In 1994, South Africa completed the monumental shift out of the oppressive apartheid system and towards democracy in an attempt to tilt the scales towards freedom and equality.⁽²⁾ Under the direction of the newly elected African National Congress (ANC), led by Nelson Mandela, the country attempted to change the policies and patterns formulated under apartheid to not only grow the economy, but also ensure that the economy was equal between whites and blacks, offsetting the enormous gap between them created under white-minority rule.⁽³⁾ South Africa soon emerged as a regional and continental economic power, rising to the pinnacle of fiscal strength in Africa, with a total gross domestic product (GDP) purchasing power parity (PPP) of US$ 578.6 billion in 2012.⁽⁴⁾ This economic prowess led to its inclusion in the G20 since its inception in 1999, as well as joining the emerging markets group BRICS in 2011, along with Brazil, Russia, India and China.⁽⁵⁾ The initial focus of the rapid economic growth was the mining industry, representing 9% of GDP in 1994 when apartheid fell.⁽⁶⁾ Mining also contributed heavily from 2002-2008 when the country experienced its greatest economic growth since the inception of democracy, averaging 4.5% annually, bringing the country into prominence as a leader on the continent.⁽⁷⁾ Mining’s contribution since then has been less than bountiful, and its record marred in controversy.

Many challenges have confronted the mining industry recently. In 2008, the global market crashed sending the price of commodities plummeting. The average price of platinum alone dipped from US$ 2,048 an ounce in May of 2008 to US$ 834 by December.⁽⁸⁾ As the world’s leading producer of Platinum Group Elements (PGE), the reduction in the overall commodity’s value considerably damaged the South African economy.⁽⁹⁾ Couple this with the growth of secondary and tertiary industries and the overall contribution by mining to the country’s PPP dwindled.⁽¹⁰⁾ In addition, recent mine worker strikes have revealed many mine employees’ harsh working conditions and the low pay that they receive.⁽¹¹⁾ Also, wavering government policies towards the industry have scared off many international investors who judge the uncertain future as a deterrent towards long-term investing.⁽¹²⁾ This CAI article explores mining in South Africa, current government policies and the ongoing dispute between labour unions and mine owners to outline the various explanations for the rapid decline in the importance of mining to the country’s economy and future. It then examines the different solutions that have been offered to show ways in which this former backbone of the South African economy can return to prominence under an umbrella of fair and safe practices for all involved.

The history and economics of mining and minerals in South Africa

Mining in South Africa dates back thousands of years as the gold trade created a link to the Persian Gulf and Arabian Peninsula.⁽¹³⁾ However, it was not until the mid-nineteenth century, with the arrival of the British, that the serious exploitation of valuable gold resources began.⁽¹⁴⁾ In the late 1800s the combination of the discovery of the Witwatersrand Goldfields and the 21 carat Eureka diamond propelled a massive influx of fortune seekers and exploitation of valuable minerals on an enormous scale that would catapult South Africa to the threshold of global mining prominence.⁽¹⁵⁾ The discovery of both gold and diamonds led to the rapid development of infrastructure and overall industrialisation of the country, making South Africa by far the most developed country in Sub-Saharan Africa.⁽¹⁶⁾ This was followed in the 1920s with the discovery of platinum along the Merensky Reef.⁽¹⁷⁾ The mining and production processes were expanded throughout the twentieth century and became a staple of the economy by the mid-1930s.⁽¹⁸⁾ The combination of these three major exploits formed the backbone of a burgeoning economy that would expand manufacturing and develop into the largest fiscal centre on the continent. The lengthy experience in the mining industry formulated a well-oiled machine, capable of tapping the abundance of resources and transforming those riches into resources for development.

