Image: Financial Mail

No Caption

South Africa has mineral wealth equal to that of Australia and Russia combined, yet the mining sector is in decline owing to its inability to address fundamental obstacles to growth.

Regulatory uncertainty, government capacity, infrastructure constraints and lack of appropriately skilled people were highlighted at the Mining Indaba in Cape Town this week.

Because of inability to solve these problems, South Africa's mining sector shrank about 1% a year while mining sectors in other countries grew 5% a year on average, reaping the benefits of two commodity booms.

It is estimated that South Africa sits on mineral riches of $2.5-trillion, but under-investment has limited mining benefits.

IDC research and information head Jorge Maia said while the country had 88% of global platinum reserves, it extracted only about 0.4% of them, contributing a mere 13% to global platinum production.

Maia said that increasing this to 20% of world platinum production by 2020 would create an extra 98000 jobs in the platinum sector alone. If the country upped production to 25% by 2030, 172000 more jobs would be created.

In 1970, South Africa's mining sector contributed just over 12% of gross domestic product (GDP) growth and provided direct employment to 660000 people.

According to the IDC, mining now contributes only 8.6% to GDP numbers and direct employment has fallen below 500000.

National Planning Commission head Trevor Manuel said that under-investment in the mining sector could be attributed to a sort of "pessimism" around mining, owing to its strong ties to apartheid.

However, both Manuel and Mineral Resources Minister Susan Shabangu emphasised government's strong intentions to revitalise the industry.

IDC mining head Abel Malinga said the country's economic growth potential was outstripping its infrastructure capacity, especially its railways and ports.

"These kinds of infrastructure are especially needed for our bulk commodities, where South Africa still has a lot of room to grow. Diamonds and gold can be flown out, but these are slowing sectors of mining ... whereas areas such as manganese and chrome are 'sunrise' sectors."

The government has estimated it needs to spend up to R1-trillion over the next four years to upgrade infrastructure and create extra capacity for mining and other essential sectors to grow.

Malinga said the government should also consider public-private partnerships to increase spending and delivery.

Shabangu noted that mining still had the potential to alleviate unemployment, especially through the implementation of government's new beneficiation strategy, which she said was highly labour intensive.

The strategy, first mentioned at last year's Mining Indaba, highlighted five strategic minerals - platinum-group metals, iron ore and steel, manganese, coal and titanium - the government would like to focus on and ensure local supply security.

The minister would not elaborate on whether or not export tariffs or levies would be placed on these strategic commodities to ensure security of supply.

"We do not want to force mining companies to become manufacturers, but we do want to ensure that we do have access to raw materials when the country needs it for its own development," said the minister.

Malinga said mining should be used as a springboard for industrialisation and that beneficiation of minerals would be critical to achieving this. He said South Africa was falling behind the rest of the world in exporting beneficiated products, while it was still importing products manufactured from its own mineral riches.