Don’t kill goose that lays golden eggs

Mining helps SA look after its own but NGOs — along with state’s shortcomings — stifle resource companies

Nothing illustrates the extent of desperation among poor people more than the recent crash of the SA Social Security Agency system when it was crowded with applications for the Covid-19 relief grant.

That SA, with its severely constrained fiscus, still manages to assist the poor cannot be taken for granted — certainly not when more than one rand of every five the government collects in taxes has to pay off debt.

SA has been able to reinstate the Covid-19 relief grant despite its nearly dry coffers because of improved mining taxes caused by high commodity prices.

“Looking after our own is not just a cost, but is an investment that we should see going forward,” said former finance minister Tito Mboweni while announcing the reinstatement of the Covid-19 relief grant. It will cost R26.7bn to provide the relief until March 2022.

In other words, the upswing in the commodity cycle is helping all of us to “look after our own”.

The importance of mining has not only been good for increased taxes — and by extension social grants — but has also helped the local currency strengthen by keeping the trade balance in surplus.

The strength of the rand means the economy is cushioned from inflationary pressures of imported economic inputs or consumables. This is probably good for the SA Reserve Bank’s decision to keep interest rates low in an attempt to revive the economy. The longer interest rates stay lower the better.

The mining sector stands as a buffer against what would otherwise be a nightmare for a long-suffering economy. Stagflation — no growth with high inflation — is not what any country wants. Its synonym is Zimbabwe.

The leading role of mining is not new. Mining has historically been the main driver of SA’s economic development and industrialisation. No diversification has happened to substitute its strategic role.

Yet, despite the clear strategic importance of mining, there is no sign that the sector is treated in a way that demonstrates appreciation of its significance. As a result, we are not realising the full potential of the role mining can play “to look after our own”. The constraints are many, affecting the whole mining value chain. A few are worth noting.

The first is the failure by government officials to implement President Cyril Ramaphosa’s directive to speed up the approval of mining licences. Regulators in various departments are holding back the potential employment of hundreds of thousands of people in mining.

BOTTLENECKS

They are posing a threat to the sector’s output for decades to come and in the process constraining the state’s capacity to ramp up revenue collection from new or expanded mining operations. Ironically, state officials are curtailing the possibility of increasing their own pay packages, as the state’s revenue constraints are used during bargaining to slow down the public sector wage bill.

The second is logistics bottlenecks. Though Transnet remains the best-performing state-owned company, it is proving unable to keep up with the needs of the mining sector as locomotives are limited and, in many instances, struggle to keep to schedule. The export coal line has showed shortcomings.

Other minerals have also been affected. An executive of an iron ore mining company has even suggested that there might be a need for a wellresourced private sector entity to take up a stake in Transnet. Most likely, the comment was made to send a message to Transnet that it can do better.

Of course, Transnet should be doing better. When SA failed to take advantage of the commodity upswing cycle of the early 2000s, logistics bottlenecks were cited as the reason. Transnet responded by initiating what it termed a market-demand strategy.

In terms of this strategy its capacity would be expanded in line with the market.

This strategy brought about improvements but it was not executed intensively enough. Some mining operators fear they might need to cut back or delay new investments due to the logistics capacity constraints. This will no doubt have dire consequences for our ability to “look after our own”.

The third is Eskom’s failure to provide cheap and reliable power supply to smelters. This means SA is unable to beneficiate its minerals locally. Despite the governing party’s policy to ensure local beneficiation — and therefore increase the job creation capacity of the economy — it appears the gap between us and other globally competitive countries that beneficiate minerals is too wide.

In fact, our capacity to beneficiate has been declining despite access to the minerals. This, on its own, means we are not fully exploiting our potential to “look after our own” as we should. Instead, we are diminishing it.

The fourth is the new dimension of state capture. While state capture is largely associated with the Guptas, there is another form that is subtly taking place: nongovernmental organisations (NGOs), usually with transnational links, dictate the pace in the issuing of domestic business licences such as environmental authorisations and water use licences.

While NGOs generally play an important role in society (for example, the wonderful work done by Gift of the Givers), not all of them promote the idea that we need to “look after our own”. A number of NGOs are in effect blocking applications through the bureaucratic approval processes and in the courts. This capture of the state’s authority to issue licences is happening under the guise of ensuring accountability.

In reality, it is stifling the state’s capacity to fulfil its obligation to citizens in terms of advancing socioeconomic rights. A number of mining companies that contributed to the windfall the government is extending to the most vulnerable in our country would not be operating if it were according to the wishes of the NGOs. Many companies are lucky that they started operations long before the unnoticed capture of the state’s licensing authority.

Still, if we are not careful, and if we don’t act now, this new dimension of capture will, in the long run, kill the goose that’s laying SA’s golden eggs. These four issues need the urgent attention of the government and industry players to ensure mining can make a contribution to its fullest potential, and in so doing can fulfil the deep humanitarian goal espoused by Mboweni — to “look after our own ” .

THE MINING SECTOR STANDS AS A BUFFER AGAINST WHAT WOULD OTHERWISE BE A NIGHTMARE FOR THE ECONOMY

NGOS, USUALLY WITH TRANSNATIONAL LINKS, DICTATE THE PACE IN THE ISSUING OF DOMESTIC BUSINESS LICENCES