South Africa must stop BEE to save its most important industry

South Africa’s mining output has been steadily declining over the past 20 years, with little to no new exploration occurring in the country despite evidence of significant mineral deposits. 

The decline in output has led the country to miss the full benefits of recent commodity booms and to lose thousands of jobs in the sector. 

South Africa’s mining sector has lost around 300,000 jobs over the past decade as old mines are shuttered, without any new projects to replace them. 

This is due to a myriad of factors, with most pointing to the declining performance of Eskom and Transnet as major reasons for the sector’s slow collapse. 

However, the failure of these two state monopolies to provide basic services cannot, on its own, explain South Africa’s declining mining output. 

Other parts of the world, particularly in Africa, have experienced significant investment in their mining sector, with output surging, despite having substantially worse infrastructure than South Africa. 

Modern Corporate Solutions mining analyst Peter Major explained at the BizNews Conference that the main driver of mining output and investment is government policy, not infrastructure. 

Mining companies are incredibly resourceful and are willing and able to operate in conditions that many other corporations would not tolerate. 

While highly functional infrastructure and service delivery make mining more efficient and profitable, most miners are willing to build their own infrastructure to support their projects and even invest in surrounding areas to ensure they can operate. 

However, one thing mining companies need above all else to invest in is a stable policy and regulatory environment that enables them to invest in projects over decades. 

Most mines take 17 years of investment and construction before they can operate at full capacity. This requires immense trust that policy and regulations will not change before you can see a return on investment. 

In South Africa, this has not been the case over the past two decades, with policy and regulation in the mining sector changing regularly and becoming increasingly onerous. 

It’s the policy

Major explained that to understand what drives investment in new mines and projects, one just has to look at what countries in the rest of Africa have done to revive their mining sectors. 

“We have beautiful examples in front of us of what South Africa could be. We just have to look at the Democratic Republic of Congo (DRC) and Zambia,” Major said. 

“In Zambia, copper production rose steadily throughout the 1940s, 1950s, and 1960s, but then they nationalised the industry and production collapsed.” 

Copper production in Zambia declined to about 50,000 tonnes per annum in 1998, despite it having some of the best deposits of the metal.

“What happened in 1998 and 1999? There was regime change, and a new policy was implemented. Copper production has gone from almost nothing to close to a million tonnes per annum in Zambia.” 

The DRC is now the second-largest copper producer in the world at over three million tonnes. 

“Those countries are still a disaster to operate in with regard to infrastructure. Just having a policy change has seen a dramatic turnaround,” Major said. 

Major thinks the chances of such a turnaround in South Africa are slim if the ANC remains in power and without Patrice Motsepe as President. 

“All we need to do is change our mining policies and remove Black Economic Empowerment (BEE) as it is currently devised,” Major said. 

“We don’t even have to give the mines back. We stay with almost nationalised mines. Just get rid of BEE, and that will open up investment in mines in the country.” 

Major has previously said that South Africa should rewrite the Minerals Act and base it on historic legislation that made the country’s mining sector the most powerful in the world. 

He has criticised South Africa’s current Mineral and Petroleum Resources Development Act (MPRDA) of 2002, saying it is responsible for the decline of mining in South Africa. 

In the two decades that followed the implementation of this policy, there has been little to no exploration in South Africa. 

“South Africa’s policy evolved over one hundred years. It was tailored to deep-level gold mines. It was tailored to expensive high-electricity refineries like the platinum mines had,” Major explained. 

“So, you know, I would go back and look where our legislation was in the 1990s and do some tweaking. Modernise it a bit and give people a reason to come back to South Africa.” 

“Start with wanting legislation that creates jobs, and then create legislation that puts money in the government’s coffers without killing the companies that are paying the money.”