ROGER BAXTER: Tough choices required to get SA on road to growth
The economic recovery strategy published in July by Business For SA (B4SA), aimed at achieving high levels of inclusive economic growth to recover from the Covid-19 crisis and the economic crisis that preceded it, must form the basis for any recovery plan.
SA’s pre-Covid economy was marked by declining international competitiveness, a collapse in business and investor confidence, low levels of economic growth, rising unemployment and accelerating poverty. The pandemic has pushed SA deeper into trouble, with at least another 1-million formal-sector jobs lost, an 8% decline in GDP likely in 2020, and burgeoning public debt that is likely to exceed 100% of GDP in a couple of years.
As in the 1990s, SA again faces a stark high vs low road set of choices. The latter will be achieved through continuing investor-unfriendly policies and will lead to a sovereign debt default crisis where everyone suffers significant economic and social pain.
The alternative will require the country’s leaders to adopt and implement a significant pro-competitiveness structural and institutional reform agenda based on tough choices, leading to the country realising its true economic and transformational potential.
On the high road, the country improves its competitiveness rankings towards the top quartile, investment rises to above 25% of GDP, and the economy grows by at least 3% per annum. Unemployment halves, many of the income inequality and poverty metrics are drastically improved, and the transformation of the economy becomes sustainable. Every citizen wins in this scenario.
B4SA has identified as priorities the following: the critical need to improve the country’s competitiveness and ease of doing business rankings; urgent steps to improve business and investor confidence; significant structural and institutional reforms; policy consistency; regulatory reform; addressing crime and corruption; infrastructure investment; state-owned entity (SOE) restructuring, optimisation or exit; an energy industrialisation strategy; economic transformation and supporting BEE; addressing skills shortages; and investing for modernisation. Each of these is critical for the recovery, sustainability and growth of the overall economy and mining industry.
The Minerals Council has identified eight areas that need to be urgently addressed if a recovery in the mining industry is to occur and output and jobs are to be saved and expanded in the next four years. Some are mostly the responsibility of the government; others require initiative from the industry. Most importantly, almost every aspect requires the collaborative efforts of the government and business, together with labour and other stakeholders, including communities. The eight areas are:
- A mining recovery plan, such as the national B4SA one, needs to be based on a social and economic leadership compact. The government, employee representatives, communities and the industry need to adopt a reasonable degree of consensus. The leadership compact signed with mineral resources & energy minister Gwede Mantashe is a good first step.
- Policy and regulatory certainty, predictability and competitiveness must be achieved through reviewing the Mineral and Petroleum Resources Development Act and other associated legislation, which now undermine long-term investment decision-making. The rules must be clear, stable and competitive, and every effort must be made to adopt “smart-tape” for the processing of licence applications. The recognition of the continuing consequences of previous BEE transactions needs to be settled. There has been progress on some policy areas, but further progress is needed.
- Modernisation has a foundational role to play. Through technology, mechanisation and digitisation, mines can improve operational performance, cost efficiency, safety and productivity; extend the lives of mines; increase production; and create new and improved job opportunities, especially for women.
- We — and the rest of the economy — need a reliable energy supply at a competitive cost. Investment in self-generation for own use is essential. Unnecessary regulatory barriers need to be removed. This will allow mining companies to achieve stable production and more predictable prices for electricity, while speeding up the greening of the country’s electricity supply base. We now have agreement from the minister to unlock as much as 2.3GW in self-generation. The regulatory barriers are being looked at and addressed.
- Bottlenecks in rail and port infrastructure continue to inhibit export of certain minerals. It is necessary to improve the competitiveness of SA ports, which are now 20%-40% less efficient than global peers (outside the privately run Richards Bay Coal Terminal, which is one of the world’s most efficient and cost-effective deep-water export terminals).
- Companies need to make new and improved efforts to gain their social licence to operate from communities. One reason for challenging relationships and demands from local communities is failure of basic service delivery by local government. However, some community investments by companies have also not been effective. All new projects need to be conceived with inputs from the government, industry and communities, built on long-term development plans, with local government, in particular, fulfilling its developmental role with the support of the mining sector.
- An obstacle to the industry’s growth and development is that SA’s share of global exploration budgets has declined from 2% historically to less than 1% in 2019. Our geological database quality also now lags other jurisdictions. What is required is a comprehensive greenfields exploration growth strategy, remapping high-potential geographical areas, improving the quality and availability of the precompetitive geological information on accessible platforms and encouraging risk capital.
- Lastly, we propose that a joint industry-government task force be created to oversee and fast-track all processes coming out of these recommendations, which supports unlocking specific mining investments that meet a predetermined impact threshold.
To deal with negative investor perceptions, the government and key industry stakeholders need to develop a consistent narrative of the vision of the SA mining industry and promote the positive changes made along this journey we propose.
One factor that gives us hope that many of these things can come to fruition is that Mantashe has a deep appreciation and understanding of the industry. This is evidenced by his efforts to minimise the negative effects of the Covid-19 pandemic on the industry and its stakeholders. Since his appointment just more than two years ago, despite some disagreements, we have had much meaningful engagement with him regarding the needs of different sectors of the industry, and progress in a number of areas previously raised with him. We are confident this positive engagement can continue.
If these actions are taken as rapidly as possible, we estimate it will mean an additional R61bn in mineral sales and $300m in additional tax revenues by 2024. It will result in about 70,000 jobs being saved and an additional 26,000 mining jobs and 47,000 indirect jobs being created.
This is why these initiatives deserve the active support of all industry stakeholders.
Correction: August 11 2020
A previous version of this story had a figure of R300m instead of $300m in the second-last paragraph.
• Baxter is CEO of Minerals Council SA.
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