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Perceptions of mining investment in SA post Mining Indaba 2013: Claude Baissac – economist, Eunomix

Claude does not foresee an easy 2013 for South Africa.

HILTON TARRANT: We’ve seen some strong views from executives at the Mining Indaba over the past 24 hours. Randgold Resources boss Mark Bristow rather bluntly said his company would not invest in South Africa. It’s currently operating mines in a number of unstable countries, Mali being one.
   Incoming Anglo boss Mark Cutifani this morning called government’s threats of withdrawing mining licences “out of order” even as we’ve seen that apparent kissing and making up between Anglo and government just two days ago.
   Earlier my colleague Geoff Candy spoke with Claude Baissac of Eunomix, who was at the Mining Indaba as it was winding down, and asked him whether, given these strong statements, the conference had succeeded as a marketing exercise for South Africa and the industry.

CLAUDE BAISSAC: It depends on who is looking and for whom you are talking. We know that the Indaba is a big marketing opportunity for all the parties concerned to come and kiss and make up until the next crisis, and the next misunderstanding. And that’s because I think there are fundamental disagreements about what mining is about, who should invest in it, who should benefit from it, who should pay for it, and what communities and governments and mining industries should get out of it.

   And it’s understandable, because mining in Africa comes from fairly shady origins in the colonial dispensation and it hasn’t truly managed to escape that. So it is stuck between a post-colonial inheritance and in many countries the kind of…captured syndrome where the mining industry is not necessarily achieving benefit for all the populations. It certainly gets accrued to the top, but it does not get distributed.

   So there is a sense that there is a lack of agreement as to how we are going to take this industry forward and make it work for everybody – the mining industry and the investors who need to make money. The communities who are affected most by the direct impact of the industry and are very often left out of the equation, the citizens at large, will need to see some sustainable economic development path out of mining into diversified economic environment in manufacturing, agriculture and services; and obviously governments, whose job is to create the stability and the predictability, whose job it is to tax fairly and efficiently and then to redistribute the proceeds of taxation through education, health services, infrastructure and obviously economic policy strategies at the macroeconomic level that allow for the diversification. That’s not happening.
   And in fact our data show that Africa is de-industrialising and is de-agriculturalising at a time when the mineral right is at an all-time high. And that brigs a lot of questions as to whether all the parties are actually being able to create together a sustainable future.
   What’s going to happen this year in South Africa? I think the key issue is going to be the cost of mining. The whole discussion about the restructuring of the mining industry is really a discussion about costs and the sense that these costs have gotten out of control. Until we come up with a cost dispensation that allows the mining industry to be competitive, we will have to deal with the consequences of being too high-cost and the mining…will restructure.

   And politically it is expedient to accuse the mining industry of not doing enough for the country, but everybody’s responsible. The unions are responsible for making unreasonable demands and winning today what they will lose tomorrow. Government is responsible in the sense that it is not helping the industry to address its high-cost structure in a constructive way. And the industry itself might have overinvested in being far too bullish in the years 2009/2010 and having unsustainable expectations on the return of these investments. And now everybody is facing the consequences of this kind of lack of decision, lack of consensus. I don’t see us going to a point where we all understand one another and it’s a big happy family. But hopefully cooler heads will prevail and will find a dispensable sustainable dispensation for South Africa. I think it’s going to be rough.

GEOFF CANDY: We heard strong language from Mamphela Ramphele about very many of these things as well, producing perhaps a vision of a new business model for mining. We heard some strong language from Mark Cutifani about sustainability this morning. How do you think things are going to play out in 2013 within South Africa from a mining perspective, because we are facing significant challenges?

CLAUDE BAISSAC: I think it’s going to be a very difficult year. It’s a year when the chickens come home to roost. It’s a year where, as we said, there’s very high cost of electricity and the unsustainable inflation of the electricity costs, the very high costs of labour, combined with the very uncertain labour environment, and a South African labour that is not very productive – not from a fault of their own, but because of the way the industry has evolved, very high depth, very labour-intensive, and when the lack of…and the loan-stock conversations about what we are going to do about the mining industries’ policies are having an impact. The reality is that I think there are going to be a lot of tensions between government and labour, because I think within government there has to be a realisation that unless they take… under control we are going to see massive job destruction, and this is the last thing the country needs. Hopefully a realisation on the part of labour that they need to control these things, and I think there’s an understanding of that within the more established labour unions like NUM – not clear that the new players in the market understand; they are playing a different game. They are trying to get the most they can for their communities. It is very, very grass roots, it is very spontaneous, it is very understandable, but it’s also very counter-productive for these very communities if they get 20% increases and then they then get 20% job losses. Nobody wins. So I think a very tough time. Government is going to have to act as a government. It’s going to have to adjudicate between all these tensions, it’s going to have to craft a path of sustainable development for the long term for South Africa. The question is does it have the political will to do that, does it have the technical capacity to do that, does it have the factional freedom because, as we can see now, it’s torn between different factions of different objectives and goals.
   We need to see first the consolidation of policy within the ANC, and that translates into consolidation of policies within government – and if we go with that and we try it and we don’t backtrack after a year or two years.

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