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Yesterday the Australian parliament imposed a new 30% tax on iron ore and coal miners. This is an opportunity for South Africa to attract investment in these sectors to our shores, and take back the market share we have lost to Australia.

South Africa has proven mineral reserves of US$2.5 trillion – more than any other country on earth. Iron ore and coal are important contributers to this by volume, but our production is today dwarfed by Australia. In 2009, Australia contributed 19% of global thermal coal exports, and South Africa 9%. In iron ore exports Australia contributed 39%, South Africa 5%.

In order to rebuild mining in South Africa it is imperative that we capitalise on our new cost advantage relative to Australia. We call on Finance Minister Pravin Gordhan to implement a three-step plan to attract investment in this sector:

The first step is for the Minister to put a moratorium on any new taxes in the mining sector until we make back the ground South African mining has lost in the past decade. In the middle of a global mining boom where most mineral-wealth countries have seen mining output increase by 5% a year, our mining output has been contracting at 1% a year. The ANC’s talk of increased taxation on mining puts the cart before the horse: South African mining needs resuscitating before we can consider recouping more taxes from the industry.
The second step is for the Finance Minister to meet with Public Enterprises Minister Malusi Gigaba as a matter of urgency in order to dramatically increase the share of Transnet’s R300bn infrastructure build plan earmarked for private participation. Last week Minister Gigaba announced that private participation in the programme would be only R5bn-R8bn – a pitiful 2,6% of the total programme. Mobilising private capital is the number one way to quickly and affordably scale up the infrastructure required by South Africa’s iron ore and coal miners.
The third step is to significantly increase state funding for mining research and development (R&D). Countries that successfully utilised their mineral wealth as a base from which to diversify their economies spend roughly 4% of their GDP on R&D. Our spending, by contrast, is 1% of GDP. Although the Finance Minister has recently allocated additional funds to the Council for Geoscience and Mintek (South Africa’s national mineral research organisation) these amounts should be doubled in future budgets.

The Australians’ decision to introduce a new mining tax presents a rare opportunity for South Africa to claw back market share in iron ore and coal, but in order to do so the Finance Minister needs to strike while the iron is hot to make our country an appealing destination for mining investment.