Mining is in trouble

Terence Corrigan on the implications of the decline of the industry for South Africa

Mining: Imagine South Africa without it…

Recent years have not been kind to South Africa’s mining industry. Once the bedrock of the economy, the global financial downturn has chipped at its bottom line. Unclear and changeable government policy have sent tremors through future planning. No less important, mining has endured intense and negative scrutiny – controversies around acid mine drainage, the Marikana killings and court action regarding culpability for silicosis being prime examples. This has powered an audible public conversation about the role that mining has to play in our future.

Even within the industry, concerns exist about its future viability. Following the commodity boom (which South Africa failed to take full advantage of), production has been down, along with employment. And this is not entirely a recent development – since 1990, the mining workforce has fallen by around 30%. And in a memorable contribution last year, Peter Major of Cadiz Corporate Solutions warned that gold mining, in many ways South Africa’s signature industry, was in danger of dying within the next decade.

Mining is in trouble.

It is also targeted. Its economic role aside, mining has long carried a unique symbolism for South Africa. For many, it represents all that is wrong with our past and present – supposedly an industry built on immiseration.

Grist to the populist mill, arguments are heard for greater state intervention, for controls on prices to facilitate local industrialisation, for nationalisation, and (on the fringes) that the mining industry as a whole is a dirty anachronism that should be retired. To which some might respond that mining is in fact yesterday’s economy, best sacrificed for ideological gratification while we refocus on the new-age opportunities of renewables, services and technology.

We must understand the price we will pay if ill-considered or retributive demands are acted upon.

Mining remains an indispensable part of the economic geology. Mining accounted of some 8% of GDP in 2015. From that, its tax liability for 2013 (the latest available) was some 15.8bn, according to the South African Revenue Service – a figure much expanded if the PAYE and income taxes of its employees are factored in. 

Meanwhile, mining provides in excess of 10% of South Africa’s fixed capital investment. This is vital to the so-called ‘real economy’, a commitment to wealth creation over the long-term. It is also a customer of enormous volumes of goods and services. All of this pumps literally billions into the broader economy – providing opportunities to firms in fields from catering to construction. In so doing, mines provide lifelines to many communities, often rural, with little else to survive on.

Employment remains significant. Mining employed 489 515 people in 2015, according to Stats SA. This is equivalent to some 5.5% of the country’s non-agricultural employment – about one in every twenty people not working on a farm is employed in some capacity by the mining industry. Arguably more than any major part of the non-agricultural economy, mining retains a demand for unskilled labour.  

And imperfect though they may be, the wages the industry pays every month provide livelihoods for hundreds of thousands of workers, and the networks of dependents that are supported off these.

Crucially, mining continues to play an outsized role in trade. According to figures from the Industrial Development Corporation, mining accounts for a third of our exports, making it a major earner of foreign exchange.

So consider for a moment South Africa without mining.  While the fate of the industry is often presented as a concern of the rich, South Africa’s poor have much to lose too. An emptier fiscus would make the spending on the social services and welfare measures that have become the country’s palliative for poverty much more difficult to conceive – or for any consideration of further funding to higher education, say. Hundreds of thousands more unemployed, and millions deprived of even the modest support that mining incomes provide. A lot more desolate hamlets throughout Limpopo, North West and Mpumalanga. And a vastly weakened currency, with higher inflation to match.

This is not to suggest that nothing can be improved. Indeed, corporate governance today recognises the responsibilities that companies have to their host societies. Mining has its share of ethical lapses. Its impact on the environment invites monitoring. The lot of its workforce is an unavoidably political question. And in this regard, an engaged civil society and efficient regulatory authorities are an asset to the mining industry itself.

But we must recognise the considerable role that mining plays, directly and indirectly in South Africa’s economy. More than that, we must recognise the role it still has to play, with R2.5 trillion worth of mineral resources beneath our soil.

And we must understand how fragile those future opportunities are. As Peter Major remarks on gold mining: ‘Gold mining has lost 1 million people in 30 years. People say our gold mines are closing because of lower grade ore, but we know better than that. It’s not about grades, it’s about efficiencies and cost.’

Efficiencies and costs. Mining’s future depends on enhancing the first and containing the second. Nothing that seeks to exploit and enhance the industry’s potential for South Africa’s development can ignore them. Foremost here is thinking clearly about the consequences of new demands or policy prescriptions, whether intended or unintended. Do they discourage mining investment? Are they implementable? In seeking social goals are they working against economic logic?

Otherwise we might face a future in which we need not imagine South Africa without mining – it could be our lived reality.  

*Terence Corrigan is an independent governance specialist