Eskom, the state-owned monopoly responsible for electricity production, transmission, and large parts of local distribution, is highly indebted (to the tune of about R400 billion, about a third of the entire country’s annual budget). (Dean Hutton/Bloomberg via Getty Image
If it isn’t farmed, it’s mined. Even farming depends on mining for fertiliser and equipment. Moreover, any hope of a “green transition” depends deeply on mining the minerals and metals required to feed electric vehicle, wind turbine and solar panel production.
The World Bank estimates that by 2050 more than double the current volume of minerals and metals produced will have to be extracted. No surprise, then, that the focus of this year’s Investing in African Mining Indaba was on securing critical raw materials responsibly. Cobalt, copper, lithium, platinum group metals, titanium, chrome and manganese supply must expand if the global demand for clean technology is to be met. African countries need to gear up to attract responsible investment in extracting these minerals and metals.
Zambia appears to be making strong headway in this respect. It had a united, team approach at the indaba — the first time that the private sector, state-owned entities and government ministries had banded together to attract investment.
Other countries, however, look more precarious. There are massive risks and opportunities for mineral-wealthy African countries but, at this stage, the risks appear to be outweighing the potential benefits. The “resource curse” literature is unequivocal that weak institutions at the time of discovering commercial quantities of mineral or hydrocarbon wealth is strongly correlated with underdevelopment. This is partly because resource rents crowd out governance incentives for building a broad-based economy with a diversified tax base. They also fund patronage networks and alter the risk-reward ratio for ruling elites — the transaction costs of reform are perceived as higher than the costs of repression or co-optation. In other words, transparency, accountability and participation, the three key pillars of governance, go out the window.
In the worst cases of the resource curse, bandits maraud lootable point-source resources and exacerbate violent conflict. This conflict often pre-exists and is attributable to a lack of service delivery and investment. In other, perhaps equally disturbing cases, the state employs its security apparatus to appropriate resources and forms joint ventures with unscrupulous entities to sell those resources on global markets.
South Africa is an unusual case of the resource curse. Its relative economic muscle in the region and across the continent is a partial function of a sordid history of mineral extraction at the expense of most citizens. But 29 years of poor governance since 1994 has made the situation worse. There are multiple manifestations of this on display, the most glaring of which is the electricity crisis.
Eskom, the state-owned monopoly responsible for electricity production, transmission, and large parts of local distribution, is highly indebted (to the tune of about R400 billion, about a third of the entire country’s annual budget). Its energy availability factor is down to about 40% of total capacity. This is almost entirely attributable to the intense corruption that has permeated the entity since 2009.
Of course, even prior to that, it failed to expand its fleet of power stations. However, even where it did expand — by building two of the world’s largest coal-fired plants — corruption in the distribution of contracts undermined the energy availability factor of those stations. They are still not fully functional and were meant to be onstream by 2012. A decade later, the government has declared a state of disaster in relation to the electricity supply.
In fact, President Cyril Ramaphosa announced the state of disaster a day after the Mining Indaba had ended, during his State of the Nation address. During the indaba, he had told the private sector to stop moaning and get on board with helping to address the country’s problems. That is a cheap shot. Any government’s basic responsibility is to provide infrastructure, security and justice so the economy can thrive. Asking mining companies to fulfil these functions is an admission of failure cloaked in subtle victimhood.
Even more ironic was Minerals and Energy Minister Gwede Mantashe telling mining companies at the indaba that value must be added to raw materials before they leave the country. There is no power with which to do so. We can barely keep the smelters on, and even if we could, the freight rail and ports services are so dysfunctional that mining companies can barely get their goods to market. The combined effect of this government failure is a 9% year-on-year contraction in mining production to November 2022.
Declaring a state of disaster is disastrous, as it simply removes obstacles to corruption. While its ostensible purpose is to reduce regulatory red tape associated with independent power procurement, the truth is that this red tape could be removed in an instant if government departments simply worked properly together. Now we have a state of disaster presided over by the minister of Cooperative Governance and Traditional Affairs; a new Minister of Electricity in the Presidency — a glorified project manager, apparently; the ministry of public enterprises and mineral resources and energy.
The minister of the latter is decidedly out to lunch. At the Mining Indaba, he sang the praises of Goldfields for having generated its own power to electrify its South Deep expansion. He didn’t mention that the licensing arrangements took nearly three years to complete.
More recently, he blundered to Business Day — in response to his department rejecting a significant mining right application from Sibanye-Stillwater to mine a concession to which they have had prospecting rights — that “the law is clear if an exploration right expires, the process gets opened up for other companies who wish to mine that particular area to come forward and apply”. Sibanye holds that their prospecting right has not yet expired and intends to appeal the decision. Major problem — going to court costs money and no timing requirements for the appeal process are written into the country’s minerals law.
This kind of misguided stubbornness from the minerals minister would be hard to understand except that we’ve seen this movie before. In 2010, Imperial Crown Trading (ICT) applied for a lapsed right on the very same day that Anglo American applied for it. ICT, part-owned by Khulubuse Zuma (yes, the nephew of the former thief-in-chief of the country), had submitted a fraudulent application but the Department of Mineral Resources took the case all the way to the constitutional court in defence of its decision to grant the right to ICT.
The truth is that this kind of situation could be avoided if proper, basic governance structures were in place. A simple online, publicly available cadastre, with all licences properly mapped out, would solve the problem. The dates — from grant to expiry — would be clear for all to see and therefore not subject to dispute.
What will probably transpire now, unless the courts intervene as they did in the ICT case, is that some politically connected fraudsters will gain a right to mine the area that Sibanye has successfully prospected. Mining the resource as soon as possible would bring wealth to the area, including employment prospects for desperate local communities.
Declaring a state of disaster only deepens the governance disasters that led to the lights going out, mining rights applications not being properly processed and ports and railways becoming dysfunctional. South Africa’s mineral potential, the primary channel through which economic growth could be kickstarted, is being throttled by a government that has shown itself unable to govern in the best interests of the citizens.
Dr Ross Harvey is the director of research and programmes at Good Governance Africa.