Presently, South Africa holds some of the richest mining reserves on the globe, with a total value worth approximately US$ 2.5 trillion, granting it the fifth largest mining sector in terms of GDP value.⁽¹⁹⁾ There are also several areas within its border that remain unexplored, increasing the potential for overall value.⁽²⁰⁾ Furthermore, on top of producing the most PGEs globally, South Africa is currently the largest producer of gold and chromium, the fourth largest producer of diamonds and the fifth largest producer of coal.⁽²¹⁾ South Africa has also managed to supplement its production capacity with processing facilities that manufacture carbon steel, stainless steel and aluminium.⁽²²⁾ Furthermore, according to the Chamber of Mines, the industry creates over one million jobs both directly and indirectly and accounts for 20% of the country’s investment.⁽²³⁾

However, despite the relative success of the mining industry throughout its rich history, the industry has slowly tapered off since the global economic crisis and the drop in platinum value.⁽²⁴⁾ In addition, major labour concerns and the enormous gap between both rich and poor and black and white have damaged the industry to a virtual breaking point. Uncertainty about regulation has curbed future investment, bringing the issue to a crossroads and the forefront of the global stage.⁽²⁵⁾

The plight of mine workers

On 16 August 2012 striking mine workers seeking higher wages clashed with police outside of the Lonmin Marikana platinum mine. After claiming to feel threatened, police forces fired upon the crowd leaving 34 dead and 78 injured in the worst case of police brutality since the fall of apartheid.⁽²⁶⁾ The workers were seeking a raise from ZAR 4,000 (US$ 440) per month to ZAR 12,500 (US$ 1,380). This event, labelled the Marikana Massacre, brought to light the harsh realities endured by the average mine worker in South Africa. Only three days after the massacre Lonmin issued an ultimatum that the remaining strikers must return to work or face termination, a move many of the striking workers viewed as an insult to the memory of their deceased colleagues.⁽²⁷⁾ Investigations into the incident are ongoing, but instead of charging police, 50 mine workers were charged with the murders. These charges were later dropped following a public outcry.⁽²⁸⁾ In the end, Lonmin conceded to a 22% raise for the striking workers, but the damage had already been done.⁽²⁹⁾ The murdered workers have become global martyrs to the plight of the average miner.

This was not the first time miners and mining companies have butted heads with the police involved. The 1946 strike saw black workers - at that time receiving a twelfth of the pay of white workers - abandoning their posts to strike in favour of pay increases. This also ended in bloodshed, as nine miners were left dead; 100 000 workers were forced to return to work without concessions.⁽³⁰⁾ However, this event took place under the oppressive apartheid government; in a new democracy, tragedies such as this are supposed to be a thing of the past.

After the Marikana Massacre, other major standoffs between mining companies and mine workers surfaced.  A few months later, platinum mining giant Anglo American Platinum (Amplats) dismissed 12,000 striking workers in the face of an illegal strike.⁽³¹⁾ They were eventually reinstated with a ZAR 2,000 (US$ 220) hardship payment. This eventually calmed many of the nationwide wildcat strikes that slowed the mining industry.⁽³²⁾ However, recently another strike erupted at the volatile Marikana mine as workers displayed their defiance in front of journalists, pleading for better conditions and still higher pay.⁽³³⁾

Working conditions are generally poor and unsafe; more than 120 miners died as a result of accidents in 2011.⁽³⁴⁾ In addition, rising inter-union violence between the new Association of Mineworkers and Construction (AMC) and the more established National Union of Mineworkers (NUM) has occurred over accusations that the NUM caters too much to mine owners’ needs.⁽³⁵⁾

With workers’ strikes sending production plummeting across the mining industry, the effects on the market, and hence the economy, have been twofold. First, with production slowing beyond levels of sustainable profitability, companies are exploring alternative options to their interests in South Africa.⁽³⁶⁾ Amplats has discussed closing two mines and selling another they have deemed unprofitable, a move that would cost 14,000 workers their jobs.⁽³⁷⁾ Harmony Gold, one of the country’s largest gold producers, suspended operations in December 2012 citing security concerns.⁽³⁸⁾ Second, this uncertainty in the labour market has deterred future investors, creating a possible scenario in which current mines may abandon their endeavours in South Africa, without being replaced. The workers are justifiably upset given the choice of enduring dangerous conditions and low pay or leaving the mine to face a 25% unemployment rate and even more poverty.⁽³⁹⁾ Unfortunately, wavering government policies have further damaged the industry, its production and credibility.

