ANC denies legislative uncertainty in mining
ONE OF THE major problems that afflict South Africa’s mining industry is one that is identified as such across the political spectrum. In documents and reports from the National Development Plan to the utterances of the Chamber of Mines, those involved in the South African mining industry deliver a common plea to make the industry one worth investing in: a plea for legislative certainty.
As all explain, mining is a long-term investment with a pay-off that is often uncertain. That means loads of risk. One way to mitigate that is to be sure that halfway between when the money is put down and when profits start coming back, the government does not suddenly change the rules, so what was thought to be a profitable investment turns out to be a loss.
One battered investor told me he almost did not care how bad the legislation was, as long as the industry knew what it was dealing with. Predictable problems can be provided for, unpredictable ones can turn a good project into a millstone.
Even the disastrous Mineral and Petroleum Resources Development Act (MPRDA), currently mouldering away in legislative limbo, pretends to aim to end uncertainty, while actually opening the way to ministerial carte blanche that would be at best capricious and at worst, massively corrupt.
So if everybody agrees on the aim, the big question is: Why can’t the government get it right, and at a stroke leap over a major block to investment and secure and grow South Africa’s mining industry?
To answer this question one has to first answer another that too few people have bothered with, perhaps because they are afraid of the answer. That question concerns the ANC’s vision of an end-state for the mining industry. At the end of its seemingly endless transformation of the industry, what would the industry look like?
Glib reassurances
If one looks beyond the glib reassurances of the investor conferences to what party policy documents say and what ANC leaders say to their own constituency, the answer would most realistically be something between a massive state-owned mining company, or companies, and some private ownership with a larger or dominant black economic empowerment (BEE) ownership component. There is a great deal of ANC talk about increasing the state’s ownership of, and involvement in, mining. There are explicit calls for the state mining sector to be given regulatory advantages over private sector miners.
At the same time, the mining charter is due to be rewritten. A senior Department of Mineral Resources official has refused to deny that such a rewriting would include an increase in the percentage of BEE ownership required from its current 26 percent.
It is likely that the ANC is being both coy and obtuse about its aims, because it realises that the only place it can raise the large amounts of investment capital needed for a flourishing industry is the private sector. That investment would not be realised if the potential investors knew the industry would be one where its control was vested in the hands of the government and its BEE cronies. Therefore, the ANC needs to conceal its real intentions.
The government’s behaviour in presenting the MPRDA and its intention to rewrite the mining charter are clear evidence that the ANC has not changed its aims, and has only changed tactics. It is hoping for the frog in a boiling pot effect, that has the mining investors gradually growing used to less and less favourable circumstances, but settling for less and less return in order not to lose what they have already invested.
While not entirely incorrect, because market sentiment will always get used to new conditions, the ANC is also fundamentally misunderstanding capital markets. While they may be swayed by short-term circumstance and sentiment, the cold, hard calculations are inevitably done, and the value of a country as an investment destination, priced accordingly. So there will be no certainty, because it is not in the ANC’s interests for there to be certainty. It requires flexibility to keep continually changing. It is moving the goalposts, but is unwilling to let on to where.
Downward spiral
The mining industry has been squeezed to such an extent that the pips are squeaking. Bad legislation, badly implemented, in combination with the worldwide crash in the prices paid for minerals, has sent most of the industry into a downward spiral. Yet there is little sign the ANC realises that to halt the downward drift it needs to abandon its long-held vision for mining.
The discussion at this week’s National General Council still revolves around the old, discredited fantasies from beneficiation to mineral export taxes. It is arguable whether the ANC is capable of any major policy adjustments, trapped as it is in its dirigiste paradigm. It is a paradigm from which there is no escape without massive leadership talent, which does not appear on even the most distant of its horizons.
If the ANC does not realise the spiral it is in, South African mining faces a future of just a few megaprojects, made viable by extraordinary deposits, and a handful of short-term, under-capitalised, regulation-skirting carpetbaggers plucking the best parts out of deposits and rendering the rest unviable. This poses an incalculable threat to hundreds of thousands of jobs, to the balance of payments and to tax revenues.
(The ANC) is hoping for the frog in a boiling pot effect, that has mining investors gradually growing used to less favourable conditions.