South Africa is killing its golden goose

Policy missteps, bad management, and the inability to attract investment have seen South Africa’s mining industry shrink significantly over the past three decades.

This is despite the local mining sector’s immense potential to boost the economy and pull South Africans out of poverty by creating employment opportunities.

KPMG South Africa lead economist Frank Blackmore said the South African mining sector still holds a lot of potential both in terms of its contribution to GDP and employment. 

This is especially the case when considering the numerous supply chain benefits from the sector that could be moved downstream towards manufacturing and industrial sectors.

In addition, the sector’s contribution to the gains from exports of natural resources should not be overlooked.

Blackmore explained that this opportunity comes as many economies around the world have embarked on a “just energy” transition towards more sustainable energy sources.

He said a lot of the natural resources required for this cleaner, more sustainable energy future are allocated within South Africa.

Therefore, the country has a good opportunity to leverage these resources to develop its economy and pull people out of poverty and into the economy.

“The problem is that if we look at it just from democracy in 1994 till today, the mining sector contributes 11.5% less in 2024 than it did in 1994 to GDP in real terms,” he said.

“The premium of this is one of the policy missteps, bad management, the inability to attract investment, specifically through a lens of exploration in the South African mineral sector.”

Other statistics regarding the mining sector support this view, with over 500,000 mining jobs lost since 1994 despite elevated commodity prices and a rich mineral bounty.

In addition, South Africa has seen little to no new explorations for mineral deposits in two decades.

This is particularly concerning given that a mine typically takes 17 years to develop from exploration to full capacity, meaning even if South Africa starts new explorations now, the benefits would take nearly two decades to materialise.

From mining giant to shrinking sector

Decades ago, South Africa was one of the top mining countries in the world, and saw significant benefits from the sector’s contribution to the economy.

While the country still benefits from commodity booms, it is not to the same extent as in the past, with mining companies now preferring to invest elsewhere.

Blackmore pointed out that the immense potential of South Africa’s mining sector and the benefits it could bring to the economy have been witnessed before.

During cyclical up terms, such as the one in 2001/2002, the mining sector contributed largely towards the South African revenue gains, alleviating the pressure on the government to increase taxes or cut expenditures. 

“These types of benefits would be harnessed at a much greater scale if the sector were the focus of economic development and a greater amount of investment, not only by South African firms but also by international firms,” Blackmore said.

However, in order to do so, he explained that there are a number of requirements that need to be put in place, including –

• Good management
• Change in policy to make it more industry-friendly

“We need to take this sector seriously in terms of the future of South Africa, especially at this time when a lot of our natural resources are in such high demand,” Blackmore said.

Mining analyst Peter Major places the blame for South Africa’s deteriorating mining sector squarely at the feet of President Cyril Ramaphosa and Mineral and Petroleum Resources Minister Gwede Mantashe.

Major previously pointed to Ramaphosa and Mantashe’s inability to address the mining industry’s concerns and improve relations with the world’s wealthiest economies as some of the main inhibitors to the sector’s growth.

He explained that increased interest from the world’s two largest economies – China and the United States – in mineral resources and supply chains should have driven a mining boom in South Africa.

“Get with the programme, guys. We have 33% unemployment. We have no economic growth. But, we have all the minerals that the world wants, let’s do something about it,” Major said. 

“We have the two richest countries in the world that would love to be friends with us. What a great position to be in, and we act like we are in a bad position.”

Major said South Africa should capitalise on this increased attention to attract investment into the country and revive its mining sector. 

To capitalise on this opportunity, he said significant changes would need to occur at the government level to make the country more attractive for investment and conducive to business.

One of the main reasons for South Africa’s lack of new explorations over the past two decades is policy and eocnomic uncertainty, with companies hesitant to invest in opening new mines or expanding and extending existing operations.

Uncertainty is particularly hazardous to growth in a sector like mining, where the lengthy lead time between exploration and full capacity requires a company to have extreme certainty that its decade-long investment will yield a return.

This high level of certainty required is something South Africa has not had for the past few decades, as threats of nationalisation, increasingly onerous regulations, and transformation policies have made it difficult to operate in the country.