Government policies and their effects

Another thorn in the side of mining industry profiteers and regulators is the general language and behaviour of the government when it comes to regulation and laws that govern the industry. The Mineral and Petroleum Resources Development Act (MPRD), passed by parliament in 2002 and put in force in 2004, has changed the common law practice of acquisition and use of mineral rights, granting more power to the state when it comes to natural resources.⁽⁴⁰⁾ Designed as recompense for past exclusionary policies against black workers, it has been criticised for being too vague and ambiguous, leaving little precedence for applicants seeking or utilising mineral rights.⁽⁴¹⁾ While this Act is in the process of being amended, as it stands now, some investors are wary of speculating in South Africa until these issues are resolved.⁽⁴²⁾

In addition, while the Black Economic Empowerment (BEE) programme was designed to require mining companies to divest in favour of black South Africans, the mining industry has fallen well short of complying with the standards set by the programme.⁽⁴³) Mining is not the only area where black South Africans are feeling the plight of racial inequality, as the average black South Africa earns one sixth the salary of a white person, faces higher unemployment and increased poverty.⁽⁴⁴⁾ However, the conditions and equality measures introduced by the government are being ignored by big business, bottom-line mining corporations. This has led many to call for the nationalisation of the mining industry.⁽⁴⁵⁾ While the government, in the face of scrutiny from big business threats, has labelled nationalisation as a “last resort;” in June of 2012 an ANC conference adopted an open-ended resolution calling for “strategic nationalisation, where deemed appropriate.”⁽⁴⁶⁾ The move was reportedly supported by six of the nine provincial representatives and is heavily backed by the ANC Youth League.⁽⁴⁷⁾ The sudden nationalisation of the industry is what most scares investors.

In addition, problems with electricity supply have increased the cost of operating, making the mines less profitable.⁽⁴⁸⁾ The state-owned, and only, power utility company is encouraging companies to limit production to prevent power cuts.⁽⁴⁹⁾ After faults at the Cape Town nuclear plant and a decrease in energy imports from Mozambique due to flooding, the winter of 2013 will limit production in the mining industry already facing a dire situation on the ground.⁽⁵⁰⁾ All of these challenges have created a situation that leaves the industry with more questions than answers. Even with the recovering price of platinum, the overall balance among profit-seeking mining companies, a reeling economy stricken with high unemployment and poverty levels, a strong union presence and a government seeking re-election, has the once-giant industry crumbling under the weight of so many variables.

Conclusion and possible solutions

The rapid decline of the mining industry - once the economic giant of South Africa - is indeed alarming. When other countries achieved increased financial strength during a recent mineral boom, South Africa’s production declined.⁽⁵¹⁾ The industry itself represents only between 5-8% of GDP currently, when at one point it represented over 20%.⁽⁵²⁾ The last thing the country needs is mining companies to close their mines, adding an influx of unemployed miners to the already dire unemployment situation. However, things must be done to hold mining companies accountable for their actions. Underpayment of labourers and poor working conditions cannot be tolerated in a rapidly emerging economic country such as South Africa. The government must take the initiative to solve the problem from the bottom up. A recent State Intervention in the Minerals Sector (SIMS) report determined that outright nationalism of mining concessions is “totally unaffordable” if granted by full market value compensation, and unconstitutional without full market value.⁽⁵³⁾ In addition, state leaders, including President Jacob Zuma, have dismissed the prospect of total nationalisation of the mining industry, a move that prompted mining companies to breathe a sigh of relief, knowing their interests will not be seized without compensation.⁽⁵⁴⁾

The SIMS report did, however, propose a more active role by the state, if not total control, with or without compensation. It recommended the creation of an independent government entity to regulate and grant prospecting and mineral rights, a system that has fruited success in Ghana over the last 15 years, and could provide transparency and efficient judgement in the industry.⁽⁵⁵⁾ The SIMS report also proposed a new state mining company that would receive preferential treatment for exploration and development.⁽⁵⁶⁾ This move may scare some potential private investors, but more funds generated from the minerals would stay in state, a move that could be beneficial long-term. The report also suggested increased rents on excessive profits, which is a sound idea, but how that money is spent remains the true paradox.⁽⁵⁷⁾ There is a need for more funds to be appropriated towards education and job prospects to help build the shaky economy.

