SA enjoys spin-offs of mining boom

Contrary to concerns that, when it comes to mining, South Africa is losing its status as the gateway to Africa, recent research has found that companies based here that support the mining sector beyond the country's borders have in fact expanded.

In One Thing Leads to Another: Promoting Industrialisation by Making the Most of the Commodity Boom in sub-Saharan Africa — and supported by United Nations Data — Mike Morris and David Kaplan of the University of Cape Town, along with Open University's Raphael Kaplinsky, provide the most up to date information on companies that service or supply the mining sector, and on the developers of patents.

According to the book, published in August, these companies have benefited from the increased demand and the expansion of projects by South African-based mining companies, particularly with regard to expansion into sub-Saharan Africa.

There is little in-depth research available on this sector and how it may be benefiting from the boom. Neither Statistics South Africa nor the department of mineral resources are able to provide any data, but from the figures available, such expansions appear to have paid off significantly.

Figures on the export of South African mining equipment for 2011 show that exports are much higher than imports, both globally and to sub-Saharan Africa.

According to the United Nations commodity trade database (Com­trade), in 2011, exports globally amounted to $6.9-billion, of which $2.9-billion was to sub-Saharan Africa. Imports were $6.5-billion globally, of which $28-million came from sub-Saharan Africa, according to the Comtrade data. Figures gathered by the South African Capital Equipment Council show that exports have been growing rapidly since 2000.

Demand outside South Africa
South African companies that service and support the mining sector, despite setting up operations in other countries, are in many cases still utilising their existing supplier base in South Africa.

The explosives supplier and manufacturer BME is one such company. Francois Hay, the managing director of BME said: "The expansion of demand outside South Africa has been phenomenal. Our company is seeing lots of new projects and the growth of existing projects in Southern Africa, as far as the Democratic Republic of Congo and West Africa."

He said that although the company had been active on the continent for the past 15 years, business had grown steadily, particularly during the past two to three years.

Hay said South Africa had a reputation for mining skills and for manufacturing quality heavy drilling equipment.

"Wherever you go in Africa, you tend to find the same mining contractors and suppliers." Logistics and competition from the northern hemisphere mean that BME tends to concentrate on Southern and West Africa. "The more north you go, everyone can compete."

Hay said the ease of doing business in South Africa was still seen as an advantage and "something we need to build on going forward". He said he felt it was important not to lose the advantage South Africa had at the moment.

In One Thing Leads to Another, the authors write: "South Africa not only possesses the most developed mining and mining supply industry in sub-Saharan Africa, but … it also possesses extensive forward linkages from the commodities sectors, not just in the processing of many ores but also, especially, in the processing of soft industry commodities.

"Forward linkages have moved beyond processing to the beneficiation of materials."

Years of deep-level mining in South Africa have given the country an advantage when it comes to mining equipment or products such as underground locomotives, ventilation and shaft sinking.

The country is also recognised as a turnkey in new mine design and operation.

The Expertise
The expertise, which is benefiting the country, has also led to the development of products and services for the mining sector, which have benefited other sectors, such has hydraulic equipment and haulage.

Mining also makes up a larger share of South Africa's total number of patents than those of other countries such as the United States, Australia and Canada, according to the United States Patent and Technology Office.

The authors point out in their research that the fact that South African mining and related patents receive more citations than the patents of companies in other countries indicates that the patents coming out of the country are of a high quality.

Kaplan told Mail & Guardian that the government had undertaken to sponsor further research on this sector and its relevance to the economy, and, most importantly, how to assist these companies. "There are lots of backwards and forwards linkages to the mining sector and these need to be fully understood," he said.

"These companies are also affected by policy decisions that impact on the mining sector."

Andries Rossouw, a mining expert at Pricewater­house­Coopers, said that, in addition to South Africa's skills and reputation for good governance, the country still had valuable resources, such as 70% of the world's platinum.

But, on the extraction side, costs would have to be maintained, he said.

gateway to Africa
Infrastructure is still an advantage when it comes to being seen as the gateway to Africa.

"Rio Tinto is considering writing off $3-billion of its coal investment in Mozambique because the infrastructure challenges were greater than the company had expected," Rossouw said.

