COMMENT: Why is South Africa’s mining industry like the rhino?

South Africa’s mining sector is shrinking rapidly, whereas other African countries are growing with the commodity boom. “Like rhinos, mining in South Africa is set to become something of the past,” Mike Schussler, chief economist at Economics.co.za, said.

South Africa’s mining sector is shrinking rapidly, whereas other African countries are growing with the commodity boom. “Like rhinos, mining in South Africa is set to become something of the past,” Mike Schussler, chief economist at Economists.co.za, said.

The Mining Lekgotla in Johannesburg, which took place on June 5-6, was set up by South Africa’s chamber of mines, the ministry of mineral resources and the National Union of Mineworkers to facilitate an understanding of the risks and opportunities that miners face in the country.

There was sharper focus on the former than the latter as a common theme emerged: that the South African mining industry is an industry in trouble. Its portion of GDP has been declining, and despite the commodity boom, loose monetary and fiscal policies, as well as a weak rand currency, the country’s mining sector has shrunk, not grown, by some measures.

Mining’s contribution to GDP has declined between 1974 and 2011 to 6%, from 14%. Looking at foreign direct investment as a percentage of GDP, it becomes clear why this has been happening. Investment has been increasingly going to South Africa’s neighbours, such as Botswana, Ghana and Zambia.
The numbers are going down...
“This is a sector in decline,” Ernie Lai King, executive and international tax specialist at African law firm Edward Nathan Sonnenbergs, said. “We have a problem here.”

He told Metal Bulletin that Chinese companies are “very serious” about Africa, but becoming less so in South Africa. “The Chinese find South Africa very, very difficult to operate in,” he said. “More and more of the new wave of Chinese investors, the private investors, are seeing South Africa merely as a place to extend into Africa.”

...and the perils are numerous
South African mineral deposits are hard to access, making extraction costly.

Add to this a disjointed regulatory process, government policy uncertainty, environmental hurdles, labour costs and union activism, as well as a host of other costs, generally higher than anywhere else in Africa.

Established South African companies such as Exxaro and African Rainbow Minerals are expanding further into Africa, although they assure Metal Bulletin that South Africa remains strategically important. But executives note that their businesses must lower their exposures to South Africa’s regulatory, business and political risks.

South Africa is attempting to preserve its rhinos.

It must make similar efforts to ensure that its mining industry does not go the same way as the magnificent thick-skinned pachyderm, struggling, surviving, but never flourishing.

Here are three suggestions as to how it might:

  • Political, regulatory and fiscal stability
  • Government and mining companies must start working with, not against, one another. Government must work harder to incentivise for investment in the sector, while companies must do more to create a skilled labour force and attractive working conditions.
  • Meetings such as the Lekgotla and Mining Indaba should come up with concrete proposals to create a business-friendly environment.

Bianca Markram
editorial@metalbulletin.com

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