The slow destruction of our mining industry

John Kane-Berman says govt's 'transformation' demands seem designed to drive the sector to the wall

"Transformation" of mining looks like intentional destruction

During his state-of-the-nation address a month ago President Jacob Zuma declared that "mining has always been the backbone of our economy". Speaking in October 2013 at the opening of an extension of the Venetia diamond mine operated by De Beers in the north of Limpopo, he said mining was "poised for growth and expansion".     

In the past year, however, South Africa's overall attractiveness as a destination for mining investment has dropped from 66 out of 109 countries to 74 out of 104. The ranking comes from the Fraser Institute, a Canadian research house headquartered in Vancouver. It is based on 350 replies to a questionnaire sent to mining executives in countries around the world towards the end of last year.

Our ranking for the attractiveness of mining policies is even worse. We are at 84 out of 104, the third worst in Africa. We beat only South Sudan and Zimbabwe, and trail far behind countries that include Botswana (ranked at 12) and even Zambia (ranked at 43), whose mining industry Kenneth Kaunda helped to destroy.

Fraser's "policy perception index" is designed as a "report card" for governments on how attractive their policies are "from the point of view of an exploration manager". In September last year Mr Zuma said that "investment in exploration and extraction has dropped significantly". Now he knows why.

The question is whether he regrets this or welcomes it. It was once possible to argue that the damage done to the mining industry by the demands upon it were an unintended consequence of policies set forth in mining, labour, and other legislation. That argument is looking more and more flimsy.

The consequences of the incessant and escalating demands upon the mining industry by Mr Zuma's government have been repeatedly pointed out by numerous analysts. The industry itself and various outsiders have made endless submissions identifying risks. The government's own National Development Plan, adopted in September 2012, noted that whereas the top 20 mining exporting countries had averaged growth of 5% a year between 2001 and 2008, South Africa's mining industry had shrunk by 1% a year. By 2015 in fact, Mr Zuma himself said it was "alarming" that so many mining companies were running at a loss. 

Despite all this, mining will face additional "transformation" demands when the amended mining charter and amendments to mining legislation are published in the next few months. The government, the African National Congress, and the South African Communist Party cannot be so stupid as to suppose that these will not do more damage.

This points to the obvious conclusion. The damage is intentional. Far from being "alarmed" when mining companies make losses, Mr Zuma welcomes the losses. The hostile policy environment is not accidental but deliberate. This conclusion is strengthened by mediation regulations recently published by the Department of Trade and Industry (DTI) under the Promotion of Investment Act of 2015.

That act replaced bilateral investment treaties with 13 European countries which the government renounced. Companies seeking mediation rather than going to court to resolve disputes with the government (for example, over mining rights) will have to rely on mediators whose names appear on a list drawn up by the DTI. This is calculated to deter foreign investment in mining.        

Instead of outright nationalisation of mining companies, the government and its joint ruling parties are designing a situation in which mining companies call it quits and sell out to the Public Investment Corporation or to political favourites. Of course, many companies have already left or reduced their exposure to South Africa. Their places have often been taken by new entrepreneurs. But sooner or later these too will be driven to seek more and more of their fortunes elsewhere. The government's new "mining champion" is waiting to take their place. If it does, it will complete the process of destruction. That part will probably not be intentional. 

* John Kane-Berman is a policy fellow at the IRR, a think-tank that promotes political and economic freedom. His memoirs, Between Two Fires: Holding the Liberal Centre in South African Politics, will be published by Jonathan Ball in March.