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20 October 2014
 

 

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Article by: Terence Creamer
 
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South Africa, at long last, is moving beyond the chaotic mine nationalisation debate and is beginning instead to concentrate on how the country’s still substantial unexploited mineral resources should be turned to full socioeconomic account.

The African National Congress’s ‘State Intervention in the Mining Sector’ paper, also known as ‘Sims’, seeks to frame the debate in the context of how mining could be deployed as a lever to help deal with the country’s prevailing ‘trilemma’ of chronically high unemployment, entrenched poverty and growing income inequality.

The genuinely well-intentioned paper eschews nationalisation, but still includes a number of proposals that will make for uncomfortable reading within the industry.

One of the highlights is a proposal to use tax policy to ensure that a greater share of the ‘resource rents’ are extracted for the benefit of society, including deploying some of these rents, through a sovereign wealth fund, to invest in long-term projects. Also discussed is the building of a State mining company, or companies, to develop ‘strategic minerals’; improving government coordination, possibly through a ‘super Ministry’, to enhance backward and forward linkages in the way mineral assets are managed; having public tenders or auctions for all known mineral deposits; and, crucially, facilitating downstream industries to add value to the minerals ahead of export. It is even proposed that, in some cases, export taxes should be instituted to encourage local value addition.

Reading between the lines, it becomes apparent that the authors hope to integrate any beneficiation plan with South Africa’s reindustrialisation aspirations. However, the point is not given dramatic emphasis.

On that score, the increasingly influential Manufacturing Circle has made an input on the beneficiation issue. In its latest quarterly bulletin, the organisation asserts that the prevailing “downstream conception” of beneficiation could restrict the potential to derive the maximum economic benefits from the country’s key mining sector.

Beneficiation, it argues, should rather be about maximising the socio- economic benefits from the country’s mining industry in terms of employment, economic growth, multiplier effects in related industries, taxes accrued and socioeconomic developments. To achieve this goal, all the upstream and downstream linkages in the mining value chain should be considered, including mining supply industries, the inputs involved in the extraction and processing of the minerals, the application of these minerals to downstream industries, as well as the spin-off in related industries, such as water, power, transport, chemicals and telecommunications.

The bulletin also notes that it was precisely these sorts of linkages that had driven South Africa’s economic diversification during the twentieth century – a process that had, undoubtedly, been underpinned by the country’s mining activities. Recognising the strong link between beneficiation and further industrialisation would help the country gain greater advantage from its remaining unmined resources, which had a current estimated value of about $2.5-trillion across a range of commodity categories.

What is not in doubt is that South Africans need to engage critically with the ideas raised in the Sims document. In some instances, the concepts espoused may be found not only to be well intentioned, but also economically sensible. Some, such as the proposed export taxes, may fall outside South Africa’s World Trade Organisation commitments, or even some of our bilateral trade agreements. Yet others, such as the proposal to auction off known mineral resources, may be theoretically feasible, but unlikely to make much impact in a country where, by and large, the known economically viable mineral resources are already concessioned.

That said, there are also some proposals that should be discarded altogether.

Edited by: Terence Creamer
 
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