What could a more inclusive, completely transformed mining industry look like?
4 October 2017
Ladies and Gentlemen,
I would like to welcome you here in Egoli, the City of Gold, to speak about the future of mining in South Africa.
This is a city built on both the pains and the benefits of mining. A city with a history of rich white tycoons and poor black labourers. A place vividly brought to life by Miriam Makeba on her album Promise, where she describes how her children died here.
It is fitting that we are gathered here in the city that owes its very existence to the rush of mining. But I am also grateful to welcome you to a Johannesburg that is beginning to thrive under a new government.
A Johannesburg where we now have a DA-led administration and an ambitious new Mayor who are working hard to rid this city of corrupt officials and improve the living conditions of its people.
Not afraid to get dressed in his overalls and help clean the streets of a previously neglected inner city, Mayor Mashaba is a firm believer in the power of a capable and committed government to turn our cities around.
Similarly, I believe it will take a capable and committed state to help turn mining in South Africa around and address the vast imbalances in the sector that we have inherited.
I was asked to speak here today about what Radical Economic Transformation means for the mining industry. But to answer this we have to agree on what Radical Economic Transformation means. And I can assure you not everyone in this room will have the same idea.
The way the ANC government uses the term – and the way it has been written into the new Mining Charter – Radical Economic Transformation is little more than a fig leaf for elite enrichment.
It is a way of legislating the replacement of one elite with another. A zero sum game that changes the owners, but where ordinary workers and ordinary communities see no change and no improvement.
When we hear a phrase like “radical economic transformation”, we are right to doubt the sincerity of its meaning and question the credibility of its origin.
The DA pursued PR firm Bell Pottinger all the way to the United Kingdom to expose the fact that slogans like “white monopoly capital” were invented as a red herring – a deliberate ploy to sow confusion among South Africans while President Zuma and the Guptas continue to loot public resources.
When a new Mining Charter is forced onto the mining industry by a minister who flies in a Gupta-owned private jet to negotiate private deals, we have no option but to wonder: Who exactly wrote the Charter?
And, given what we know about the shenanigans of the Guptas in state-owned enterprises, why must the mining industry believe that those entrusted with the democratic responsibility to govern are the real government of South Africa?
In other words, who must this gathering believe – Dr Zweli Mkhize or those in government who act on behalf of the Guptas? Who is really in charge of South Africa?
If we’re all okay with the ANC government’s definition of Radical Economic Transformation, then it won’t take us long to agree on a way forward. The MPRDA of fifteen years ago, along with this year’s Mining Charter, give us all the tools we need to transfer mine ownership from an old wealthy elite to a new wealthy elite.
So if the idea is to replace white mining tycoons with black mining tycoons and nothing more, then this could be the shortest Mining Indaba session ever.
But I have a feeling most of us want more than that. I suspect almost everyone in this room sees the Mining Charter’s version of Radical Economic Transformation for what it really is: a poorly disguised extension of lucrative patronage politics.
And I suspect most of us would like an inclusive mining sector to involve a little more than making a handful of handpicked cronies extremely rich. Most of us would want to see a mining boom that benefits as many people as possible through jobs and ownership; through changes in the boardroom and changes in communities.
So instead of discussing and debating the merits of Radical Economic Transformation, I want to posit a vision for a reset in the mining sector. A new beginning that ushers in an era of real inclusion and growth.
I honestly believe it is possible. I believe we can make our rich mineral endowment a cornerstone of not only a growing economy, but also a fair and inclusive economy that extends opportunities to our people. But that is going to require a big new vision of what mining can be for South Africa.
For starters, it will require us to be globally competitive. With our reserves of platinum and other minerals, South Africa simply must compete better in order to achieve the growth we need to build a more inclusive sector.
Although China’s growth rate is now below double-digits, a 6.7% annual average is still significant for the world’s second largest economy. India touched 7.1% last year. Indonesia registered 5% and South Korea 2.8%.
These are the figures of the region generally regarded as the world’s current driver of economic growth. If we want to make the most of our trade with this region and the rest of the world, we are going to have change the way we see mining.
Our problem is, we’ve been trapped in the wrong paradigm for so long, it has become hard to view the industry in any other way. In this old paradigm, mining in South Africa is two things:
Firstly, it is a powerful tool of patronage that can transform connected comrades into billionaires at the stroke of a pen.
And secondly, it is a symbolic battleground for ownership of our country’s wealth and resources – a battle that continues to be driven along age-old lines of race.
But if we want to tap into mining’s true potential to help grow an inclusive economy, it cannot be either of these two things. It can’t be the source of instant wealth for a few at the expense of many. And it can’t pit us against each other in a never-ending battle of racial nationalisms.
For many reasons, mining is treated in this country with hostility. Much of this has to do with our bitter past, when the mining sector in Apartheid South Africa became synonymous with enrichment and exploitation.
This hostility has been carried forward to the present day. Because when you swap one form of Nationalism for another, you are effectively replacing one race of elite with another. And this new elite will do what it can to protect its own.
This is why all potential mining investors in South Africa are treated with suspicion and disdain, and policy is written to keep mines in certain hands.
This is why everyone who arrives here with money to invest in mining is viewed as a criminal – like someone who has come to take our stuff. This is true for both domestic and international investors who do not have the right connections.
The result of this attitude is an industry that has not been able to grow and develop in decades.
People still speak of South Africa as a country with one of the richest mineral endowments in the world. But you’d never know this from looking at our mining operations.
We haven’t explored our country in decades. We aren’t replacing old assets with new assets.
Over the past ten years we have filled in more shafts than we have opened.
The last diamond deposit of real significance – the Venetia mine in Limpopo – was discovered almost 40 years ago.
Currently we only have around 22 active, contributing mining companies listed solely on our stock exchange. Canada has over 200. Australia, too, has in excess of 200.
And of these 200 Australian mining companies, only five are considered big with a market cap of over $10 billion. The rest are all relatively small companies that are constantly looking for new opportunities.
The Perth skyline today is marked with skyscrapers bearing names like Rio Tinto and BHP Billiton. Western Australia is considered the modern-day mining capital of the world. With our vast deposits of mining reserves and improving global demand, that could have, and should have, been us.
The reason South Africa is not the world’s mining capital is entirely our own doing. We chose to shut the door on new mining development decades ago through restrictive regulations, hostile labour practices and policy that can, at best, be described as discouraging.
While existing mining operations are having to go deeper and further, and spend more and more money to extract minerals, new mining developments in South Africa are virtually non-existent.
And this is not because mining rights aren’t being issued. On the contrary, thousands of mining rights have been issued, but they’ve been issued to people who have no interest or expertise to act on them.
Their qualification is simply that they have political connections, and they sit on these rights waiting for someone to offer them money. It’s a get-rich-quick scheme that is slowly sucking the lifeblood out of our mining industry. We simply can’t be issuing mining rights to politicians and their friends.
I was told the story the other day of a young black mining graduate who had applied for the mining rights for a piece of land in the Northern Cape. He and his partners had sunk all their money into the project, but were struggling to get any clarity from the Department.
When he finally got an answer, it was to tell him that the mining rights to the land he was applying for had already been granted to someone else – someone with friends in the Department.
This guy had done all the work and invested his own money to make the find, only to see it handed to a crony with no mining interest or experience, and who probably has no plans to explore.
That’s how you kill the industry.
In other parts of the world – in Western Australia, for example – this would not happen. There, if no work is done and no money is spent within a certain timeframe, the mining right reverts back to the State, ready to be handed to someone else.
In fact, we could speak all day about the difference between the Australian approach to mining and our own. There, the government rolls out the red carpet for those who want to invest in exploration and mining. Here, our government treats mining investors with suspicion and hostility.
We simply must change our attitude. We need a brand new paradigm. A new beginning.
They key to resurrecting our mining lies in exploration, development and the entry of new players in the market.
A quick glance at the demographic make-up of the mining students at Wits and Tuks will tell you all you need to know about how this industry can change.
90% of the students in these classes are black. If we look at the big picture – if we open our minds to the possibilities of new, black entrants to the market – then it becomes clear that we’re still having the wrong conversation when it comes to expanding opportunities for more South Africans in the sector.
The priority of any charter and government should be to progress these graduates through the ranks and help them succeed in the industry.
Instead, when we speak at forums like these about transformation of the mining industry, we only talk about the existing operations and the existing mining companies. We only speak about tweaking legislation and changing policy within the old paradigm.
We speak of ways to make the MPRDA work, and of ways to make the Mining Charter palatable. We discuss the least damaging manner of implementing the ANC version of Radical Economic Transformation – essentially taking the names off the doors of the corner offices and replacing them with new names.
But that’s just crude enrichment. And while cadres are getting rich, the industry is in decline.
Make no mistake, I realise the mining industry in South Africa is not the cash cow it used to be thirty or forty years ago. There was a time when profit margins were big and people made lots of money.
By the early eighties mining, at 21%, was second only to manufacturing in terms of its GDP contribution. In that decade the total number employed in the mining sector peaked at nearly 800,000.
Three decades later, this picture has changed dramatically, with both mining and manufacturing dropping out of the top three GDP contributors.
Mining now sits at fifth and contributes less than 8% of our GDP. Employment in the sector has also dropped from 800,000 to well below 500,000.
There are many reasons for this decline. The cheap, exploited labour during the Apartheid era has made way for what is generally considered well-paid work – certainly better than the average job in manufacturing or agriculture.
Of course, as we all know, well-paid is a relative term here in South Africa. Many of the mineworkers’ grievances are real, but salaries in the sector are certainly higher than many other industries. The airport security guard who stopped me this morning earns R4000 a month.
Global demand and commodity prices have been dropping, input costs have been rising and our energy supply has become costly and unstable.
