Mining’s long-term value: not only below the ground

How can South Africa ensure that its mining industry ‘works’ for it in the long term? This is an important question, posed in numerous policy documents and by numerous policy makers – and increasingly by politicians for whom mining is an avatar of all that is wrong with the country. Surely, as a country sitting atop a multi-trillion dollar trove of minerals, South Africa can do better than merely pulling ore from the ground, and shuttling it off to be worked abroad?

The short answer for some years has been beneficiation: South Africa must process its minerals locally. Economic Development Minister Ebrahim Patel put in these terms back in 2011, ‘in order to achieve the greatest employment and development benefits, we cannot rely simply on selling raw materials to the rest of the world.’ Not only would beneficiation of our minerals stimulate the overall economy, but it would generate work in the manufacturing sector – creating the ‘decent jobs’ that are the gold standard in government policy.

However, like the minister’s New Growth Path, beneficiation has proven more challenging in the implementation than in the conception. Receiving less attention is the idea of ‘upstream’ industries – those supplying inputs and services to the mining sector. But, as the Oxford economist Paul Collier has argued, this probably makes a lot more sense. Indeed, the National Development Plan thought there were great possibilities in this.

Unlike the sort of beneficiation being contemplated in South Africa – largely a case of establishing local industries to process local minerals, with a generous dose of political support behind it – upstream industries need a solid commercial rationale. They will succeed if they are serving the needs of a robust mining industry. Moreover, mining demands engineering and manufactured goods. This presents a rare opportunity to stimulate South Africa’s manufacturing sector, and all that it implies: ‘decent jobs’, skills development and so on.

And if upstream industries can develop useful expertise in supporting mining operations, there is no reason why they should not become a significant players beyond national borders and even outlive a decline in the country’s mining operations.

In theory at least, South Africa is well-placed for this. It has a mature, well-developed mining industry, and a community of firms servicing it.

Dr Chris Gilchrist, onetime mining executive in South Africa and an international consultant to the industry today, argues that South Africa has not lived up to its full potential in this regard. ‘One or two decades ago, South Africa was poised to do this, but in many ways, Australia has now taken its place. There’s a huge volume of services, technology, know-how, consulting coming out of Australia and going global.’

Why is this? Part of this may have been due historically to a reliance on low-wage manual labour, and a brain drain in recent years. Increasingly, however, as rich, easily extractable deposits are exhausted, innovation is coming to define the future of mining.  

Dabmar Manufacturing is an example one that has risen to this challenge. A venerable 50 year old outfit based in Hattingspruit in northern KwaZulu-Natal – an economically-stressed part of the country – it makes sorting and sizing equipment for clients in South Africa and abroad.

Dabmar’s success notwithstanding, CEO Josef Martin worries about the tough times that mining is facing in South Africa. Indeed, while no hard information exists on this, he believes that many upstream firms are being driven to the wall. ‘It seems that a lot of these places are closing. Where we pick this up is in the phenomenal number and quality of people we get applying for jobs. People with 30 years of experience, where the old employers went under or just moved on.’

The key problem, Martin says, is the troubled state of mining in South Africa. Nervous investors, onerous regulatory demands, coupled with antagonistic politics and policy that fails to understand the realities of the industry mean less business, and an insecure future. Beyond this is South Africa’s shortage of skills, in both the mining and manufacturing sectors. Skills are still to be found, but they are an aging, and shrinking pool. The widely criticised SETAs have failed to do much to address this. And South Africa is not doing much to incubate the entrepreneurs it needs to establish these enterprises and to make them succeed.

Indeed, research on the economy as a whole suggests that these concerns are widespread, particularly among manufacturers. This implies less demand for the products they produce. And fewer jobs, training opportunities and all the positive knock-ons that all of this implies. And a lost opportunity to make South Africa’s mineral endowments ‘work’ for it. 

To turn this around, South Africa needs not only to rethink policy – critical though that is – but more so to rethink mindset. If mining is to be a catalyst for broader development, it needs to be freed to grow. Some as aspects of the regulatory regime need to be reconsidered, empowerment requirements being a prime example. Other, necessary aspects, such as health and safety requirements, need to be performed more efficiently, and with an eye on dealing with problems rather than penalising business. The recent courtcase around Section 54 stoppages has drawn much-needed attention to this.

Perhaps more than anything, there is a need to shift thinking from politics to pragmatism. Beneficiation has proven alluring because it is a signifier of something deeply ideological. It announced that these resources are ours and we demand to profit by them. Upstream industries hold no such value. Rather they are creatures of rational incentives and opportunities.

They are also the best hope for a durable legacy for our mining industry.

Terence Corrigan is a Policy Fellow at the SA Institute of Race Relations