When the African National Congress’s Youth League laid out plans to organize a march for “economic freedom mass action” last week, it was little surprise that the Chamber of Mines was its first port of call.
The league, led by Julius Malema, its militant president, has been the most vocal in calling for the nationalization of mines, ostensibly to share more equitably the country’s mineral wealth and tackle poverty.
His statements have triggered a debate that has added to a cloud of frustration hanging over an industry that should have been enjoying one of its rosier chapters, as commodity prices have soared over the past decade.
Half the world’s top-20 mining companies have operations in South Africa, which has the world’s fifth-biggest mining sector by gross domestic product value, according to the Chamber of Mines.
It is also well-placed geographically to take advantage of the shift in demand from the Atlantic theatre to India and China.
During the 2001-2008 commodities boom, the world’s top-20 mining countries achieved an average mining growth rate of 5 per cent a year, while South Africa’s sector shrank 1 per cent a year, according to the chamber. “Given the facts and our position as one of the world’s most significant mineral resource nations, one has to ask what has happened to South Africa and its mining industry over the past seven years,” Mark Cutifani, chief executive officer of AngloGold Ashanti, told a seminar last month. “How did we miss the commodities boom and why are we at risk of missing it again?”
The decline is partly the result of the maturing nature of the country’s gold mines, which are becoming deeper and more expensive to work, with production halving since 2001 to about 192 tons a year.
But other factors have hampered the industry. “Energy constraints, inadequate transport capacity and uncertainty in the regulatory environment have held back progress,” said Pravin Gordhan, the finance minister, last week. “In contrast, mining production expanded by 30 per cent in Australia and 44 per cent in Brazil between 2003 and 2010.”
The nationalization debate is amplifying the industry’s woes, even though senior officials insist Mr. Malema’s views do not represent government policy.
“We must declare repeatedly that nationalization of the mines is a seriously bad idea,” Trevor Manuel, national planning minister, told a business dinner two days before the league’s march.
“There are no fiscal resources available through taxes or borrowing to pay for mines or invest in them, even if government were to get these mines gratis.
“So our responsibility must be to remove obstacles to investment. We need investment, jobs and taxes if we are to raise living standards.”
The ANC has, however, directed a team to look into the merits of nationalization, which is due to report its findings at the party’s policy conference in June, 2012. Ian Cockerill, executive chairman of Petmin, a Johannesburg-based company, says: “If you start to talk about nationalization, it will frighten off international investors who are already a bit wobbly.”
Some have suggested the sector brought the debate on itself by not transforming itself quickly enough in the post-apartheid era. Yet as the arguments rage, the expropriation of mines is unlikely.
But even if the debate dies down, the industry will continue to struggle to reach its potential, so long as infrastructure constraints remain.
For bulk commodities, such as coal and iron ore, rail capacity has been a big bottleneck. In coal, for example, the industry relies on the state-run Transnet rail service to ferry coal to the port at Richards Bay for export. But while the port has a capacity of 91 million tons a year, the rail network could only cope with 63 million tons last year.
Roger Baxter, a former chief economist at the Chamber of Mines, says annual production of iron ore and manganese could double if the right infrastructure was in place – from about 53 million tons and 7 million tons, respectively.
Another issue that affects the entire sector is electricity, with Eskom, the state-owned utility, struggling with limited capacity while raising tariffs by 25 per cent, adding to cost pressures.
Both Transnet and Eskom have expansion programs in place to address shortfalls, but not at the pace to assuage fears that the country will miss out on the latest boom, as global economic concerns cast doubt on the durability of the cycle.
On the positive side, South Africa has the advantage of a strong mining culture and is home to about 80 per cent of the world’s proven platinum and manganese reserves.
The industry remains crucial to the country’s economic health, accounting for about 8 per cent of gross domestic product directly and 20 per cent indirectly – up to 50 per cent of foreign earnings and jobs for about 500,000 people, according to industry estimates.
Mr. Baxter says the government has in recent years shown a greater willingness to address some of the sector’s difficulties.
The main thing, however, will be whether words translate into action to prevent the mining sector slipping further behind its competitors.
“The underlying potential is huge and all parties have got their role to play – public and private sectors,” Mr. Baxter says. “But it’s critical to start focusing on the underlying bottlenecks.”
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