Four areas where mining does a lot for SA - Fin24, 29 September 2016

Sep 29, 2016
IT IS common to hear anti-mining activists suggesting that the South African mining industry is exploitative and that it fails to contribute any real social and economic benefits to South Africa. The facts tell a very different story.


By Kerwin Lebone

IT IS common to hear anti-mining activists suggesting that the South African mining industry is exploitative and that it fails to contribute any real social and economic benefits to South Africa. The facts tell a very different story.

The mining industry tends to make the mistake of defending itself only in terms of its direct contribution to the social development of its own workers and the communities they live in, while some miners talk only about their progress in meeting racial transformation targets and scorecards.

But the mining sector’s real, and much greater, contribution to South Africa lies in four other areas. The first is its contribution to fixed investment, the second to employment, the third to exports and the fourth its contribution to tax revenues.

In terms of the contribution to employment, in the first quarter of 2016 an estimated 455 000 people were working in the mining industry. This was equivalent to almost 5 out of every 100 jobs in the formal and non-agricultural economy. Mining firms employ more people than industries such as transport and construction. As a comparison, mining employment is equivalent to the number of people who work in the private security industry.

Making the conservative assumption that each miner supports a family of four (the realistic figure is significantly greater), the argument may be made that two million people have shelter, food and access to transport and other household needs because of the investment mining companies make in South Africa.  

Miners SA's best paid industrial workers

Critics allege that little of this matters, because miners are paid so little. The evidence, however, tells a different story. Mining wage levels are well above those of several other sectors, and mineworkers are in fact the best paid of South Africa’s industrial workers.

Average wage levels in the mining industry were estimated at R17 054 in 2016. In the gold industry, the lowest paid entry level underground worker receives a package of about R150 000 per annum. This includes the basic wage, provident, medical and housing benefits, as well as paid leave, overtime and bonus allowances.

Current data shows that in the gold sector, minimum entry level wages (before benefits) are approximately twice as high as in the petroleum sector, three to four times higher than in the hospitality sector, and five times higher than in the security industry.

Even when the assertion is refuted that the mining sector exploits its employees, critics of the industry continue to suggest that most South Africans fail to benefit from the industry. This criticism holds just as little truth.

Infrastructure investment

Take fixed investment levels as an example, where mining contributes 10.8% of total gross domestic fixed investment − an enormously significant amount located within just one industry.

What makes mining investment so attractive is that much of the investment is in infrastructure that has to be developed over long periods of time. It is not speculative in nature, and cannot be withdrawn at the click of a mouse.

Mining investors cannot easily take the financial commitment they make to a country and move it to another location. It is precisely for this reason that long-term policy certainty is essential to attract such investment.  

Current account deficit

Exports provide another example. South Africa runs a significant current account deficit with most of its major trade partners and regions of the world. This means that we import more than we export. If that negative balance increases significantly it may have the effect of triggering currency weakness, rating downgrades and increasing levels of inflation – all of which will worsen the living standards of all South Africans.

Mining investors help to prevent that, contributing 33.6% to exports in 2015 – take this away and it would be no exaggeration to predict a collapse in the rand and the broader economy. This helps to shore up the currency and bring some measure of balance to the current account. This is all the more important considering the decline of the manufacturing economy’s contribution to GDP.

Adding to tax coffers     

Then there is the contribution to tax revenues. Mining investors paid 9.7% of all corporate tax assessed for 2013. Their employees pay income tax and VAT.

It is estimated that 60% of all tax revenue collected in South Africa goes into social protection services ranging from free and subsidised housing to clean water, electricity, and education. Miners, therefore, contribute a great deal to support the education, income, healthcare and social development needs of many South Africans.

It is in employment, investment and tax that mining’s real contribution to South Africa should be measured. In that context, it is highly inaccurate to suggest that South Africans do not benefit from the mineral wealth beneath their feet.

The scale of that contribution is determined by three things. The first is global commodity prices. The second is geology. The third is domestic mining policy. South Africa can do little about the first two, but it can control the third.

Counterproductive policies do much damage

Mining companies do not need to invest in South Africa. When they do invest, the reality is that they are utilising their shareholders’ money, obtained from people who live all around the world, while taking the risk that they may or may not secure a return on that money by investing in South Africa.

When the South African government makes it difficult for them to invest because of uncertain and subjective licensing processes, counterproductive empowerment policies and poorly thought through safety and other regulations, this harms the whole country.

If such scenarios play out too often, mining companies will leave the country – as some have already done. Data from the Fraser Institute indicates some of the consequences. South Africa’s ranking as a mining investment destination has fallen in the Policy Perception Index, which is a “report card” to governments on the attractiveness of their mining policies, from 68th place in 2011/2012 to 78th place in 2015.

Mining companies and their shareholders may suffer some short-term consequences when they are forced out of South Africa, but the firms that leave will find opportunities in other parts of Africa and the world.

The long-term consequences are inherited and experienced solely by South Africans in the form of breadwinners who can no longer support their families, less fixed investment, declining exports and a weakening rand, lower levels of tax income, and therefore less money to finance social development projects.

It is for this reason that South Africa needs policies that are attractive to mining investors, and local regulators who act in a manner that allows those investors to be successful and profitable. Currently, South Africa does poorly at both, and the price is being paid by South Africa’s people. 

* Kerwin Lebone is the head of centre and risk analysis at the SA Institute of Race Relations.

Read article on Fin24 here


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