IT WAS reasonable to assume, especially after Marikana, that mining companies, the government and labour were consulting about the future of the industry. Yet it seems that it didn’t happen. Instead, we have a row over the procedures to be followed by the industry and the government, rather than explanations of the effects on the national economy of proposed drastic cutbacks.
The point is that even though the contribution of mining to gross domestic product (GDP) and tax revenue has been falling steadily for some years, it is still a major indirect contributor to the economy. What happens in mining is therefore very much a matter of national interest. Yet the mining industry has always behaved like an enclave in the broader economy requiring special treatment. This was justified to some extent because of the huge investment and special skills needed, but its exclusive character has been overdrawn.
In the main, minerals have been extracted from deep levels, subjected to some basic processing and then exported as ores without a great deal of beneficiation or fabrication. For instance, we do not have substantial gold or diamond manufactured-products capabilities, despite having vast natural resources. This anomaly has never been explained.
The result of this restricted role of mining is a large gap between mining and manufacturing to the detriment of both sectors and to the economy. The value chain and linkages so necessary for efficient and competitive production of finished goods has been seriously undermined.
This separation is supported by the Chamber of Mines, which argues that mining is driven by inherited comparative advantages, such as mineral deposits or natural beauty, while manufacturing depends on competitive advantages. The chamber emphasises that a mineral resource endowment does not necessarily translate into manufacturing beneficiation. Further, the mining industry should not be required to subsidise manufacturing beneficiation or provide minerals below internationally determined prices. In practice, this means South Africa’s manufacturers have to pay import-parity prices to the mining companies — the same price paid by overseas manufacturers — which ensures that our manufacturers are not competitive. When this difficulty is added to the problem posed by cheap manufactured goods from China and India, South Africa’s manufacturing operates on a very uneven playing field. Its only hope is to find niche markets, where its specialised products may find space.
The isolation of mining from the total industrial value chain also has consequences for labour policy. Anglo American Platinum is mooting displacing 14,000 miners into other activities. But what broad training have they been given to enable them to switch to other jobs, especially in manufacturing? They have been confined to mines, so what skills could a rock driller bring to a production line?
A report by Citibank in 2010 asserted that South Africa has the largest mineral resources in the world, excluding oil, with an estimated value of $2.5-trillion. These are dominated by the platinum group of metals (88% of global reserves), manganese (80%), chrome (72%), vanadium (32%) and gold (30%). But partly due to declining ore grades in some sectors and ever-deeper mines, the value-add of mining was only 0.5% a year between 2001 and 2008. Further, there is little beneficiation, and trade with most parts of the world is characterised by the export of raw materials and the import of manufactured goods.
The contribution to government revenue has been in decline for a long time. Income tax payments from gold mines contributed 4.96% of GDP in 1980-81, but this fell to 0.16% in 1992-93. The contribution of other mines for the same years was 0.38% and 0.20% respectively. Presently, the most important aspect of the industry is the extent of its multipliers into the rest of the economy. These are substantial, but the mining industry could contribute even more to the development of other enterprises. We need to take a hard look at the potential for downstream processes if SA is to benefit from these mineral resources.
In June 2011, the Department of Mineral Resources developed a beneficiation strategy for the minerals sector, noting that "the composition of South Africa’s trade with most parts of the world is characterised by the export of raw materials and the import of manufactured goods". The document called for a "paradigm shift in mineral development" and sought to "advance development through the optimisation of linkages in the mineral value chain, facilitating economic diversification, job creation and industrialisation" and argued that it is possible to industrialise by leveraging natural resources, with the government driving beneficiation. However, the bulk of producers are in long-term contracts with their international clients. This is the pattern across Africa and is leading to calls for "resource nationalism" to ensure greater benefits from natural resources.
In December last year, the Cabinet approved a draft amendment to the Mineral and Petroleum Resources Development Act, which gave effect to its constitutional obligation (in section 24) to ensure that "the nation’s minerals are developed in an orderly manner" (and) provides for "the implementation of the approved beneficiation strategy through which minerals can be processed locally for a higher value".
The case for an increased role for manufacturing in the beneficiation of minerals is therefore compelling. This role would seem to be primarily suited to South African-based firms in the mining value chain. Such firms are more sensitive to national interests and more likely to co-operate in terms of producing for the domestic market, keeping economic rents under control, complying with tax rules, employing local rather than foreign managers and technical staff, and taking account of the social effects of their activities.
A wall seems to have developed between mining and manufacturing which stands in the way of creating an integrated economic base for the country. Yet co-operation could include such elements as agreed pricing, limited and selective protectionist measures by the government, co-operation in skills development, positive procurement in favour of domestic industry, and tax policies to encourage localisation.
The government is responsible for infrastructure, such as energy supply, roads, water, rail, ports, etc. These facilities should not only be for foreign firms that export raw ores, but also for the support of domestic firms in the value chain. This has been neglected in South Africa.
The licensing of mining to foreign firms may be a problem. As minerals in South Africa are formally public property, under the control of the government, conditions should be prescribed, such as providing a portion of mineral assets for beneficiation by historically disadvantaged firms and their communities, and local procurement.
The main message seems to be that we need to break away from the notion that mining is an enclave industry that must be treated with kid gloves. On the contrary, mining exploits a country’s endowment, which is ephemeral, and whose potential multiplier effect must be realised while it is thriving, not when it is in decline. This is best realised by rigorous analysis of the interface between mining and industrialisation.
• Turok, an African National Congress MP, has published extensively on mining in New Agenda and is a consultant to the United Nations Economic Commission for Africa.