Investors have lost faith in South Africa’s government

Sibanye Stillwater CEO Neal Froneman said business investment in South Africa is on strike until things improve.

He explained that investors have lost faith in South Africa’s government and have halted investment despite a wealth of opportunities.

More than 200 days of power cuts last year, blackouts every day so far in 2023, Transnet’s poor performance, and a plethora of other problems have dented confidence.

“Pledges to enact reforms to spur the economy have come to little,” Froneman said.

He said businesses could increase investment in South Africa if the business climate was different, there was policy certainty, and there was enough power.

Corruption, crime and mixed messages from government ministers as to how quickly the country will transition to cleaner energy have also drawn criticism from a range of business leaders.

Investment has been confined mainly to keeping existing businesses running rather than expanding their operations.

Mining accounted for 4% of the gross domestic product in 2022, employed about 476,000 people and generated R878 billion in exports.

Largely as a result of the problems Froneman laid out, economic growth is anaemic, with economists surveyed by Bloomberg forecasting an expansion of 1.2% this year.

Unemployment at 32.9% is among the highest across more than 80 countries tracked by Bloomberg.

“Investors are very negatively disposed toward South Africa,” Froneman said. “They’ve lost faith, and they’ve lost trust in the government.”

Vincent Magwenya, the spokesperson for South African President Cyril Ramaphosa, referred queries to the Department of Mineral Resources and Energy.

The department didn’t immediately respond to queries, but mining minister Gwede Mantashe acknowledged the impact of blackouts and transport issues on the industry.

Among the nation’s biggest electricity users, mining companies are scaling down some activities.

The outages probably cut South Africa’s output for platinum-group metals by 10% in 2022, and this year, production could fall by a fifth, Froneman said.

South Africa accounts for about 70% of the world’s platinum output and almost 40% of all palladium, metals which are used in auto-catalysts that curb vehicle emissions.

Sibanye, which was carved out of Gold Fields in 2013, employs about 85,000 people, including those working at its US operations.

Since its formation, Froneman has diversified the company by buying platinum, nickel and lithium operations in Zimbabwe, Europe, and the US mining companies are now at risk of closing some unprofitable shafts in South Africa, which would lead to job cuts, he warned.

“Some shafts are very marginal, and I think load-shedding could tip them over,” the CEO said, using local terminology for blackouts.

He said that the challenges at the national power utility, Eskom, and state-owned rail and logistics company, Transnet, are unlikely to be resolved soon.

Coal arrivals at the main export port collapsed to a 30-year low last year because of Transnet’s poor performance and have fallen even further this year, according to people familiar with the situation.

The Minerals Council in December demanded that Transnet management be removed. Transnet and the Minerals Council have declined to comment.

“All the trajectories are down,” Froneman said, referring to Transnet’s faltering performance. “You don’t see anything turning. I completely support the Minerals Council’s approach.”

The Sibanye CEO’s concerns were echoed by Duncan Wanblad, the chief executive officer of Anglo American, in a speech at the Mining Indaba in Cape Town. Anglo owns iron ore, platinum and diamond operations in South Africa.

“Corruption – and the crime that stems from it — are cancer eating away at the entire economy on a horrific scale,” he said.

“Progress made in energy provision was so late in the day that the system had already failed,” he said.

The economy’s poor performance could cost the ruling ANC power in next year’s general elections if it continues to “act in the party’s interest instead of the national interest,” Froneman said.

“They engage but are unable to implement any of the things necessary to change this,” he said. “They will tell us what we want to hear, but I don’t believe they are sincere in making a difference.”