Urgent need for investment in the mining sector

The stimulation of mining investment in South Africa is needed urgently, the 'National Development Plan 2030' states. However, in order to grow investment, outputs, exports and minerals cluster jobs, property rights certainty and the passing of amendments to the Minerals and Petroleum Resource Development Act of 2002 are required to ensure a predictable, competitive and stable mining regulatory framework.

Mining in SA

The report stipulates that the growth must be carried out in a way that is environmentally sound and that promotes forward and backward linkages and emphasises the need for secure, reliable electricity supply.

It points out that there is scope for the private sector to supply themselves with an estimated 2 500 MW of additional potential power capacity by 2015 and adds that private-sector participation also has the potential to help with secure and reliable rail services.

It sees an opportunity for South Africa’s minerals cluster to develop, deepen and enhance linkages with capital goods and consumables manufacturers, suppliers of mining-related services and downstream producers, especially in the case of platinum-group metals (PGMs) and chrome ore, for which an export tax can be considered.

It advocates the provision of focused research and development support to enable improved mining methods that lengthen mine life, better energy efficiency and less water intensity.

It points out the potential for alternative new energy and manufacturing uses for especially PGMs and titanium and favours increased regional involvement by encouraging the development of alternative providers of partially processed intermediate inputs in other countries in the region.

It wants active engagement and resolution on issues that the Mining Industry Growth and Development Task Team raises and urges an improved alignment of Mining Charter requirements to ensure effectiveness in near-mine communities.

It laments mining’s contribution to gross domestic product has declined from 21% in 1970 to only 6% in 2010, resulting in the number of people employed directly in mining – excluding upstream and downstream industries – falling from 660 000 in 1970 to 440 000 in 2004 and stabilising at that level.

It calculates that mining, minerals and secondary beneficiated products account for almost 60% of export revenue.

Despite South Africa’s clear potential, it points out that the country’s mining sector has failed to benefit fully from the commodities boom over the past decade or more and urges exploitation of mineral resources to create employment and generate foreign exchange and tax revenue.

Given the energy-intensive nature of mining and mineral beneficiation, it says that South Africa will also need to invest heavily in helping the industry to reduce its carbon footprint and to use water more efficiently.

It says that concerns about the impact of a resource curse should not be confused with an essential commitment to expanding minerals production and exports and reasons that the resource curse will be addressed partly through stimulating forward and backward linkages to expand industrial and services capabilities.

It calculates that the South African mining industry is smaller now than it was in 1994 after performing poorly during the commodity boom from 2001 to 2008, which resulted in the local mining industry shrinking 1% a year while its top-20 peers enjoyed an average growth rate of 5% a year.

This is an opportunity lost, as estimates show the mining sector could expand by 3% to 4% a year to 2020, creating a further 100 000 jobs. The Human Sciences Research Council's most optimistic estimates show that mining employment could expand by 200 000 by 2024, potentially stimulating a further 100 000 jobs through linkages, and more if they are actively stimulated. This relies substantially on PGMs.

The central constraints are uncertainty in the regulatory framework and property rights, electricity shortages and prices, infrastructure weaknesses, especially in heavy-haul rail services, ports and water, and skills gaps.

Beneficiation or downstream production can raise the unit value of South African exports. In this regard, resource-cluster development, including the identification of sophisticated resource-based products that South Africa can manufacture, will be critical.

Electricity is the main constraint, as most of these activities are energy intensive. As long as electricity is scarce, there will be a trade-off between beneficiation and other more labour­-absorbing activities. In general, beneficiation is not a panacea because it is also usually capital intensive, contributing little to overall job creation.

Substantially more attention will be devoted to stimulating backward linkages or supplier industries (such as capital equipment, chemicals and engineering services). Demand is certain; there is an opportunity for specialised product development, and the product complement is diverse. They are also more labour-absorbing than typical downstream projects. Such products have the potential for servicing mining projects globally, which is an advantage should the commodity boom persist.

Mining companies have an explicit requirement to participate in local development, and have the resources to do so in South Africa and the region. The sector could stimulate local economic development more substantially if the Mining Charter was aligned to these goals. More could be done on human-resource development, local economic development and procurement.

Notwithstanding the difficulties, it should be possible to create about 300 000 jobs in the minerals cluster, including downstream and upstream indirect jobs.

This article was published by Martin Creamer, on www.engineeringnews.co.za

The National Development Plan 2030 is available for download here.

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