DARYL SWANEPOEL: SA’s chronic disregard of logistics woes stops mines benefiting from bullish markets

Like the lonely child on the playground, SA was forced to sit on the sidelines and watch as the rest of the world made the most of record high commodity prices in 2021. Locally, stockpiles of valuable key commodities were left stranded at mines, unable to reach awaiting ships for export. 

Rail-reliant bulk resources, like coal, iron-ore chrome and manganese, have been most negatively affected. The rally in the prices of precious metals like gold and platinum were able to have a positive effect on the SA economy and have helped boost government coffers.

Economists cringed as reports of the Richards Bay Coal Terminal’s dismal 2021 performance made headline news. The terminal’s export volumes have plummeted to levels last seen in 1996, at a time when coal prices rallied to record highs on strong demand for the fuel in the midst of a global energy crunch. 

This inability of mines to capitalise on bullish global markets has been laid at the feet of those entrusted with managing SA’s infrastructure. The country’s well-documented rail and port bottlenecks stem from high levels of theft and vandalism, as well as other operational challenges at Transnet. The state-owned utility has been crippled by corruption linked to state capture, the extent of which has been exposed in part 2 of the Zondo inquiry report, released in early February.

Transnet’s failures have increased the cost to its customers and in many instances prevented commodities from reaching markets, costing mining companies and the economy billions in lost revenue and opportunity.

During a recent roundtable discussion between the Inclusive Society Institute (ISI) and representatives of the mining industry, logistics inefficiencies were singled out as one of the biggest domestic constraints, particularly for those companies producing bulk commodities.

The rate mining companies are charged for rail services was also flagged as a major contributor to SA having become increasingly uncompetitive in the quest for global market share. As mining companies are not the owners or operators of the rail services, they are left at the mercy of Transnet and find it difficult to influence the freight logistics group to be more productive, innovative or to introduce better technology. In many other countries, rail and port infrastructure is owned or partially owned by private companies.

The mining industry has pleaded with government to allow more private-sector involvement in the entire logistics value chain to make the country more competitive, echoing sentiments in the construction industry. In a similar ISI roundtable discussion in 2021, the construction industry called on government to rely more on the private sector’s extensive skills and financial resources to help drive economic development.

Central to the industry’s woes, as highlighted by other sectors that have been involved in discussions with the ISI over the past year, is SA’s erratic and expensive electricity supply. As with transport logistics, electricity costs are driving up input costs for the mining industry, eroding profit margins, reducing competitiveness and jeopardising the sustainability of the entire sector.

Mining provides the single greatest part of SA’s export revenues and employs, directly and indirectly, more people than any other sector. The Minerals Council reports that in 2020 mining added about 8%, or nearly R372bn, to the country’s GDP. These numbers could be considerably improved upon if security and infrastructure challenges were effectively dealt with.

Policy and regulatory uncertainty was another red flag raised. Canadian public policy research organisation the Fraser Institute’s 2020 Survey of Mining Companies, released in early 2021, shows a regression in perceptions of SA’s desirability as a mining investment destination. The country ranked 60th out of 77 jurisdictions for investment attractiveness. In comparison, Botswana was the 11th most attractive jurisdiction and has been the top-ranking African country in the Fraser Institute survey for more than two decades.

Botswana’s success has been largely attributed to the stability of its regulatory system. SA, on the other hand, has sought to amend its mining laws and policy frameworks several times over the last 25 years, keeping investors on the back foot.

The bottom line is that SA has vast mineral resources, but unless the country manages to draw investment in, exploration and mining its minerals will remain as dirt in the ground, neither benefiting the economy, nor the millions of South Africans so desperate for the continued stimulus and opportunities mining has historically been so central in providing.

Improving the global competitiveness of SA by providing a predictable regulatory and policy environment, addressing logistical bottlenecks and offering secure and affordable electricity supply would change the country’s economic growth trajectory.

The mining industry has already shown its eagerness to come to the party and help bridge the country’s large electricity supply deficit. Minerals Council member companies have announced a pipeline of 3,900MW of potential renewable energy projects worth R60bn since a recent shift in approach by government.

In an environment often characterised by talk rather than action, the country should put in place a framework that is conducive for mining investors to commit long-term to SA, and which ultimately enables the industry to roll up its sleeves and get things moving again so the country can be a full and active participant in the global resources market.

• Swanepoel is CEO of the Inclusive Society Institute.