The Venetia mine, South Africa. Photo: Mujahid Safodien / AFP / Getty Images
South Africa started as an unassuming
way-station for Dutch ships sailing to the Dutch East Indies, but it
rose to prominence thanks to its immensely rich mineral deposits.
Beneath the country’s sweeping landscape
lies 80 per cent of the world’s platinum, 48 per cent of its palladium,
17 per cent of its manganese and 17 per cent of its gold. The coal and
iron deposits are said to be among the best in the world, along with a
wealth of tin, chromium, titanium and vanadium.
Citigroup has valued South Africa’s
mineral resources at $2.5 trillion – more valuable than Russia’s,
Australia’s, and Canada’s. It is questionable, however, whether that
wealth will ever be exploited.
My first column for Cato Institute, in 2002 was titled Well-Intended South African Mining Charter Is Recipe for Disaster.
It dealt with a recently agreed charter of understanding between the
African National Congress government and the mining industry. The
measure’s stated goal was to “empower the previously disadvantaged”
groups through racial quotas in both employment and the ownership of
mining companies’ stock.
In my column, I argued that the charter
wouldn’t work. Instead of helping the poor, it would drive down profit
margins and the mining companies would be forced to cut their costs by
hiring fewer employees.
South Africa’s inflexible labour laws, I
argued, would further exacerbate the concerns of potential investors, as
would the recent nationalisation of South Africa’s mineral rights. Both
these factors would make long-term returns on investment more
uncertain.
I concluded that the expansion of South
Africa’s mining giants into Canada, Latin America and Australia, needed
to be seen in the light of that increasing uncertainty. Though they were
far too cowardly to admit to it publicly, the mining companies were
hedging their bets.
In January 2003, the South African Chamber of Mines took out an advertisement in the Southern African edition of the Time Magazine. The advertisement quoted heavily from my article, attacking both me and my conclusions.
Dr Iraj Abedian, a director and chief
economist of the Standard Bank Group of SA, described the charter as “a
significant step toward normalizing the socio-economic environment –
dealing boldly with South Africa’s skewed distribution of wealth and
income… it will be a giant step towards reduction of investment risk in
South Africa.”
Roger Baxter, chief economist of SA
Chamber of Mines, noted that as a result of the charter, “mining
companies …[could] operate in a framework of certainty” and anyone
thinking otherwise “has not done his homework”.
I still cherish those comments. Then, last
week, I came across a new report from the South African Institute of
Race Relations (SAIRR), the country’s oldest think-tank, entitled Mining in SA: Then, now, and into the future. It made for a depressing reading.
According to John Kane-Berman, the
much-respected scholar who wrote the report, “the South African mining
industry shrunk between 2001 and 2008 by 1 per cent a year, whereas the
top 20 mining exporting countries averaged growth of 5 per cent a year.
The mining industry … was smaller now than in 1994. Roger Baxter [yes,
the same Roger Baxter who accused me of not doing my homework] of the
Chamber said the industry’s real GDP had shrunk by 2.9 per cent between
that year and 2015… [This decline] coincided with one of the greatest
bull runs in commodities, starting in 2002 and ending in 2012, that the
world had ever seen.”
While I do not have data to calculate the
drop in the mining sector employment between the signing of the charter
and the present day, Berman notes that the number of jobs in mining
decreased by almost 30 per cent between 1990 and 2015. Revealingly, the
ANC government is aware of the job losses that occurred on its inept
watch.
As Jessie Duarte, deputy secretary general
of the ANC, said in 2014, “Lost employment in the mining industry,
considering the low skills base of labour it employs, translates into a
further burden on the country’s social wage. It adds to the depression
in the labour-sending areas that are already destitute.”
Given its wealth of resources, surely
South Africa should benefit from future commodity price increases. But
it might not, according to the SAIRR report. “Very few of the mineral
rights awarded in recent years to junior mining companies were being
utilised by their recipients. There was next to no exploration
happening. There was also a risk that most of the assets would remain in
the ground because there was no funding, investors having been kept
away by government policies, regulatory uncertainty, and a hostile
labour regime.”
Since the ANC came to power in 1994, the
private sector has brown-nosed the government. Instead of cooperation,
however, it has earned the ANC’s contempt. And each time the private
sector gave in to the government’s demands, those insatiable predators
who govern South Africa came back for more.
Today, Berman writes, “The mining industry
is at a crossroads. It has spent considerable sums on social and labour
plans and also on empowerment, but this has not satisfied the
government. There are even suspicions in the industry that some of the
government’s demands are designed to make life so difficult for mining
companies that they will sell out to chosen political favourites.
“One former executive of a major company
told the writer of this paper [i.e., Berman] that he and some of his
colleagues believed from the early days of the Mining Charter that they
should take a tougher stance towards government demands. However, he
said, theirs was a minority view. Now, however, some mining executives
believe the time for appeasement is over.”
I sure hope so, but fear that it might be far too late.
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