Mining: Finding solutions to the unintended consequences of poor policy
As a country, and as an industry, we need to be asking how to create an enabling environment which will encourage business to invest in SA
The government, under the leadership of President Cyril Ramaphosa, is seeking to stimulate growth and encourage greater investment in SA. However, the economy continues to stagnate under lingering policy uncertainty, much of which stems from the previous administration. Nowhere is this more evident than in the mining sector.
In recent months, economic pressure, declining demand for certain commodities, lower prices, ever increasing costs and regulatory limbo has been brought to bear on the South African mining industry. Lonmin is looking to lay off 12,600 miners, Implats has said the restructuring of its operations which will result in 13,000 job losses, and Gold Fields has announced the retrenchment of 1,560 workers as it tries to turn around its loss-making South Deep operations.
On this stage, mineral resources minister Gwede Mantashe is looking for final public consultation on the reworked third iteration of the Mining Charter. Since taking over from Mosebenzi Zwane, Mantashe has made the cementing of this version of the charter a priority. To his credit, Mantashe has shown a willingness to engage and work with labour, business, communities and other industry stakeholders to find solutions to challenging issues.
Although the ‘Mantashe’ charter is an improvement on Zwane’s and laudable in its intentions, it remains flawed. It is divorced from economic reality and drafted without proper economic impact assessments. In the rush to get the charter ratified, perhaps feeling the pressure of the forthcoming 2019 election, there has not been enough thought directed towards the effect this legislation has on the economy as a whole.
Research clearly indicates that since the coming into effect of the Mining and Petroleum Resources Development Act (MPRDA) and subsequently the initial Mining Charter, the mining sector has shrunk significantly, with very little new or real investment into what has, in essence, become a "hand-me-down" sector, rather than what it should be: the backbone of the South African economy.
Over the past 15 years about nine million people have lost their income or source of support as a direct or indirect result of this contraction in the industry. This staggering and sobering number calls into question whether or not the way in which the industry is being regulated benefits anyone, particularly those most affected by a sector in trouble.
One key area where we believe the government needs to re-evaluate its policy is around the issue of ownership and transformation. Two points need to be remembered when we talk about equity. Despite popular rhetoric, the first is that ownership is often not the best driver of socio-economic change and transformation. Equity often only benefits a few elites and there are other – and better – means of achieving socio-economic transformation. Solutions also need to consider the long-term sustainability of communities.
The second issue that should be addressed is that we are mining finite resources and mines have limited lifespans. Therefore, when policies are put in place, they must take cognisance of how communities will survive once the mine that supports them is closed at the end of its life cycle.
We believe the best solution lies in formulating policies that move away from the focus on ownership and allow mining companies to redirect their resources more flexibly to more sustainable developments and projects like aggregated social and labour plans, investment into local infrastructure development, and socio economic upliftment for mining communities. We see this as being far more productive than throwaway terms like ownership with the free-carry condition, where people are led to believe that the floodgates of money will just open.
For this approach to work, however, government needs to break down the silos in which it operates and create policy cohesion between various government departments. This issue is starkly highlighted by the misalignment between very stringent empowerment codes from the department of mineral resources, versus the department of trade and industry’s codes. The department of mineral resources, through the Mining Charter, seeks to regulate industries that are not under its control, but that work within the sector. This lack of departmental cohesion is resulting in these laws having an unanticipated negative economic effect on the industry and the communities they are meant to benefit.
Our stance is by no means a pro-business agenda. Rather, we believe it is critical to seek a pro-SA solution. The country is struggling with increasing wage demands, some of the world’s deepest and most costly mines to run, increasing infrastructure costs, and falling demand, which has resulted in a drop in the prices of the commodities we produce.
Instead of the department actively encouraging mining activities through initiatives that reduce the cost of doing business, streamlining administrative processes, creating a "lite" compliance regime for prospecting rights and allow for better market access and other enabling programmes, they have continuously chosen to beat with a stick, rather than entice with a carrot.
As a country, and as an industry, we need to be asking how to create an enabling environment which will encourage business to invest in SA. The past two decades have seen very little foreign investment into the mining sector. Instead we have seen the shuffling of an ever-diminishing pool of local investors, while the big global players have left or are leaving.
We need to question whether the current model works or whether there is a better way to do business in SA. We need to find a sustainable way forward and – although any government policy being pushed through before the 2019 general election may smack of politicking – what Mantashe has indicated is that if industry can offer innovative solutions, he is willing to talk. Now is the time for industry to step forward and bring workable solutions to the table for the benefit of all South Africans.
• Veeran and Dickinson are partners at Webber Wentzel.