Mining at 150 should be celebrated, not threatened yet again

John Kane-Berman writes on how dependent South Africa remains on that industry

The year 2017 will be the 150th anniversary of the discovery of diamonds in South Africa. Actually, that may not be strictly accurate, as diamonds might have been discovered earlier although not put to commercial use. But the discovery of a diamond on the banks of the Orange in 1867 sparked off mining all over the country.

It also sparked off many other things, including the first stock exchange in Africa in nearby Kimberley in 1881, where Cecil Rhodes consolidated thousands of small diggings. Another direct by-product of mining was two universities, those of the Witwatersrand and Pretoria, which originated in a school of mines in Kimberley.

Diamond mining begat gold mining, which begat coal mining, as the mines needed colossal amounts of energy. Railways had to be built, and the mines played a huge part in financing them. Mining, in short, turned South Africa from an agricultural into an industrial economy, whence it matured into one dominated by the service industries spawned by the needs of the mining and industrial sectors.

Mining today accounts for only 8% of national GDP, but this small proportion understates its wider importance. Mining accounts for the largest single slice of output in four provinces - the Northern Cape, Mpumalanga, Limpopo, and the North West. Our largest harbour, Richards Bay, is dependent on mineral exports. The same is true of Saldanha Bay. Several of our largest towns are dependent on the mining or processing of platinum, coal, iron ore, or copper. Without coal mining there would be no Secunda or Sasolburg.

Without mineral exports, which account for a third of merchandise exports, South Africa would not earn the foreign exchange needed to feed this import-hungry economy. Last year, according to the Chamber of Mines, the mining industry purchased goods and services worth R246 billion. Four fifths of these were locally produced. Although the mining industry itself now employs only 485 000 people, it claims to account for another 954 000 jobs in other sectors. These spin-offs show that mining's contribution to the economy is wider than the 6.8% it currently contributes to corporate taxation, over and above royalties.

Mining has a darker side, however. The compound and migratory labour systems were long intrinsic to it, and are still in use, albeit on a much smaller scale. Partly as a result of the industrial colour bar, black wages remained very low until the fixed price of gold at $35 an ounce was abandoned in 1971. This history helps to explain the hostility to the mining industry so prevalent in the African National Congress and the South African Communist Party.

Hostility also has ideological origins, however, in that mining is seen as the ultimate manifestation of "colonialism" and "white monopoly capital", even though neither mining nor the country would have developed without foreign investment.

Thanks to the hostile political environment, South Africa lost out on the most recent commodities boom. Between 2001 and 2008, the local industry shrank by 1% a year, while the top 20 mining exporting countries grew by an average of 5% a year. Instead of welcoming mining investment, we subject it to escalating demands and capricious behaviour, such as threats to cancel licences.

Even if another boom were to materialise, South Africa would again lose out thanks to continuing hostility (euphemistically described as "uncertainty"). Despite the fact that the industry has bent over backwards to meet government demands, despite the fact that it has run up losses of R47 billion in the last two years, the government seems set on imposing a revised mining charter about which the chamber claims it was not consulted and which it says contains unrealistic targets.

Even though singling out this one industry inflicts damage right across the economy, the government seems bent on extracting its pound of flesh from mining regardless of the cost in lost output and jobs elsewhere.  

John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom.