Take snippets from this to use as evidence to back up evaluation points - e.g. how well-intentioned intervention can reduce growth, thus leaving the workers it was the intention to help worse off.
23 February 2017
Why South Africa is no longer such a gold mine
The Venetia mine, South Africa. Photo: Mujahid Safodien / AFP / Getty Images
The Venetia mine, South Africa. Photo: Mujahid Safodien / AFP / Getty Images
South Africa started as an unassuming way-station for Dutch ships sailing to the Dutch East Indies, but it rose to prominence thanks to its immensely rich mineral deposits.
Beneath the country’s sweeping landscape lies 80 per cent of the world’s platinum, 48 per cent of its palladium, 17 per cent of its manganese and 17 per cent of its gold. The coal and iron deposits are said to be among the best in the world, along with a wealth of tin, chromium, titanium and vanadium.
Citigroup has valued South Africa’s mineral resources at $2.5 trillion – more valuable than Russia’s, Australia’s, and Canada’s. It is questionable, however, whether that wealth will ever be exploited.
My first column for Cato Institute, in 2002 was titled Well-Intended South African Mining Charter Is Recipe for Disaster. It dealt with a recently agreed charter of understanding between the African National Congress government and the mining industry. The measure’s stated goal was to “empower the previously disadvantaged” groups through racial quotas in both employment and the ownership of mining companies’ stock.
In my column, I argued that the charter wouldn’t work. Instead of helping the poor, it would drive down profit margins and the mining companies would be forced to cut their costs by hiring fewer employees.
South Africa’s inflexible labour laws, I argued, would further exacerbate the concerns of potential investors, as would the recent nationalisation of South Africa’s mineral rights. Both these factors would make long-term returns on investment more uncertain.
I concluded that the expansion of South Africa’s mining giants into Canada, Latin America and Australia, needed to be seen in the light of that increasing uncertainty. Though they were far too cowardly to admit to it publicly, the mining companies were hedging their bets.
In January 2003, the South African Chamber of Mines took out an advertisement in the Southern African edition of the Time Magazine. The advertisement quoted heavily from my article, attacking both me and my conclusions.
Dr Iraj Abedian, a director and chief economist of the Standard Bank Group of SA, described the charter as “a significant step toward normalizing the socio-economic environment – dealing boldly with South Africa’s skewed distribution of wealth and income… it will be a giant step towards reduction of investment risk in South Africa.”
Roger Baxter, chief economist of SA Chamber of Mines, noted that as a result of the charter, “mining companies …[could] operate in a framework of certainty” and anyone thinking otherwise “has not done his homework”.
I still cherish those comments. Then, last week, I came across a new report from the South African Institute of Race Relations (SAIRR), the country’s oldest think-tank, entitled Mining in SA: Then, now, and into the future. It made for a depressing reading.
According to John Kane-Berman, the much-respected scholar who wrote the report, “the South African mining industry shrunk between 2001 and 2008 by 1 per cent a year, whereas the top 20 mining exporting countries averaged growth of 5 per cent a year. The mining industry … was smaller now than in 1994. Roger Baxter [yes, the same Roger Baxter who accused me of not doing my homework] of the Chamber said the industry’s real GDP had shrunk by 2.9 per cent between that year and 2015… [This decline] coincided with one of the greatest bull runs in commodities, starting in 2002 and ending in 2012, that the world had ever seen.”
While I do not have data to calculate the drop in the mining sector employment between the signing of the charter and the present day, Berman notes that the number of jobs in mining decreased by almost 30 per cent between 1990 and 2015. Revealingly, the ANC government is aware of the job losses that occurred on its inept watch.
As Jessie Duarte, deputy secretary general of the ANC, said in 2014, “Lost employment in the mining industry, considering the low skills base of labour it employs, translates into a further burden on the country’s social wage. It adds to the depression in the labour-sending areas that are already destitute.”
Given its wealth of resources, surely South Africa should benefit from future commodity price increases. But it might not, according to the SAIRR report. “Very few of the mineral rights awarded in recent years to junior mining companies were being utilised by their recipients. There was next to no exploration happening. There was also a risk that most of the assets would remain in the ground because there was no funding, investors having been kept away by government policies, regulatory uncertainty, and a hostile labour regime.”
Since the ANC came to power in 1994, the private sector has brown-nosed the government. Instead of cooperation, however, it has earned the ANC’s contempt. And each time the private sector gave in to the government’s demands, those insatiable predators who govern South Africa came back for more.
Today, Berman writes, “The mining industry is at a crossroads. It has spent considerable sums on social and labour plans and also on empowerment, but this has not satisfied the government. There are even suspicions in the industry that some of the government’s demands are designed to make life so difficult for mining companies that they will sell out to chosen political favourites.
“One former executive of a major company told the writer of this paper [i.e., Berman] that he and some of his colleagues believed from the early days of the Mining Charter that they should take a tougher stance towards government demands. However, he said, theirs was a minority view. Now, however, some mining executives believe the time for appeasement is over.”
I sure hope so, but fear that it might be far too late.
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