Investors and jobs will come if Zuma does the right thing
THE deadlock over rising wage demands, declining productivity and the shrinking contribution to gross domestic product (GDP) in South Africa’s mining industry over the past decade must urgently be broken.
Without a swift resolution, South Africa cannot notch up the economic growth of a rapidly developing nation, which is needed to create jobs, deliver essential services and reduce poverty. To achieve this, President Jacob Zuma will have to deploy leadership to help revive the declining industry and to lock in policy stability to attract investors.
This policy problem goes to the heart of the definition of presidential leadership: how to change a country in a changing world. Zuma has, to date, not calculated the opportunity cost of the crisis in the mining industry. South Africa has the world’s richest mining reserves. With every day that passes, our comparative advantage in this sector declines against other emerging economies.
Zuma’s inaction on the decline of the mining industry’s competitiveness and poor labour relations could, as an unintended policy by-product, leave South Africa vulnerable to a second credit-rating downgrade. This will make the cost of state borrowing to fund current expenditure more expensive.
Last August, Zuma’s lack of decisiveness since taking office was, I argued, the major contributor to the crisis that preceded the Marikana tragedy. Today, international criticism of Zuma’s failure of leadership in the mining crisis is as severe as that coming from his political opposition.
South Africa needs a healthy and functioning mining sector; an industry in which people want to work and investors want to invest. To place the sector on the path to full productivity, Zuma’s first step must be emphatically to state that the government will never seize platinum mines. This requires telling Mineral Resources Minister Susan Shabangu to withdraw her irresponsible remark that it might do so. It is disturbing that our unstable northern neighbour, Zimbabwe, is considered by many investors to be safer than South Africa.
"We are exploring various options to expand production, including building a new mine that could cost up to $400m," Colin Chibafa, the chief financial officer of Anglo American Platinum’s (Amplats’s) Zimbabwe unit, said recently. In contrast with South Africa’s closing mines, Chibafa said production would "possibly double" after construction of the new mine.
This does not legitimise "rent-seeking" or the 1970s’ "heavy hand" of government. Rather, it symbolises a damning indictment of how volatile our mineral resource policy environment is perceived by mining houses. At Davos and beyond, Zuma must guarantee that South Africa will not tilt towards the resource nationalism of Venezuela’s Hugo Chavez.
Zuma’s second action must be to manage and persuade his own party base — from the African National Congress (ANC) Youth League to the Cabinet.
His government’s competence is constrained by three factors: the lack of a coherent policy tool kit; the absence of the confidence of industry investors; and an inadequate understanding of the geopolitical dimension of mineral resource policy. Because of the untapped potential of the minerals sector for job and wealth creation, the government must show a solid grasp of the portfolio’s strategic importance. It must also look at comparative models of what our competition is doing.
The government’s delay in amending the Mineral and Petroleum Resources Development Act continues to feed policy uncertainty. The desultory proposals canvassed in the ANC’s State Intervention in the Minerals Sector document, published a year ago, worsen the tension. Zuma must roundly reject the "supertax proposal" to penalise mining houses that pass a predetermined profit level. In a modern economy without borders, how can a technocrat determine what rate of profit should be the cut-off point, or manipulate demand and supply curves for them not to have a negative effect on tax receipts?
Nearly every government of the left, right and centre rejected this statist style of intervention in the 1980s.
This is not to argue that the government or society can be indifferent in the face of the suffering of mine workers and their loved ones. We must show compassion to communities whose livelihoods are vulnerable to the economic weather. And we must do everything necessary to ensure mining does not imperil workers or leave families subject to neglect and financial uncertainty. We must ensure that cash remittances get back to the many families in need in rural South Africa. And we must mitigate against health risks. We stand on this precipice precisely because the government has forfeited the human and community dimension in its policy formulation. The recent announcement that Amplats had decided to cut 14,000 jobs was devastating. It is unclear to what extent trade unions are pricing themselves out of the market: rising wages must be accompanied by improvements in productivity. Among other mitigating factors, Amplats’s decision reminded us that the era of the "job for life" is long gone. Most people will change jobs several times in their working lives. This means that, instead of reactionary rhetoric, Zuma needs to set out a 21st-century vision of how the government will lead the process of ensuring working people acquire new skills.
The key lesson here is that mineral resource policy cannot be developed outside the context of the foundational basics of economics, especially the law of diminishing returns. This is why Zuma must direct the government to provide simplified and compliance-friendly mining regulations. Predictability must be the name of the game.
If the government applied the rules consistently while slashing red tape and reforming unwieldy labour legislation, foreign investment would follow. These are the principle steps to end the present malaise.
What are the visionary steps the president should take?
As in Chile, a new policy regime should be reorientated from the narrow emphasis on how to "beneficiate" mineral resources towards accelerating production and opening mines. The present policy focus puts the cart before the horse.
For generations to come, South Africa’s present mining crisis will provide a textbook case of one of the classical downsides of globalisation: capital is footloose and fancy free. Governments cannot make wealth creators stay under adverse circumstances. But policy uncertainty can make them leave.
The flip side of globalisation’s march is the unprecedented trade opportunities. In addition to other boosters, the rest of Africa’s startling economic growth is due to China’s inexorable hunger for natural resources.
In his state of the nation address next month, Zuma must provide a joined-up policy: an overarching narrative to balance the extraction of South Africa’s mineral resources with the human-rights push of the constitution. This includes environmental safeguards.
A credible 2011 report maintains that, with the right regulatory framework, South Africa could at least double production of mineral resources over the next five years. This would add 100,000 direct and 500,000 indirect jobs to the mining sector, while preventing further labour attrition.
A winning policy for South Africa’s mining industry can and must be made. If Zuma acts with clarity and speed, the Democratic Alliance (DA) stands ready to drum up buy-in throughout South Africa and internationally.
• Mazibuko is the DA’s parliamentary leader.