BUSISIWE MAVUSO: Mining Indaba shows Mantashe has to get cracking

POSTED ON: May 17, 2022 IN by Admin
mining mining

By Busisiwe Mavuso

The lack of investment in the mining sector reflects investor concerns over persistent regulatory uncertainty.

If the Mining Indaba made one thing clear it is that mineral resources & energy minister Gwede Mantashe has an urgent “to do” list. The economic destruction taking place across the two sectors, minerals and energy, is alarming.

The crisis in energy is due primarily to insufficient supply, and the measures taken to get new energy onto the grid are proving entirely inadequate, as persistent load-shedding keeps reminding us. The reasons for the decline of SA’s mining sector seem simpler to resolve. We need to sort out long-running policy uncertainty and address red tape blockages. Like the energy crisis, the problems didn’t begin with Mantashe, but there seems to have been little to no progress in finding solutions.

The mining sector has been declining since its peak in 1980, when it contributed 21% of GDP and employed 792,745 people. It has fluctuated between 5% and 10% of GDP since the early 2000s, and in 2021 it was at 9.1% of GDP, pushed up by the recent commodities boom but with employment at only 458,954.

Part of the reason for its lower contribution to GDP is that the SA economy became far more diversified after economic sanctions were lifted in the early 1990s. But in the context of the commodities supercycle from about 2002 to 2015 — lasting well after the global financial crisis of 2007/2008 — it is clear that mining’s growth is not what it should have been.

During that period China’s demand for commodities seemed insatiable and SA had lots of the minerals it wanted. Other countries with large minerals endowments such as Australia and Canada have taken advantage, expanding supply and growing their economies, while we have not.

Production plunge

The lack of investment in the mining sector reflects investor concerns over persistent regulatory uncertainty, including having a dysfunctional measurement of transformation after courts upheld the once empowered, always empowered principle.

Anything that can be done to get the economy going needs to be done immediately. Yet despite buoyant commodity prices, mining production plunged 9.3% year on year in March after a 5.8% fall in February.

While policy uncertainty stemming from amendments to the Mineral & Petroleum Resources Development Act and Mining Charter has been a long-running issue, there are more fundamental constraints caused by red tape.

We hear from the Minerals Council SA that minerals companies have R30bn of capital projects waiting for regulatory approvals, and there are 4,500 outstanding mining and prospecting licences. Mining exploration in SA has recently been in free fall: in 2019 it was -9% in real terms; in 2020 it was -18.3%, and -11.4% last year. SA now accounts for just 1% of global mining exploration spending, despite its large minerals endowment.

In the absence of exploration this is a sunset industry that will exhaust its current reserves, leaving the economy and employment substantially worse off.

Another blockage to efficiency and an investment deterrent was raised last week — delays in procuring a functioning and transparent cadastre system. This maps the boundaries of every farm or piece of land, setting out what licences have been awarded to which prospectors for what minerals, and also allows for new applications to be transparently processed. SA hasn’t had a working mining cadastre system for 10 years. The Minerals Council says a properly functioning cadastre is the foundational tool that is critical to rejuvenating mining exploration in the country.

Missing opportunity

Business Day reported last week that the State Information Technology Agency (Sita) is blaming the mineral resources & energy department for the lengthy delay in procuring a new cadastre system, and questions were raised by the auditors over the integrity of the procurement process. Five department officials make up the majority of the tender committee. Sita MD Luvuyo Keyise said the issues raised by the auditors are “serious”.

Again we are enjoying a phase of booming commodities prices due to global supply shortages, and again we are missing the opportunity. The Mining Indaba heard that mining companies are prepared to increase their investment in projects in SA by 84% if the government tackles the dysfunction plaguing the processing of mining permits and approvals for self-generation projects, as well as the constraints facing the country’s rail and ports. The latter has resulted in miners being unable to export their coal and other minerals because of bottlenecks.

The backlog in exploration permits is an issue that can easily be addressed. It is not ideological and does not require any difficult conversations between business and the government. It just needs organised and active interventions to get agreed processes and systems working. Until that happens, SA will keep receding further from the thoughts of international investors.

The Mining Indaba’s purpose was to attract investment, but it perhaps served instead to highlight why investment is not occurring.

• Mavuso is CEO of Business Leadership SA. This article first appeared in Business Day.

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