ANALYSISBy Emmanuel John
Reviving South Africa’s flagging mining sector will take much more than the cosmetics of a new investor-friendly policy.
The establishment of South Africa’s Government of National Unity (GNU) presents both challenges and opportunities in addressing the nation’s pressing economic issues. With a staggering unemployment rate of around 30 percent, particularly affecting Generation Z, the urgency for reform is palpable.
This demographic, which is entering the workforce, finds itself at a disadvantage due to systemic corruption, an ongoing energy crisis, and regulatory uncertainties that have hindered economic recovery.
The mining sector, a cornerstone of South Africa’s economy, is particularly affected by these challenges. Stagnation in this vital industry, attributed to rising operational costs and an unpredictable regulatory environment, hampers growth and investment. As the new parliament convenes, the GNU must prioritise substantial reforms in this sector to revitalise it and ultimately stimulate broader economic growth and job creation.
The new mining policy in South Africa could significantly impact foreign investment by addressing longstanding concerns about regulatory stability and operational transparency. It aims at reigniting mineral development, improving turnaround times for prospecting rights and focuses on current and future needs for sustainable growth.
The policy will also accommodate international agreements that focus on proactive investment facilitation that can help attract foreign capital by providing clear guidelines and protections for investors, thus enhancing confidence in the mining sector.
A streamlined licensing process and improved infrastructure could enhance investor confidence, potentially reversing the trend of declining foreign direct investment (FDI) noted in recent years.
However, challenges such as political instability, power supply issues, and complex Black Economic Empowerment requirements remain deterrents. If the government successfully balances reform with investor interests, it may attract strategic investments that foster local linkages and sustainable growth in the mining sector.
Proposed changes in South Africa’s new mining policy aim to attract more foreign investments by focusing on several key areas that include simplifying and clarifying regulations to create a predictable investment environment, which is crucial for attracting long-term investors and introducing a more efficient and transparent licensing process to reduce bureaucratic hurdles, making it easier for foreign companies to enter the market.
The new mining policy also aims to ensure environmental protection while attracting investment through several strategic measures. The policy will establish stringent environmental standards that align with international commitments, ensuring that mining operations comply with sustainability goals without compromising investor interests.
It will offer tax breaks and financial incentives for companies adopting eco-friendly technologies and practices, promoting a green transition in the mining sector. The introduction of efficient environmental impact assessments (EIAs) will reduce bureaucratic delays, making it easier for investors to meet environmental standards while facilitating quicker project approvals.
The policy will also encourage collaboration between the government and private sector to fund and implement sustainable projects, thus sharing the burden of environmental responsibilities in addition to promoting stakeholder engagement and transparency in decision-making processes, fostering trust among investors and communities regarding environmental management.
International agreements will significantly influence South Africa’s new mining policy by establishing a framework for sustainable practices and compliance with global standards. South Africa is a party to various international environmental agreements, such as the Kyoto Protocol and the United Nations Framework on Climate Change , which shape its mining regulations to ensure sustainable development and equitable resource access.
The new mining policy will also align with international treaties, such as The Paris Agreement, to ensure that mining practices contribute to climate change goals and sustainable development.
Discussions in South Africa’s Parliament regarding the new mining policy have highlighted several key points, with the Portfolio Committee on Mineral Resources and Energy noting a positive shift in mining production, with a 2.3% increase in April 2023 after months of decline, driven mainly by gold and coal.
The South African Parliamentary Committee on Mineral Resources and Energy has also noted that despite improvements, issues like electricity supply constraints and licensing backlogs continue to hinder the sector’s growth.
It will also accommodate international agreements that focus on proactive investment facilitation that can help attract foreign capital by providing clear guidelines and protections for investors, thus enhancing confidence in the mining sector.
The Rise of a Sleeping Giant
It’s imperative to state that South Africa possesses a comparative advantage in mining due to its rich mineral resources. This advantage has not been fully leveraged due to various systemic issues. The country can revitalize its mining sector by implementing targeted reforms that address operational inefficiencies and enhance competitiveness.
The Fraser Institute’s recent survey ranked South Africa low on investment attractiveness for mining exploration due to public policy factors such as taxation and regulatory uncertainty.
To attract multinational investments that can significantly benefit South Africa’s economy and address high unemployment levels, the government must create an appealing business environment characterised by stability, strategic opportunities, and supportive policies.
Investors seek a predictable regulatory framework, but South Africa’s historical policy uncertainty, especially in sectors like mining, has deterred investment. Streamlining regulations and ensuring consistency can enhance investor confidence.
The government should offer targeted incentives in high-potential sectors such as renewable energy, technology, and manufacturing. Programmes like Industrial Development Zones(IDZs) and financial assistance packages can attract foreign direct investment (FDI) and stimulate job creation.
South Africa’s strategic geographical location as a gateway to Africa offers significant market potential and its participation in agreements like the African Continental Free Trade Agreement (AfCFTA) can further enhance its attractiveness to investors looking for broader market access.
By focusing on these areas, the GNU can create a conducive environment for multinational investments that not only boost economic growth but also effectively tackle unemployment challenges.
The success of these initiatives will not only restore business confidence but also create jobs and foster inclusive growth across all demographics.
The time for action is now; failure to prioritise these reforms could lead the country further into economic decline while missing out on leveraging its vast resources effectively.
Overcoming Regulatory Bottlenecks
Regulatory uncertainty, high electricity tariffs, and logistical inefficiencies are some of the issues that have deterred investment, leading to South Africa ranking among the least attractive jurisdictions for mining investment globally.
To address these challenges, the GNU must focus on several initiatives that include streamlining mining rights applications and reducing bureaucratic delays.
According to a study by P.J.Badenhort and Nij Olivier, mining rights in South Africa can indeed be a lengthy process, taking an average of 355 working days. This duration is primarily influenced by the regulatory framework established by the Mineral and Petroleum Resources Development Act (MPRDA), which governs the application and approval processes for mining rights.
Revitalising the sector and getting it growing again will require more than just legislative reform. It needs partnerships. Investment is required, and for growth to be sustainable, competitiveness, technology and corporate discipline will remain key. It also needs effective diplomatic efforts at government level to ensure market access.
Navigating Political Risks Ahead
The new leadership in South Africa’s mining sector, represented by the Minerals Council, emphasises the necessity for the GNU to engage with business as a partner. CEO Mzila Mthenjane stated that collaboration between government and industry is vital for economic and social progress, particularly in addressing energy and water crises.
However, concerns linger about the continued influence of Gwede Mantashe, the new Minister for Mineral Resources and Energy, whose management has faced criticism for inefficiency and transparency, potentially undermining the GNU’s effectiveness. The success of the GNU in revitalizing mining hinges on meaningful reforms and improved governance.
Mantashe, born on June 21, 1955, in Lower Cala, Eastern Cape, is a prominent South African politician and former trade unionist. He has held significant roles within the African National Congress (ANC) and the National Union of Mineworkers (NUM), where he served as General Secretary from 1998 to 2006.
Mantashe has been a key figure in the ANC, serving as Secretary-General and later as National Chairperson. His political alliances include influential figures within the ANC, such as President Cyril Ramaphosa and Secretary-General Fikile Mbalula.
Mantashe’s politics are characterized by a blend of trade union activism and party loyalty, often advocating for worker rights while navigating the complexities of ANC factionalism.
His tenure has faced criticism for maladministration and inefficiency in the mining sector, raising concerns about his ability to drive effective reforms and governance under the GNU.
Energy transition
These developments come at a time South Africa’s strategy for transitioning to mining critical minerals focuses on leveraging its rich deposits of essential resources like lithium, cobalt, and platinum group metals (PGMs) to support the global shift towards renewable energy.
The government has outlined several initiatives to align its mining policies with the Integrated Resources Plan (IRP), promoting a “just transition” that balances economic growth with environmental sustainability.
Key initiatives include developing battery storage solutions and green hydrogen production, which require significant mineral inputs. However, climate change impacts and human rights concerns linked to mining practices could become obstacles. Addressing these issues will be crucial for ensuring sustainable development in the mining industry, including ensuring operational stability.
