One ANC decision that broke South Africa’s most important industry

The ANC’s decision to implement the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 has crushed South Africa’s mining industry by discouraging investment in exploration and expansion. 

In the two decades that followed the implementation of this policy, there has been little to no exploration in South Africa for new mineral deposits despite evidence of a rich bounty. 

This has led to the stagnation and steady decline of mining output in South Africa, with the industry shrinking and becoming a shell of its former self. 

The industry is still vital for the South African economy, making up a significant share of its exports and supporting hundreds of thousands of jobs. 

Coupled with this policy is the government’s failure to address concerns raised by the local mining industry, which include policy uncertainty, deteriorating infrastructure, and threats of nationalisation. 

This is feedback from Modern Corporate Solutions mining analyst Peter Major, who explained how South Africa has gone from one of the best jurisdictions to operate in as a mining company to one of the worst in just three decades. 

Major explained to BizNews that the challenges facing South Africa’s mining industry are deep-rooted, with even radical reform in a short period of time not likely to yield results in the coming years. 

He pointed to the reluctance of American oil giants to invest in Venezuela even after US military intervention as an example of the severe damage destructive policies can do. 

“Not one of the top four oil majors in America wants to go into Venezuela. They have very good reasons why, with many of them being nationalised three times, and the country has been run into the ground,” Major said. 

“That is a wake-up call for places like South Africa. Even if we had regime change tomorrow, the foreigners are not going to rush in here to open up these deep-level gold mines that the Oppenheimers built and funded. It is uninvestable.” 

Major said there are a lot of parallels between Venezuela and South Africa regarding their mismanagement of critical industries and destructive policies. 

The revival of South Africa’s mining industry will take significant investment from mining companies, with the sector having effectively lost out on a generation of infrastructure and new mines. 

At last year’s Johannesburg Mining Indaba, Anglo American CEO Duncan Wanblad said South Africa’s potential has been under-exploited due to unsupportive policy for exploration for the last 20 years. 

“That’s a very important part of a mining life cycle. The data will show you that it takes about 17 years from the time that you find the deposit until the time that you get it permitted and ramped up into full production,” Wanblad said.

“It’s a generation of mines that have been foregone,” he said.

The result of poor policy

While South Africa has not nationalised any industry in the same vein as Venezuela, the threat has always been on the table, and the operational freedom of companies has been curtailed. 

Most crucially, their ownership of mineral resources and deposits has been significantly eroded, dramatically changing the equation for many mining companies with regard to investing in South Africa. 

Major said he would respond to people saying that South Africa has not nationalised anything by asking them how much investment the country has received since the MPRDA came into effect. 

“Can you imagine working your whole life, decades, building the most modern, efficient plant? And then you wake up one day, and the dirt it is sitting on is no longer yours?” Major asked. 

“The government tells you, ‘Your plant may be sitting on some dirt, but you don’t own any of that dirt. And if you do everything we tell you, you might use it for 20 years, 25 years, and then we will decide if we want to renew it.’”

Major said this shift dramatically changes the investment case for mining in South Africa, with it significantly increasing the hurdle above which the reward justifies the risk. 

“Mines are a hundred-year investments. So, are you happy investing now? Somebody else took away your minerals, but they will let you borrow them with a lot of different terms and conditions than the day before,” Major said. 

“That is something that just does not register with Pretoria. It does not register with the mindset that the ANC has or indeed that South Africa has.” 

The destructive policy of the MPRDA type has crushed South African mining, turning an industry that was once the envy of the world into a shell of its former self. 

South Africa’s mining output has stagnated over the past 20 years as it became one of the worst jurisdictions to operate in around the world. 

“We were a leviathan in 1980. Nobody could beat us. Anglo American was the largest investor in the United States. The Americans were terrified of us,” Major said. 

“You are seeing what happened in Zambia and in Zimbabwe now happening in South Africa. It has not turned around. It is still going down.”

The historic backbone of South Africa’s economy, mining output has steadily dropped over the past two decades, declining by 0.4% annually since the 1990s. 

“When the new administration took over, it decided to try to totally revamp mining law in South Africa and copy what other African nations did,” Major said. 

“It said, ‘We will nationalise these mines and take them back. They are no longer private property but are the state’s property.’” 

“You can imagine. You put billions into projects for 100 years and are now threatened with state ownership. New investment just stopped. Exploration and expansion just stopped. Why put money in something the state owns?” 

“They were also changing legislation non-stop. You first had to have a BEE partner that owned 25%, and that quickly increased to 30%. And then, they said 70% of the money you spend had to go to BEE suppliers.” 

“As if nationalising property was not enough, they put on all these horrendous conditions that drove capital away.”