But skills and labour in South Africa remained a challenge, especially because there was global competition for South African skills, he said.

"Wherever you go, you will find mining experts from South Africa and the Philippines … because they are well trained and have experience … Any South African company able to train staff will succeed in Africa."

South Africa needed to ensure that it was seen as being professional if it hoped to compete going forwards. He said, for example, a transport strike had a widespread impact on companies as far north as the Democratic Republic of Congo, which became frustrated when they were unable to export their goods.

On the positive side, regional offices of junior exploration companies in South Africa were less concerned about labour issues.

"What they care about is good banking and good governance." He also said taxation and import, and export billing had to be handled carefully by the government to ensure that it remained competitive for the mining industry.

Taking heed of concerns
It seems that the government has taken heed of many of the concerns that were raised about exports and imports and the development of industries supporting and related to mining, if the latest budget is anything to go by. In addition to focusing on cross-border trade with Africa, trade with the Bric countries (China, Brazil, Russia and India) is being encouraged.

According to the national development plan, the 2013 budget is intended to help South Africa develop deeper regional integration.

Finance Minister Pravin Gordhan said in his speech: "A number of measures are proposed to relax cross-border financial regulations and tax requirements on companies, making it easier for banks and other financial institutions to invest and operate in other countries.

"Similar measures will apply to foreign companies wanting to invest in African countries using South Africa as their regional headquarters. The outward investment reforms that apply as part of the Gateway to Africa reforms will also pertain to those companies seeking to invest in countries outside Africa, including Bric countries," he said.

"We are helping to build infrastructure that will create opportunities for South African companies to expand trade and investment across the border. The Development Bank of Southern Africa is accelerating investment into the Southern African Development Community region."

Gordhan added that: "We are supporting infrastructure projects in multiple countries, particularly in the key areas of electricity generation and transmission, and in strengthening road links in the region."

The Industrial Development Cor­poration currently has 41 projects in 17 countries valued in 2012 at R6.2-billion. The bulk of those projects are in mining, industrial infrastructure, agro-processing and tourism.

Sub-Saharan Africa's growth offers SA relief
The Industrial Development Corporation (IDC) sees South Africa's growth prospects as being subdued but believes the strong forecast for the sub-Saharan region should provide some relief for South African-based exporters.

A study by the IDC's department of research and information predicts relatively subdued growth of 3% for 2013 in South Africa and another challenging year for local exporters because the global demand for manufactured goods and commodities remains weak.

However, it is upbeat about the prospects for sub-Saharan Africa, saying it was one of the fastest growing regions in 2012, with investment activity being one of the major driving forces.

"Continued infrastructure development and investor appetite for the region's natural resource wealth, from minerals to agricultural resources, should support an average annual growth rate of just over 5% up to 2015.

"Domestic consumption spending and a gradual recovery in external demand for its export products should provide complementary impetus," the report states.

Improved performance
The IDC says South Africa's gross domestic product (GDP) expanded by 2.5% in 2012, with growth in the final quarter of the year having benefited from improved performance in manufacturing, financial and business services and agriculture.

The situation is expected to improve in South Africa after 2014, although the annual average rate of growth in real GDP is expected to grow at a modest 3.7% per annum between this year and 2017.

Industrial action and related work stoppages are said to have had a negative impact on the South Africa's export revenue.

This is best illustrated by the South African mining sector, which saw its output contract by 3.1% in 2012 because of production stoppages, which first affected platinum, then spread to the gold, iron ore and coal mining sectors. Reduced demand in sectors such as platinum also had an impact.

On the positive side, there was a significant turnaround in foreign direct investment in 2012, which enjoyed an estimated 10.3% growth in net inflows last year.

The report said South Africa outperformed the rest of the African continent, which saw a collective 4.8% increase in foreign direct investment.

Foreign direct investment in 2012 contracted by 3.2% for developing countries, and by 18.3% worldwide.

The report claims South Africa's economy is likely to struggle in the short term: private sector fixed investment is likely to remain constrained because domestic supply is currently outstripping demand.

Exporters, particularly those relying on European markets, will face another difficult year, the report says, mirroring similar warnings issued by the Organisation for Economic Co-operation and Development.

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