South Africa is ranked among the 10 worst places for mining investment.
South Africa is ranked among the 10 worst places for mining investment. There might be a bit of truth to the statement as bureaucracy, social discontent and nugatory state-owned enterprises threaten investment.
“It is difficult to mine in South Africa especially if you look at how long it takes to get stuff in and out of the country, the bureaucracy and just how long it takes to get permits. Those are the things I hear people talk about when they express the reticence to invest in the country,” said Andrew Lane, senior partner and energy, resources and Industrials leader at Deloitte South Africa.
The Fraser Institute mining survey — prepared annually by a Canadian-based research organisation — placed South Africa 75th out of 84 countries that were ranked for 2021.
The survey looks at the overall investment attractiveness, effects of government policy on attitudes toward exploration investment, taxation levels, and the quality of infrastructure.
According to Lane, social discontent is one of the hindrances to South Africa getting mining investments.
“Social discontent is a big issue …and it is particularly difficult in a country like ours where we have issues [such as] poverty and unemployment. Mining is generally the only major single economic engine in a lot of these [mining] communities and that’s where people look. So, it becomes critically important to work productively with those stakeholders [mine workers] to understand what their needs and wants are,” Lane said.
For the past four months the gold sector mine workers have been on strike for wage increases and negotiations have reached a deadlock. This too is a deterrent for investment.
Striking mine workers have become a feature in South Africa’s mining industry. From the historic 1913 strike for their worker’s rights such as an eight-hour day to the deadly Marikana strike in 2012 where 34 mineworkers were murdered.
“We do live in a world where people are struggling in this country. We live in a very unequal society. So, where shareholders have been handsomely rewarded recently, thanks to the performance of the mining companies, this obviously creates expectation amongst the workers,” Lane said.
He was alluding to the R300-million awarded to Sibanye-Stillwater chief executive officer Neal Froneman in 2021 while his mine workers currently want a R 1000 increase.
Bureaucracy
Lane explained that South Africa has a lot of red tape when it comes to operating a mine.
“Water licences are just one of the permits that a mining company has to get. And there is a myriad of these permits they [incoming mine companies] have to apply for from different departments across government. And that’s not all, there are a lot of things that are tied up in red tape where things are just not getting processed as fast”.
At the Mining Indaba President Cyril Ramaphosa said Operation Vulindlela —a joint initiative of the presidency and National Treasury to accelerate the implementation of structural reforms — is working with the department of water and sanitation to implement a turnaround plan for the issuing of water use licences, “something that is critical to mining operations”.
The president said Operation Vulindlela is working towards a target of 80% of all applications to be resolved within 90 days. According to Environmental Assurance, a consultancy firm, it currently takes up to 300 days to process an application for a water use licence.
Mining companies wanting to conduct mining operations also need to obtain a mining permit from the department of mineral resources and energy.
Mining permits are not transferable and are aimed at controlling prospecting (search for economically exploitable mineral deposits) and mining, overlooking environmental management and managing the responsible extraction of minerals.
According to the department of energy a mining permit is valid for the period specified on the permit and may be renewed for three more periods of no more than a year each.
Regulatory certainty
On regulatory certainty, Rand Merchant Bank’s Julian Grieve said: “From the outside in, it looks like you could have the state take away your mineral licences at any point in time … Unfortunately appearances matter and we can see this in the ranking because it is based on perceptions.”
According to the Institute of Race Relations the mining sector — which has been subjected to regulatory flux, policy shifts and other avoidable headwinds related to regulatory compliance — is perhaps the most inherently uncertain of all industries.
In a paper titled ‘Steering Mining into the Future: Can the Mining Industry Prepare itself for a Reinvigorated Tomorrow?’ the Institute of Race Relations said policy uncertainty was rampant during former president Jacob Zuma’s tenure as there were talks of even nationalising mines.
“President Jacob Zuma’s tenure has been widely recognised as a time in which policy was allowed to descend into particularly serious volatility. This hit the mining sector especially hard, arguably harder than any other part of the economy. Emblematic of the problems that began to confront the mining sector was that the nationalisation of the industry made a reappearance in policy discussion,” read the paper.
Lane said the government needs to provide not only regulatory access for investors to mine in South Africa but it also needs to provide regulatory and policy certainty for investors to be willing to put their money in.
Infrastructure inadequacies
Grieve said other factors that make mining more challenging in South Africa compared to top-ranked jurisdictions such as Australia and Canada are the country’s state-owned enterprises.
“There are a few things that make mining relatively more challenging in South Africa [such as] electricity curtailments due to the issues Eskom is facing, logistics challenges from the issues Transnet is facing, and frequently the degree of effort required in managing community relations as mines often have to step in and become de facto municipalities,” he said.
Eskom has been struggling to supply the country with electricity, leaving mines to find means to generate their own electricity supply. The Mail & Guardian previously reported that mining companies are opting for renewable energy because of Eskom’s unreliable supply of electricity.
Ramaphosa, at the Mining Indaba, made promises to revitalise Transnet’s rail infrastructure and to enable third party access to the freight rail network.
Grieve said the Fraser Institute’s ranking is “not the be-all and end-all for the industry, but I don’t think that this is a data point that we should ignore. We have a lot to gain by actively looking to attract foreign investment into South Africa and being at the bottom of a rating scale is not going to help this endeavour”.
Anathi Madubela is an Adamela Trust business reporter at the M&G.
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