The mining industry could significantly benefit from efficient energy projects to alleviate pressure on the ailing Eskom if implemented swiftly. The GNU should also encourage private sector involvement in rail and port operations to enhance logistical efficiency in the mining sector and boost exports, which are vital for economic recovery. Innovation within the sector to adapt to global trends, particularly in green technologies and sustainable practices cannot be overemphasized.
A comprehensive infrastructure strategy is thus necessary to unlock South Africa’s economic potential for both energy and mining sectors.
Just Energy Transition (JET) Model
In South Africa, the Just Energy Transition (JET) model has sparked intense debates regarding its implementation and the coal lobby’s influence. While JET aims to facilitate a shift from coal dependency to renewable energy, it faces resistance from coal interests that argue for the continued use of coal to support Eskom and meet energy demands, particularly in Europe.
Stakeholders in the country are divided. The ANC emphasises a balanced approach to ensure job security for coal workers while transitioning to greener energy sources. However, labour unions like COSATU demand more consultations to protect workers’ rights and livelihoods amid fears of job losses.
The coal lobby remains active, advocating for coal’s role in energy security, complicating the transition plans. As the implementation plan progresses, the challenge lies in reconciling these conflicting interests while ensuring that the transition is equitable and sustainable, addressing both environmental goals and socio-economic realities.
The DRC Minerals Link
South Africa’s mining interests in the Democratic Republic of Congo (DRC) are increasingly intertwined with the global push for energy-transition minerals, particularly as the Lobito Corridor project aims to enhance infrastructure for transporting these resources.
The DRC is rich in cobalt and copper, essential for renewable technologies, making it a strategic partner for South Africa. However, debates are emerging around the ethical implications of mining practices in the DRC, where human rights violations and environmental degradation are rampant. South African companies face scrutiny over their operations, particularly regarding social sustainability deliverables.
The coal lobby in South Africa also complicates matters, advocating for continued coal usage while the country transitions to greener alternatives. As South Africa navigates these dynamics, it must balance its economic interests with ethical considerations and regional stability to ensure sustainable development in both countries.
Plummeting of Business Confidence
According to the South African Chamber of Commerce and Industry (SACCI), business confidence has recently plummeted to its lowest levels since July 2023, reflecting the political turbulence and uncertainty surrounding the new coalition government.
The mining sector, which contributed R425.6 billion to the GDP in 2023 and accounted for about 55 percent of total exports, is particularly affected by these challenges and recent data from Statistics South Africa indicates that mining production has remained flat, with significant declines in gold and platinum group metals exacerbating the situation.
The South African Reserve Bank has highlighted that high operating costs, regulatory uncertainty, lower commodity prices, electricity disruptions and inefficient logistics have suppressed mining output, which in turn negatively impacts GDP growth.
The Minerals Council of South Africa has emphasised the need for a conducive regulatory environment to attract investment and enhance the mining sector’s contribution to the economy.
On the other hand, President Ramaphosa has stated that the government aims to create a stable and predictable environment for business.
President Ramaphosa has emphasised that inclusive economic growth must be central to the new government’s agenda, aiming to remove barriers that hinder investment and job creation. While speaking during a mining conference in February, the South African head of state said the mining sector’s revival is crucial not only for its direct contributions to GDP but also for its multiplier effects on other sectors of the economy.
The mining sector remains a crucial component of the South African economy, employing approximately 477,000 individuals. However, this figure belies the sector’s vulnerability amid the broader economic malaise.
The interplay between operational challenges and regulatory hurdles exacerbates the situation, leading to stagnation in employment growth despite the sector’s potential. This might explain why the Business Confidence Index fell to 107.8 in May, down from 108.9 in April and 114.7 in March, while the business confidence remains at a 12-month low.
The GNU’s success in restoring investor confidence going forward hinges on collaboration between government and private industry as underlined by Mzila Mthenjane, CEO of the Minerals Council who said on 2 July, 2024: “We need to prioritise the role of mining in revitalising the economy going into the future as a matter of urgency. It is one of the key drivers of South Africa’s economy through its uncontested multiplier effects which can be realised by creating an enabling regulatory and operating environment.”
Emmanuel John is a journalist based in Nairobi, Kenya.