Ultimately, at the heart of the issue is who will possess the upper hand. For years the mining companies have bullied their workers and the state with a strict bottom line and over production - which drove prices down in the first place. They then used the excuse of overproduction to explain that they could not increase wages when negotiating with unions.⁽⁵⁸⁾ Now that the price of platinum has rebounded, the wage increases continue to be fought tooth-and-nail by mining companies which seek only to profit from the sudden jump. The lingering challenges facing the mining industry remain a balancing act. While more money doled out to the workers and the state would seem beneficial on the surface, the problem of scaring mining investors and speculators into taking their business elsewhere has the potential to be a catastrophic problem, especially in the gold and diamond industries, where mining companies have alternatives. The platinum industry must carry the day and provide the stable backbone to offset or marginalise the losses in other mining sectors. By possessing over 80% of the world’s platinum, and the demand for the substance in manufacturing still strong, mining companies and investors will be forced to tap the abundant resources South Africa provides, as they have few alternatives.

Holding this power ensures that the state can ultimately dictate the terms and conditions with which companies can operate. If big business mining is unwilling to bend to the state’s demands, then a form of nationalisation may be the key to counteracting any companies that choose to vacate their interests. Creating a wholly separate entity to dole out fair rights and concessions is a necessity to encouraging increased private investment. One solution to prevent a total nationalisation by encouraging some private investment to stay would be to provide price breaks on power for companies that fall within regulation guidelines. Given the exorbitant cost of powering a mine, this could encourage better regulations within the industry. However, the most important issue continues to be workers’ rights.

In the end, the government must walk a fine line between generating profits for the state and curbing the mounting poverty that has become rampant throughout the black population, and the mining industry is vital to at least maintaining the status quo as their departure would see already high unemployment numbers soaring even higher. However, dangerous and squalid conditions in the 21st century are simply unacceptable for an emerging economy. Low pay for labourers in potentially unsafe situations is simply unacceptable. Police and security forces need to use more restraint when attempting to utilise crowd-control techniques.

The inequalities between black and white were supposed to be ushered out with the end of apartheid, however little real progress has been made. This must be addressed not only in the mining sector, but across the nation. The government must take a stand to right these wrongs. Whether through semi-nationalisation, increased state profits appropriated for social programmes or stricter regulation for mining standards, the government must realise that finding a balance between profit and humanity remains the most paramount of issues. With an already staggering unemployment rate, the potential for mine closures resulting in fewer jobs is a frightening proposition. However, if the companies do not want to provide safe and reasonable terms of employment, then the government must intervene. Hopefully they can manage this juggling act soon before the industry as a whole collapses under the pressure.

Written by Daniel R. Donovan ⁽¹⁾

NOTES:

