SOUTH Africa has abundant commodity riches but a number of stumbling blocks continue to hamper its ability to reap the benefits. Chief among these hurdles is regulatory uncertainty. If investors are going to pour substantial investment into sinking shafts, for example, they need to know the key regulatory frameworks on which they based their investment decisions will still apply 20 years or more down the line.
Over the past couple of years, that certainty has not existed in South Africa. It was initially undermined by vociferous calls for the nationalisation of the mines, and now plans for a review of mining taxes are causing consternation. Feedback from the African National Congress’s national conference at Mangaung in December last year put the nationalisation issue to rest but the government certainly has not brought certainty to the mining industry at a policy level.
A number of issues have heightened this uncertainty in recent months. First, some of the proposed amendments to the Minerals and Petroleum Resources Development Act are problematic as they seek to give the minister greater discretionary powers rather than the reduced powers for which the industry has been calling.
Other drafting issues have also caused confusion. For example, the amendment bill to the act suggests ministerial approval will be needed for the disposal of any interest in a company that holds mineral rights, no matter how small such interest may be. Certainly this is not what was intended? The bill also seems to aggravate previous issues that have troubled the industry, such as the potential for the granting of two or more separate mining rights for associated minerals over the same property.
As with the review of mining taxes, the thinking behind a number of the proposed changes to the act seems noble, but the lack of clear policy-making is doing damage in the interim.
Investors are wary of South Africa and the risks associated with the country. Many potential investors at the recent Mining Indaba in Cape Town suggested they would rather invest in the likes of the Democratic Republic of Congo or even Zimbabwe. This does not necessarily suggest that those countries are safer destinations, but rather that their risk-return profile remains attractive.
South Africa, on the other hand, is seen as high risk but without commensurate returns. Illegal strikes, violent union rivalry, the Marikana tragedy and soaring costs have fanned those perceptions of risk. Threats to revoke mining licences aren’t helping.
But all is not lost. The government is at least starting to address the severe lack of investment in infrastructure that saw South Africa lose out in the previous mining boom. Finance Minister Pravin Gordhan has an opportunity in his national budget, to be announced on Wednesday, to enforce some of the certainty that President Jacob Zuma says his government aims to provide to the mining sector. It is a chance for him to at give greater clarity on any proposed changes to the tax regime for mining companies.
Also, now that the mining industry has been given a chance to comment on the amendment bill, the government can still clarify the ambiguities in the proposed amendments to the Minerals and Petroleum Resources Development Act.
When all is said and done, if South Africa can get the right, stable policies in place, it has the geology, infrastructure and human skills required to become once again Africa’s investment destination of choice.
• Frankish is an investment banker at Bravura.