South Africa continues to raise efficiency and safety standards in mining.
Despite the global economic slowdown, low commodity prices coupled with industrial action in the mining sector, the industry remains a key pillar of the national economy. What contributions and what improvements can you highlight that have we seen over the past year?
Roger Baxter (RB): Despite the fact that certain components of South Africa’s mining sector are highly exposed to the European economy, the sector still contributes significantly to the development of the country. In 2013 the mining sector was responsible for roughly 8% of the gross domestic product on a nominal basis and a multiplier effect about 18.7 percent. The industry employed more than 510 000 people and more than 20 billion rand in taxes were paid. About 20 percent of private investment in the economy was made by the mining sector and in addition about half of the total merchandise exports are still derived from this important industry.
One of the most significant achievements that we have seen in the past 20 years in the mining industry is the progress in reducing the fatality rate. We still had 93 fatalities in the industry, however this is an 85 percent improvement in the last two decades. We are operating the deepest mines in the world with depths of up to 3.9 km and we have made huge progress in addressing some of the fundamental issues around fall of ground for instance. We want every mineworker to go home safe every day.
If we look at the other broader challenges that the industry has faced, a degree of labor unrest was a big point in 2012 with the Marikana tragedy, which tainted South Africa’s investment reputation. However, there has been a lot of work that has gone into addressing the social wage issues, which led to those strikes. In 2014, we did have a significant platinum strike that lasted more than five months which is unprecedented in South Africa’s mining sector, but the strike was done within the legal frameworks and there were a number of different interventions to resolve the strike and ultimately it was resolved. When the platinum sector was standing still it had a massive material impact on a large number of other sectors in the economy, which in a negative way reinforced the role that mining does play.
The African National Congress rejects nationalization as a principle; however, investor perceptions remain uncertain. What improvements can we investors expect moving forward?
RB: In 2014 there was a lot of work done to improve the regulatory framework for the South African mining sector. The amendment bill for the Mineral and Petroleum Resource Development Act (MPRDA) has gone through parliament and we have been involved in an extensive process of engagement with government to amend the principle legislation developed in 2002. We have resolved the nine substantive issues that we had concern over and the bill is currently waiting for the signature of the President. Further work is also being done to streamline the environmental licensing process to a single channel process.
South African’s mining legislation is congruent with global best practices. We have a well-entrenched principle between business and government on key issues of legislations and a lot of other countries do not have those in place. For example, if you look at the way in which companies are regulated in South Africa; South Africa’s auditing and reporting standards as well as the quality of our stock market regulation are ranked number one in the world, number ten for investor protection, and number two for the efficacy of our corporate boards according to The World Economic Forum’s (WEF) Global Competitiveness Report 2013-2014.
Both at the regulatory and policy level, we have focused on removing the uncertainties related to nationalization and the introduction of the resource rental tax as well as other factors that are concerning investors. On the tax side, we have a tax review process looking at how the tax system is enabling the mining system to contribute to the national development plan’s objectives. We have provided substantial input to the tax committee process of what we think is a global competitive tax regime for the mining sector. We have focused on how to encourage exploration and deal with social issues such as migrant labor and housing issues.
What is being done from the public and private sector to address infrastructure constraints in South Africa?
RB: We are clearly in a difficult position with China’s slowdown, but the South African mining industry is a resilient industry, there is a lot of work going on at the moment and forward thinking of what we need to do to fix these constraints that are holding back the potential of the sector.
These include what we need to do at a regulatory level as well as infrastructure constraints. We have implemented project Phakisa, a results-driven approach, involving setting clear plans and targets, ongoing monitoring of progress in other sectors such as the oil and gas industry. This concept was borrowed from the Malaysian government, for stakeholders to collaborate in detailed problem analysis and priority setting. We are looking to apply this process to the mining industry next year.
This interview was conducted by GBR for its Mining in Africa Country Investment Guide (MACIG) 2015, which was published in February 2015 and can be viewed here. To participate with your comments, please contact Sharon Saylor at email@example.com.