(1) Contact Daniel R. Donovan through Consultancy Africa Intelligence’s Africa Watch Unit ( africa.watch@consultancyafrica.com). This CAI discussion paper was developed with the assistance of Claire Furphy and was edited by Nicky Berg.
(2) Ncube, M., Shimeles, A. and Verdier-Chouchane, A., ‘South Africa’s quest for inclusive development’, African Development Bank Group, May 2012, http://www.afdb.org. 
(3) Ibid.
(4) ‘Country comparison: GDP per capita (PPP)’, CIA World Factbook, 1 July 2012, https://www.cia.gov. 
(5) ‘About G20 member countries’, Russia G20, 2013, http://en.g20russia.ru; ‘New era as South Africa joins BRICS’, SouthAfrica.info, 11 April 2011, http://www.southafrica.info.
(6) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(7) ‘South Africa GDP growth rate’, Trading Economics, 26 February 2013, http://www.tradingeconomics.com.
(8) ‘Platinum prices historical’, Goldmasters USA, 2 April 2013, http://goldmastersusa.com.
(9) ‘South Africa’, CIA World Factbook, 26 March 2013, https://www.cia.gov.
(10) Kearney, L., ‘Mining and minerals in South Africa’, SouthAfrica.info, 9 August 2012, http://www.southafrica.info. 
(11) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(12) Ibid.
(13) ‘The story of South Africa: Mining’, BBC World Service, http://www.bbc.co.uk.  
(14) Ibid.
(15) Short, R. and Radebe, B., ‘Chapter 2: Reserves to Doré: The gold mining industry’, Gold in South Africa, February 2008, http://www.goldinsouthafrica.com; ‘The history of diamonds in South Africa’, Diamond Source, 2009, http://www.diamondsource.co.za.
(16) Ibid.
(17) Jones, R.T., 1999. Platinum smelting in South Africa. South African Journal of Science, 95(11/12), pp. 525-534.
(18) Ibid.
(19) Kearney, L., ‘Mining and minerals in South Africa’, SouthAfrica.info, 9 August 2012, http://www.southafrica.info. 
(20) Ibid.
(21) ‘South Africa’, CIA World Factbook, 26 March 2013, https://www.cia.gov; Kearney, L., ‘Mining and minerals in South Africa’, SouthAfrica.info, 9 August 2012, http://www.southafrica.info; ‘Coal mining’, World Coal Association, 2011, http://www.worldcoal.org.
(22) Kearney, L., ‘Mining and minerals in South Africa’, SouthAfrica.info, 9 August 2012, http://www.southafrica.info.  
(23) Ibid.
(24) Leon, P., ‘South African mining industry at the cross roads’, Address to African mining network, 14 July 2012, http://led.co.za.
(25) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(26) Ibid.
(27) Neate, R., ‘Striking South African miners face ultimatum from company’, The Guardian, 19 August 2012, http://www.guardian.co.uk.
(28) Maseko, N., ‘Marikana mine strike: South Africa court frees miners’, BBC News, 3 September 2012, http://www.bbc.co.uk.
(29) Chikanza, T., ‘Marikana agreement signed’, Lonmin, 18 September 2012, https://www.lonmin.com.
(30) Webb, C., ‘History of South Africa’s cheap labour economy: The 1946 miners strike and the Marikana Massacre’, Global Research, 21 August 2012, http://www.globalresearch.ca.
(31) Harding, A., ‘South Africa's mine owners flex their muscles’, BBC News, 5 October 2012, http://www.bbc.co.uk.
(32) Lakmidas, S. and Herskovitz, J., ‘S.African mine strikes wind down with Amplats deal’, Reuters, 27 October 2012, http://www.reuters.com.
(33) Lakmidas, S., ‘Lonmin miners strike in South Africa, unnerving investors’, Reuters, 5 March 2013, http://www.reuters.com.
(34) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(35) Kermeliotis, T., ‘New violence clouds future for South African mines’, CNN, 21 February 2013, http://edition.cnn.com.
(36) Ibid.
(37) Ibid.
(38) Ibid. The mine is expected to resume operations in the winter of 2013.
(39) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(40) Leon, P., ‘South African mining industry at the cross roads’, Address to African Mining Network, 14 July 2012, http://led.co.za.
(41) Ibid.
(42) Kermeliotis, T., ‘New violence clouds future for South African mines’, CNN, 21 February 2013, http://edition.cnn.com.
(43) Leon, P., ‘South African mining industry at the cross roads’, Address to African Mining Network, 14 July 2012, http://led.co.za.
(44) Cohen, M., ‘South Africa’s racial income inequality persists, census shows’, Bloomberg, 30 October 2012, http://www.bloomberg.com.
(45) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(46) Ibid.
(47) Ibid.
(48) Kermeliotis, T., ‘New violence clouds future for South African mines’, CNN, 21 February 2013, http://edition.cnn.com.
(49) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(50) Hall, K., ‘South African mining threatened by electricity shortage’, Mining.com, 24 March 2013, http://www.mining.com.
(51) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(52) Ibid.; Kearney, L., ‘Mining and minerals in South Africa’, SouthAfrica.info, 9 August 2012, http://www.southafrica.info.
(53) Leon, P., ‘South African mining industry at the cross roads’, Address to African Mining Network, 14 July 2012, http://led.co.za.
(54) ‘In the pits’, The Economist, 25 August 2012, http://www.economist.com.
(55) Leon, P., ‘South African mining industry at the cross roads’, Address to African Mining Network, 14 July 2012, http://led.co.za.
(56) Ibid.
(57) Ibid.
(58) Stoddard, E., ‘South Africa mining to shed jobs in troubled times,’ Reuters, 6 February 2013, http://www.reuters.com.