Why partnerships are key to solving SA’s mining industry issues
The mining sector is under pressure and there will be only one loser: the people of South Africa
The South African mining industry has long been an integral part of the country’s economy. It has created much-needed employment opportunities for many South Africans and drives sustainable economic growth and black economic empowerment.
According to the Chamber of Mines of South Africa, the local mining industry contributed 7.3% to the country’s gross domestic product in 2016 and accounted for 18% of private fixed investment and 11% of the total fixed investment in the same year. However, more importantly, the industry employed nearly 6% of all people working in South Africa.
While it is difficult to dispute the industry’s importance to the South African economy, there are a number of factors, including economic and political, that have taken their toll on the sector.
Underperforming commodity prices have increased pressure on the industry, and this trend looks likely to continue for the foreseeable future, driven by a slowdown in demand for precious metals from China and India.
In addition, according to the International Monetary Fund, projected global growth rates for 2017–18 remain below pre-crisis averages, especially for commodity-exporting emerging and developing economies.
Political uncertainty and interference in fiscal governance led to credit downgrades earlier in 2017, which had a significant effect on the South African mining industry. Furthermore, the uncertainty created by ambiguous legislative framework – most notably the latest amendments to the Mining Charter – has raised concerns among global investors about South Africa as a viable foreign investment destination.
The revisions to the Mining Charter are ambiguous and create further uncertainty in the mining sector
Then there is the critical imperative in South Africa to ensure real, sustainable and inclusive broad-based black economic empowerment and transformation. To achieve this, it is crucial to adopt policies and legislation that are consistent with the rule of law, particularly the presumption against the retrospective application of laws. The South African government must guard against policies and legislative changes that expose the country to legal challenges that could lead to further divestment from a sector of the economy that helps drive inclusive and sustainable economic growth.
Currently, the revisions to the Mining Charter are ambiguous and create further uncertainty in the mining sector, which will have knock-on effects in other areas of the country.
In an industry this critical, it is imperative to be as clear and precise as possible about legislation and regulation. In their absence, the sector will fail to deliver on its potential to alleviate economic pressure for millions of South Africans.
There is a risk that mining companies aggrieved by the amendments to the Mining Charter will challenge the South African government through domestic courts and international investment tribunals for breach of guarantees in terms of existing bilateral or multilateral investment treaties and agreements.
There will be only one loser from these kinds of disputes: the people of South Africa. Millions of rand will be spent to defend poor policy decisions, and there will be a further loss of confidence among global investors, which will lead to limited or no job creation or economic development activity by the government. In addition, there will be no revenue collection from investors for the government’s socioeconomic initiatives from mineral resources that could have been mined. Mine development and exploration have already been drastically reduced. This does not bode well for the future.
To overcome these issues, cooperation and partnerships must flourish between the government, mining houses, labour associations and the communities in which they operate. Partnerships are built on trust and good faith through dialogue and understanding.
It is crucial to create a truly inclusive approach in the mining sector that promotes sustainable growth for all. The government must set realistic objectives when it comes to transformation and acknowledge that, as much as everyone wants transformation in this industry, it will take many years to obtain true transformation.
It is through partnerships that there will be consensus reached on all parties’ needs and on what is achievable regarding transformation in the industry. By having these partnerships, there will not be stringent obligations imposed on mining companies that cannot be achieved. They will allow for a more realistic approach, one with pragmatic objectives and clear guidelines on how to achieve true transformation in the industry.
This article was paid for by Cliffe Dekker Hofmeyr.