Picture: GETTY IMAGES/CHRISTOPHER FURLONG
Picture: GETTY IMAGES/CHRISTOPHER FURLONG

SA’s policymakers have long had a bad habit of focusing on the economy we wish we could be rather than on making the most of the one we are.

Mining is the classic example. Whether SA will, or even should ever be the localised reindustrialised economy of the government’s dreams remains unclear. But as the past year has made abundantly clear, it still is a mining economy, with rich resources of metals and minerals that the world needs. And thank goodness for that.

The mining sector has been the economy’s saviour over the past year, helping to prevent the worst of the economic damage from Covid-19. Official figures show the mining sector grew by 25% in the first half of 2021. SA’s unique mix of commodities has seen it reap rich rewards from the global commodities boom of the past year, which has seen a 373% jump in the value of SA’s platinum group metals exports since the start of 2019 as well as sharp increases in iron ore, coal and gold.

The resulting sharp increase in miners’ profits hugely boosted the government’s tax take — PWC’s latest mining survey finds mining companies will add an estimated R263.7bn to tax revenue this year, up 42% on 2020. The windfall has meant revenues have run well ahead of budget estimates, enabling the government to finance increases in social grants and other much-needed social spending to mitigate the impact of the pandemic on the poor, while reducing the deficit and staying on course to stabilise the public debt.

Nor has SA benefited only from richer tax revenues. When mining is flying, it has strong multiplier effects across the whole economy, boosting GDP and jobs. Sharply higher prices for our mining exports have also helped to lift the current (trade) account of the balance of payments from deficit to surplus, supporting the rand and reducing SA’s dependence on fickle international capital flows, at least for now.

Of course, the good times are not going to last forever. Commodity prices are already coming off their highs, dampening earlier hopes of a new, long-lasting “super-cycle”. And as Reserve Bank governor Lesetja Kganyago has cautioned, the government must take care not to commit to new long-term social spending based on a short-term revenue windfall.

But all of that is more reason to ensure that SA acts now to leverage the mining boom to ensure more long-lasting benefits. Disturbingly, the PWC survey shows that capital expenditure in mining has hardly risen, and at an estimated R55bn this year is way lower than the R70bn of a decade ago. So while the sector, and the economy, are reaping rich benefits now from higher prices, there’s not the investment that will sustain higher mining output in the future, and enable SA to take full advantage of the next boom.

SA should be well placed to do so given that it is blessed with some of the main resources needed to support the “green” energy transition. And the mining sector is now cash flush. But they are not investing to expand their SA operations because of the challenges and uncertainties of operating in this environment.

Electricity is still a huge constraint on mining operations, both in terms of reliability and cost. So too is transport. SA’s dysfunctional rail services have meant coal miners have been unable to get their coal to the Richards Bay port to take advantage of high export prices while dysfunction at the ports and at the border posts further hampers SA’s ability to export commodities.

Mining companies are not going to commit large sums to long- term investments if they can’t rely on working energy, logistics and water infrastructure. Nor are they going to do so as long as policy on ownership and mine licences remains opaque.

These are not new problems. But this moment in the commodities cycle may not come again and SA risks squandering it. The past year has highlighted mining’s importance to the economy, and underlined its potential. Making the most of that potential to grow the economy into the future should be a priority for SA’s policymakers.

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