Unshackled, the South African mining industry could be a world beater
Even the DRC is seen as a better mining investment destination than SA, but that can be changed
SA’s attractiveness as a destination for mining investment in Africa is on the verge of rock bottom.
SA ranks 84th out of 104 jurisdictions in the latest 2016 survey of the attractiveness of countries for mining investment. The survey is released by the Fraser Institute, a Canadian think-tank that measures various indices of economic freedom.
In Africa, we keep poor company: of the 15 African countries included in the survey, SA is seen as a more attractive mining investment destination than only two others: war-torn South Sudan and economically straitened Zimbabwe. If the Harare Spring results in real reforms in that country, Zimbabwe could well leapfrog SA as a more attractive mining destination on the continent.
Even countries such as the Democratic Republic of Congo (DRC) sit above SA as a mining investment destination of choice. Without a change — and in more than just mining policy — SA will continue to lose out to other African states in much-needed foreign investment.
It is clear the first step must be to scrap the Mining Charter ... and work to free the industry from onerous rules that are holding investment, job creation, and economic growth back
As noted, the DRC is ranked as a more favourable mining investment destination than SA, and recently overtook Zambia to become the biggest copper producer in Africa. In 2016 it ranked as the 29th most favourable mining destination in the world, and the fourth most attractive destination in Africa. This is a remarkable achievement for a country in which democracy barely functions and which suffers from poor infrastructure, even by the standards of the region.
The reason for the DRC being seen as an attractive place for mining is the investor-friendly mining code it enacted in 2002. This code featured a fairly low tax rate of 30% on profits, a government stake of 5% in new mining projects, and royalties of 2% on copper and cobalt, which led to higher rates of investment.
In fact, the DRC government is reconsidering its mining code — with possible increases in taxes and royalties — which might lead to a corresponding drop in the central African state’s attractiveness as a mining investment destination. Even so, the DRC experience offers a valuable lesson to SA: providing investors with certainty and fairly low royalty and tax rates will see levels of foreign direct investment increase.
This would not be difficult for SA to do. It is clear the first step must be to scrap the Mining Charter — the subject of a judicial review on February 19 — and work to free the industry from onerous rules that are holding investment, job creation, and economic growth back. Unless this happens, SA will continue to struggle to attract investment, which means SA will fail to harness the mining industry’s potential to help boost economic growth.
Beyond the Mining Charter, other laws are holding back investment in the mining and other sectors. As long as onerous labour regulations, employment equity and black economic-empowerment legislation, along with other laws that are hostile to investment and business remain on the statute book, SA will likely continue to be a place where only the bravest (or most foolhardy) mining investors put their money.
Unshackled, the South African mining industry could be a world beater — but, without decisive policy change, it will continue to perform far below its potential and languish among the also-rans of the mining world.
• Corrigan is a policy fellow at the Institute of Race Relations, a liberal think-tank that promotes economic and political freedom.