Turmoil or Opportunity in the Mining Sector?

By Saliem Fakir · 31 Jul 2012

A+ A= A-
    Print this page      0 comments
Picture: Wikimedia Commons
Picture: Wikimedia Commons

Is the mining sector in crisis?

It was a source of lively debate at a conference titled, “Mining Dialogue 360 Degrees”, hosted by the South African Institute of Mining and Metallurgy (SAIMM) from 10-12 July 2012 and sponsored by the Royal Bafokeng (disclosure: the author was one of the moderators at this event).

The post-1994 accord that was bridged in Lusaka with business and the multi-party negotiations process led to a compromise. The private sector would be left to deliver a core part of the economic development agenda while the state focused on the business of incumbency and establishing a new state.

However, the deal did not go without encumbrances imposed by the state, such as, BEE requirements, affirmative action and other policy instruments to restructure and realize redistribution through osmosis, if you like.

This accord and alignment is all but in tatters now. A deficit in trust is entrenching a new divide. The state is looking elsewhere for new partners – within itself, at foreign state enterprises as well as at new private corporations.

The seductive hold of state capitalism, as practiced elsewhere, is now permeating new economic thinking and policy gestures within the ANC and parts of the state itself. 

Debates in the mining sector are symptomatic of shifts being felt in economic policy ever since President Zuma came to power. A reconfiguration of policy is taking place within the general economy and in the mining sector in particular.

Discussing the future of the mining sector in isolation defeats the purpose, as the nationalisation debate is really a debate about the role of the state in economic development and the place of private players in relation to this growing new re-alignment of policy.

In times of commodity booms, windfall revenues always become the subject of political controversy, encouraging resource nationalism. Communities and national governments feel strongly that private gain cannot be at the expense of communities, labour or national governments.

Minerals are an exhaustible resource and how proceeds are used to support long-term economic diversification and sustainability is prone to ideological wrangling. But policy could also be based on sound economic theory.

One such economic policy approach is the ‘permanent income hypothesis’ - originally developed by Milton Friedman but now applied more universally also to resource management strategies making strategic investments out of non-renewable resources so that the domestic source of capital grows larger rather than shrink over time, as minerals or the extractive industries endowment is depleted.

But in South Africa, there has been no considered view on positive long-term strategies that could be shared between different players in the mining sector to inform this permanent income hypothesis thesis, nor whether it is wanted or not.

Often mining becomes an issue purely of ownership and rents without clear intent as to the end-goal that should underpin new policy shifts being proposed.

Many of the mining dialogues tend to veer towards an inward looking agenda. Conversations never transcend interest-based issues such as mining company vulnerability to profit, competitive and productivity losses, labour concerning itself about fair wages and communities’ frustrations about the daily burdens of poverty whilst in their midst lie vast riches of minerals.

Inwardly focused interests, while important and not to be dismissed, do not resolve the underlying issue. If nothing is done, the continued fixation on passing the buck will do little to put the mining sector on a stable footing. The recurrent message from all participants at the SAIMM mining dialogue, ironically, was that the mining sector is in decline despite South Africa’s mineral abundance and something needs to be done urgently.

A new, shared vision and policy environment is necessary as the old order regime is no longer workable given the levels of distrust that exists between different players in the mining sector. After three days of deliberation participants brought several areas where a conversation could begin to the fore.

Firstly, minerals won’t last forever and technology developments in the mining sector will slowly displace a portion of the unskilled and semi-skilled labour with time, as mining goes deeper and becomes more complex. Herein lies both a threat and an opportunity.

In this context the relationship between mining and state capability is important, as is the manner in which resource rents are used to grow the existing mining sector, meet equity requirements and support an economic development strategy that fosters structural shifts and intergenerational concerns.  Skills development to support industry changes and manage structural shifts to other sectors is paramount and goes beyond a narrow focus on mining.

Secondly, the whole beneficiation debate is material – but perhaps roles are being confused. Recurrently, this is dealt with as a narrow compliance-related issue. For example, gold miners must now also become jewellery manufacturers. This is perceived as the state imposing additional compliance requests on an industry that doesn’t view beneficiation as its core competency. However, the debate needs to unhinge itself from the compliance and regulatory mode. Instead a broader discussion about beneficiation and industrial development involving the mining sector, the state, labour and other industry players should be held.

Thirdly, participants did table other enhanced compliance measures arguing that the Mining Charter and the Social and Labour Plans need to be revisited. These are policy tools through which the mining industry is expected to share the burden of national development, in as far as it can, but it can only be a positive instrument of change if it is undergirded by effective implementation, high-levels of transparency and in which delivery itself is dependent on joint or collective effort from various interested and affected parties. Government capability at local level is an important factor, too, in determining the success or failure of local economic plans.

Fourthly, the political economy of mining is changing. New players outside of the traditional Anglo-Saxon world are making their way into the South African market. Their alternative take on political risk and long-standing political relations with the ruling party will bring about shifts in how the mining sector will evolve in this country. If no real accord or common vision exists between the established mining industry, a partnership and re-alignment of the sector between state and new foreign players - mainly from the BRICs countries - will be pursued with vigour, if it’s not already happening.

New players offer a clean slate and a different style of political economy. The distance between state and established players will simply grow.

However, there is no guarantee that this re-alignment of economic agency between state and foreign players will deliver the economic and social welfare dividends any better. It may well turn out to be a recipe for more state-centralism in the mining economy with little return for labour or communities.

Overall, the debate on mining can take two trajectories: a very inwardly focused sector approach where everybody fights for their own interests or a richly endowed sector, sitting with exhaustible resources, which enables a dynamic and sustainable economy by building this pot of ‘permanent income’ for all South Africans.

The choice of how the debate goes depends largely on whether key players in the sector have vision and long-term commitment. First, however, it would be important for them to reach a consensus – one where it is understood that the minerals sector is an economy we must graduate from to other types of economic activity in the long-term.

Fakir is an independent writer based in Cape Town.

Should you wish to republish this SACSIS article, please attribute the author and cite The South African Civil Society Information Service as its source.

All of SACSIS' originally produced articles, videos, podcasts and transcripts are licensed under a Creative Commons license. For more information about our Copyright Policy, please click here.

To receive an email notification when a new SACSIS article is published, please click here.

For regular and timely updates of new SACSIS articles, you can also follow us on Twitter @SACSIS_News and/or become a SACSIS fan on Facebook.

You can find this page online at http://sacsis.org.za/site/article/1380.

A+ A= A-
    Print this page      0 comments

Leave A Comment

Posts by unregistered readers are moderated. Posts by registered readers are published immediately. Why wait? Register now or log in!