Leading the way to economic diversification

The South African mining industry has the potential to take the economy through another strong growth phase, but the country over the longer run can ill-afford that the opportunity it creates to diversify the economy in preparation for a post-mining economy  be squandered. This is a shared responsibility between government and the private sector.

This was one of the overriding messages to come out of a recent seminar on beneficiation, hosted by AngloGold Ashanti and Motjoli Resources as part of a six-event series about mining change.

In his contribution Dr. Iraj Abedian, chief executive of Pan-African Capital holdings said the $2.5 trillion worth of non-energy on-site mineral wealth – making South Africa one of the wealthiest mining jurisdictions in the world – to be mined over the next 100 years provids an opportunity for the country to diversify its economy.

Setepane Mohale, chief director of beneficiation in the department of mineral resources said at the same occasion that the South African Cabinet approved a minerals beneficiation strategy in June this year. This is aimed at providing a framework that would translate the country’s significant mineral resource reservoir to a national competitive advantage.

Dr Abedian for his part expressed frustration about the time lapse between policy formulation and practical implementation. “The frustration is captured by the fact that 17 years later (since the a beneficiation policy was first suggested as part of the Redistribution and Development Programme in 1994) we are on the same spot, having spent a lot of energy, having exchanged a lot of ideas, had many lekgotlas and spent a lot of time having coffee and tea, dinners, launches and so on and yet we have not cracked the nod. That highlights the challenge ahead of us as a nation,” he said.

It is, however also true that the need for greater efforts at beneficiation was already the subject of heated debate some 40 years ago in the apartheid-parliament of the time and when the late Dr. Piet Koornhof was the minister of mining. A start was made with the process and some progress made, although it was hampered in part due to the economic sanctions that were in place against the country.

Ironically the process was probably rather further stunted than benefitted by the political developments of 1994 and South Africa’s re-entry into the family of nations, by another process that had  by then taken hold of the world-economy: globalisation.

Dr. Abedian in essence referred to this by his assessment that beneficiation is compromised by the results of globalisation.

“If you take a helicopter view of South Africa as a nation we are pointing at each other and not focusing on the business,” he said in using the skills shortage as an example. During the 10 years he had been involved in the industry, every mining house had been  talking about a shortage of skills and 10 years later nothing had changed.

Between them they had not managed to get into a room and say “if we are short of skills, let’s look at what worked in the past. Our mining houses are not doing their bit. They have become like armchair philosophers who are waiting to find a hole in some policy or political sphere and point fingers, using it as a way to hammer government,” he said.

In the process beneficiation is compromised to the extent that mining houses have failed to deal with the issues of capacity building. What is more, globalisation had changed the game with major mining houses now being portfolio managers rather than miners.

With the bosses of huge mining houses worried about a global portfolio rather than the business of mining, it is easy for beneficiation to be overlooked. One would be hard pressed to find allocations for beneficiation in the five-year plans of these groups, he said.

This also ties in with the broader, world move towards resource nationalism, which also forms the broader backdrop to the nationalisation debate that has been raging in South Africa in recent times.

Mohale alluded to this in noting that audit and advisory firm Deloitte had said that the interest in beneficiation was largely attributed to the rise in resource nationalism, which was underpinned by higher commodity prices.

On the other hand evidence of the world-wide tension that develops between national and global interests can be found in the yearly risk report for 2011 – 2012 of consulting firm Ernst and Young. Looking at the issue from the perspective of global mining corporations the report comes to the conclusion that resource nationalism has replaced capital allocation as the number-one business risk facing mining and metals companies as governments globally continue to make demands in order to increase their slice of the profit pie.

Mohale, however said that rather than simple resource nationalism, beneficiation ties in with South Africa’s principal policies for economic development, including the New Growth Path and the Industrial Policy Action Plan.

“Both these indentify the centrality of the country’s mineral endowment to industrial development, job creation and sustainable reduction of poverty and inequality,” she said.

It is probably against this broader background that the remarks of Roger Baxter, immediate past strategy executive of the Chamber of Mines, on the eve of his departure for Canada, should be judged. Instead of discussing nationalisation, the country should be discussing how the mining sector can contribute more meaningfully to the country’s economy, he was reported as saying by Mining Weekly

“There are wonderful opportunities that exist for us …that will require collaboration between government, business and labour to avoid missing out on the next commodities boom as the country did during the last one, he said.