Political leadership needed to maintain mining's lustre
Where gold has faded, other metals can shine well into the future, but the industry needs reliable, long-term policy
Could the mining industry regain its former glory? It once was responsible for a fifth of SA’s economic output (in 1980) and employed 760,000 (in 1987). It led the world in terms of volumes but also technology.
The mining industry of today is nothing like that. In 2016 it was responsible for just 7.6% of GDP, and has shrunk since then. It is now firmly in recession, with production falling 9.9% in the first quarter of 2018. Employment has fallen to under 400,000.
Mining, by definition, declines. Each kilogram mined is one less available for future mining. It tends to be the cheaper resources that are accessed first, so costs tend to increase over time. Also, as economies develop, mining has to compete for labour and other resources with other industries. Both factors work against mining industries over time.Britain’s coal industry, for instance, employed 500,000 people in nearly 500 mines across the UK in the 1960s. By the 1990s it employed just 13,000 in 16 mines. Today, even those are closed. That decline was driven primarily by the increased cost of labour and the exhaustion of cheaper-to-access resources.
Is the decline of mining in SA of this inevitable sort? In some sectors, yes.
Gold mining, once by far the biggest producer in the world, has been in decline for years as resources become more difficult to access. Already SA has the deepest mines in the world. Employment in gold mining fell from 380,000 in 1995 to 120,000 10 years later.
Proving their mettle
But the experience of the gold mining industry does not extend to mining as a whole. Other sectors have risen.
Platinum has experienced dramatic growth over the past two decades, while coal, manganese and iron ore have also been increasing.
Stats SA estimated in 2015 that there were just 39 years of available gold resources, but there are 248 years of reserves of platinum group metals and 116 years of coal reserves. Resources of ferrochrome, chrome, zinc, iron ore and manganese are also extensive.
There is clearly a base of resources that will continue to support mining as a key plank of the South African economy for a long time. The real issue is whether we are able to co-ordinate the rest of the economy fully to leverage this foundation.And that’s where there are real question marks.
It takes clear political leadership to make it happen. Institutions have to be aligned, ensuring that mines have access to the skills, energy resources and transport links. Industry has to be co-ordinated to ensure it can absorb mining output and beneficiate it. Services and trade links have to be created to ensure such output reaches international markets.
Unfortunately, the mining industry has been beset by dreadful and confused political leadership for some time, reaching an absolute low with former Mining minister Mosebenze Zwane. And that, more than the declining resources and shifting cost structure, is why mining has not retained its important role in the economy.
The economy needs to have all its cylinders firing if we are to deal decisively with unemployment and inequality. The services sector has been the one area of growth that has kept the economy ticking over such as it has.Mining and industry have been shrinking in absolute terms, but even faster in relative terms. That pattern has to change.
The Ramaphosa presidency, and with it the appointment of Gwede Mantashe as Mining minister, has created a potential inflection point in this sorry history. There is a great deal to be done.
Mantashe arrived with promises to break regulatory logjams that have beset the industry for more than a decade. These include amendments to the Minerals and Petroleum Resources Development Act and a revised mining charter. So far, he has managed to push the mining charter into a new draft. Unfortunately, it has not dealt with the key obstacles the industry faces.
The industry needs clear, long-term and reliable policy if it is to commit the billions of dollars needed to drive projects that will have lifespans in the decades. The charter proposes free equity in projects of 5% for employees and communities. That is a straightforward capital surcharge. It simply means fewer projects will be “bankable” and therefore there will be less production and employment.
The industry is in a pitched battle against the new draft charter and no serious investment is going to take place until it is settled.The mining industry needs serious political leadership. It needs careful planning and co-ordination, with a focus on reducing obstacles to new projects, including skills, infrastructure and energy, and promoting linkages with the rest of the economy.
We used to have the right mechanism to deliver coordination and planning: the National Development Plan. The NDP needs a resurgence to reestablish its role as the guiding vision for the economy as a whole. President Cyril Ramaphosa was one of the architects of the plan. He needs to put it back at the centre of national policy.