate rail, port, energy and water infrastructure. The potential to boost the production of coal, iron ore, manganese and other minerals is enormous if the right infrastructure is provided. The recognition in the report that partnership between the public and private sector is crucial to future infrastructure development is welcome.

Likewise, the SIMS report is right to highlight the importance of skills development, particularly in maths and science. Education and skills are just as important to the future of our industry as rail, ports, energy and water. With the right policies and infrastructure in place, I am convinced the private sector can develop a mining industry that continues to grow its contribution to SA’s development. This does not preclude the government from also being an active participant in the industry.

And the SIMS report’s idea of a sovereign wealth fund also has merit, provided that it is funded from existing taxes and royalties and is structured as a mining development fund focusing within SA. But the government should be wary of swimming against the tide of the global market in determining the sectors in which SA can best compete.

SA has a world-class mining industry that can compete with the very best. But it does not follow that SA is well placed to compete in all the industries that make use of the minerals we mine. The critical point is that beneficiation always needs to be based on a sound business case. It is vital that the benefits of mining should help to create a broadbased and robust economy beyond mining itself. But this can only be done by allowing the market to focus on sectors in which SA has a genuine competitive advantage.

SA’s policies must take account of the reality of global competition. The SIMS report sometimes loses sight of this fact. Similarly, elements of the report are based on a false dichotomy between mining for export and mining for the domestic market.

SA has plentiful mineral resources that are more than capable of growing exports and providing the commodities for which there is a real demand domestically. A thriving export business is in fact essential to support investment in domestic supply. Restrictions or taxes on exports would simply harm the mining industry without contributing to broader economic development.

The SIMS report has praiseworthy goals for the development of the mining sector and the broader economy. But the road to ruin may be paved with good policy intentions. Existing legislation and policies, if combined with the right investment in infrastructure and skills, already support the achievement of the SIMS goals.

Having commented on the path I believe the government should follow, I now want to make clear the commitments I believe the mining industry should make. I will be inviting the chief executives of the other major mining companies in SA to join me later this month, and I will propose that we make 10 key commitments, in a Pledge for SA:

A commitment to redouble our efforts to achieve zero harm in the mining industry;

A commitment to promote health in the workplace and in the broader community;

A clear commitment to making mining a positive force in the environment;

A renewed commitment to employment equity in our industry;

A commitment to support education and skills development in the community;

A commitment to use the power of mining to create jobs;

A commitment to complete the transformation of the ownership of our industry;

A commitment to improve housing for all of our employees;

A commitment to use local procurement to support South African businesses; and

A commitment to be transparent and to hold each other to account.

SA has everything it takes to lead the world in mining, beginning with its people. If we are all committed and we all work together in true partnership, the future will bring enormous success, both for the mining industry and for SA as a whole.

Carroll is CE of Anglo American. This is an edited version of her address to the recent Mining Lekgotla.