And while we still sit on one of the world’s richest mineral endowments, those minerals, in our existing mining operations, are getting harder and more expensive to reach.
Add to this a hostile labour regime, volatile regulatory practices and government policy that has done all it can to send investors elsewhere, and it becomes clear why our mining industry has fallen so far short of its potential.
Some people argue that this is a sunset industry with a finite timeline. But even if that were true, we’re nowhere near that sunset yet. It only seems that way because of the constraints we have placed on the industry.
Below our feet is the wealth that can help grow South Africa and bring thousands of excluded people into the economy. We’ve just got to make it possible for that wealth to be tapped.
There are several things we must do in order to make this happen, but the most important has to do with a change of attitude.
We must accept that South Africa exists in the real world. This is a world that functions on regular market forces and doesn’t owe special treatment to anyone.
Many South Africans still cling to the romantic notion that ours is a noble cause which the world is obliged to recognise. This could not be further from the truth. There is no moral reason to support us, to buy our products or to invest here.
We must compete. It’s as simple as that. We must do all we can to make South Africa an attractive and competitive destination. We’re not exceptional, and no one owes us their business. It cannot be easier to invest elsewhere in Africa than in South Africa.
We must also accept that growing the industry is good, and that companies will only participate if there’s profit in it. Government should help them do so in a responsible way.
Once we’ve adopted this new attitude – which will only happen through a change of government – we can turn to the many ways in which we can make the mining regulations less onerous, and open the industry up to new entrants.
First among these is to rip up the new Mining Charter, along with the MPRDA, and rewrite them for a modern, investor-friendly mining sector. And written into this new legislation must be the clause that says: “once empowered, always empowered”.
We must provide regulatory certainty – investors must have a reasonable assurance that the conditions under which they invest will be the same as when dividends begin to flow.
Our regulations must be light and clear. The interpretation of rules cannot depend on the goodwill of a government official.
We need an efficient and honest regulator. This means mandatory and short timelines for official decision-making, and we certainly cannot afford the shadow of corruption over licensing and regulation.
We need an open and transparent industry. Data should be freely available, along with transparency over who owns what rights. This information should be easy for anyone to access.
We need appropriate safety regulation in the industry. The conditions under which action can be taken against unsafe mines should be clear. And where possible, the regulator should allow for potential dangers to be corrected rather than punishing companies by closing entire mines.
We need to look at a favourable tax regime. South Africa did not build the world’s deepest mines without assisting mine owners through favourable tax schemes. The benefits of increased employment are such that taxation should perhaps be lowered to incentivise the creation of mining jobs.
We must also face the challenge of the skills shortage in the sector. Mechanisation and the use of technology in mining and elsewhere will most definitely exert a negative impact on our country’s efforts to create jobs. We need to modernise mining in order to compete with the new industrial revolution that is upon us.
And finally, we need a bold plan that encourages and promotes junior mining. Some of the points I have just mentioned, like transparency in the industry, will certainly help new entrants gain a foothold. But we must go beyond that.
We must find ways to financially assist these new entrants, most of whom will be black, to join the industry. We may also need to start the conversation on how to formalise and assist our massive informal mining sector.
And at the same time, we must ask ourselves: Why are mining companies expected to plug the holes left by inefficient local governments by providing schools, building houses and developing communities? This is not their core function; it’s not what they’re good at.
The money they spend on these projects would be better off sitting in an independently-managed trust and allocated towards projects that directly benefit the community. This could include a higher education fund for qualifying learners from the area.
It could also include a possible establishment of a Jobs and Justice Fund aimed at providing start-up capital for new mining sector entrants. I call it “jobs and justice” as it seeks to create work through new entrants, as well as ensuring justice through redress and development in communities.
If we’re talking about building a fair and inclusive mining sector in the broadest possible way, then surely helping young black South Africans to enter the industry is a great way for mining companies to make a difference.
We need better partnerships with communities in order to establish a better developmental path towards prosperity for all.
And perhaps it is also time to talk about union membership on boards of mines.
Ladies and gentlemen,
We will not create opportunities for black South Africans in mining by handing over bigger and bigger ownership shares to politically-connected individuals. All that will do is to sign mining’s death warrant.
The DA is not opposed to the handing over of shares in mining companies, but this has to be to ordinary workers and their communities, and not to a wealthy elite. And even this is only a small part of building an inclusive mining industry.
The biggest change will come through a reimagining of the industry as one that is open for business and welcoming of investors.
An industry that attracts new black entrants and offers them assistance in gaining a foothold.
An industry that is open and transparent, and free from the kickbacks and corruption that has come to define so much of our society.
An industry that has broken free from the old paradigm and is treated as an asset of our country and her people.
I trust that many of you share this vision of a reimagined, re-energised mining industry, and that you will be prepared to work with us in future to help realise it.
Issued by Mmusi Maimane, Leader of the Democratic Alliance, 4 October 2017