Ivo Vegter
Six of South Africa’s sixteen largest towns and cities depend on the mining industry, not counting Johannesburg, which has long since diversified its portfolio.
Welkom in the Free State offers a blueprint for what happens when mining declines and dies. In the 1960s, Welkom played host to the largest Porsche Club in the country. It was the gold rush town of the era.
Founded only 71 years ago at the heart of the newly discovered Free State gold fields, then the richest in the world, Welkom experienced a dramatic boom. By 1968, only twenty years after its establishment as a greenfields development, it had achieved city status.
Today, it is a town in decay. On most economic indicators, it is the worst-performing urban area in South Africa.
Welkom’s decline began in the 1980s, when the gold seams began to peter out. Thousands of jobs were lost. In 1987, the mining sector in the gold fields region surrounding Welkom employed 184 600 people, representing 67% of the total workforce. By 2010, almost 150 000 jobs had been lost. Only 35,700 jobs (or 42% of the workforce) were left.
The vast majority of the region’s manufacturing sector was linked to mining. Seventy-one percent of that sector’s jobs vanished between 1987 and 2010.
In total, 275 200 people were employed in the Welkom gold fields region in 1987. By 2010, that had declined to a mere 84 700.
The unemployment rate in the Lejweleputswa District Municipality, which has its seat in Welkom, rose from 35% in 1996 to 53% in 2008, and the poverty rate rose from 36% in 1996, which was lower than the provincial average, to 61.3% in 2006.
Businesses closed their doors, commercial rents plummeted, and house prices were lower in 2010 than they were in 2001. Welkom’s economy is in tatters.
Should South Africa’s mining industry continue its decline, this is the future of towns like Middelburg, Witbank, Ermelo, Richard’s Bay, Sasolburg, Rustenburg, Brits, Kathu, Saldanha Bay, Newcastle, Secunda, Carletonville and Westonaria. In some places, like Klerksdorp, this future is already here.
The most important intervention that could save the mining industry is to simplify the legislative environment and ease onerous regulations. In investor perceptions of the policy environment, South Africa lags behind 12 of 15 African countries that have significant mining industries. Botswana leads the way, with a predictable, clear, simple and efficient process for licensing mining operations. Mining companies in Botswana are not faced with constant changes, new requirements, or threats of nationalisation.
By contrast, South Africa’s Minerals and Petroleum Resources Development Act of 2002 introduced complex and costly regulations, and a great deal of legislative vagueness and uncertainty. In an industry where investment cycles are long, prices are volatile and profitability is marginal, investors need regulatory efficiency and certainty.
The mining industry has transferred more than R200 billion in value in black economic empowerment deals. Its performance against transformation targets exceeds the requirements of the 2011 Mining Charter, and isn’t far off the requirements of the new 2018 Charter.
According to Moeletsi Mbeki, the government’s empowerment policy should be scrapped, because it stifles growth, spurs corruption, and entrenches shocking economic inequalities by creating a culture of cronyism and entitlement that discourages black entrepreneurship and education, keeping millions in poverty.
Most of the benefits of these policies have accrued to people who are already fairly well-advanced on the socio-economic ladders, but doing little to benefit those who need it most: the poor, the unemployed, the unskilled. They do not benefit the presently disadvantaged.
The various Mining Charters are exactly the sort of prescriptive policy that has enriched a few, but failed to benefit either the mines or the majority of the population.
An evolved empowerment policy, focused on the presently disadvantaged, would make a huge difference, emphasising four ‘Es’ – rapid economic growth, excellent education, more employment, and the promotion of vibrant and successful entrepreneurship. This would encourage investment, increase employment, as well as stimulate growth.
South Africa needs to reduce the onerous tax and royalties burden on industries like mining, which it could fund by cutting state spending and saving the billions lost to fruitless, wasteful and corrupt expenditure, which could fund tax cuts.
Finally, the impact of South Africa’s labour laws, long criticised for their inflexibility and inefficiency, is keenly felt in struggling, labour-intensive and highly unionised industries like mining, which, despite its unprofitability, pays the highest wages for industrial workers in the country.
A more liberal labour market is not only key in volatile economic conditions, but especially so when automation will be the key to maintaining mining competitiveness. If they are to survive, it should be reasonably possible and inexpensive for mines to adjust the size and expense of their workforce.
Mining provides massive support for the surrounding economy, and conversely, the collapse of any mining sector has staggering consequences for the provinces, cities, towns and secondary industries that depend upon it.
South Africa urgently needs to improve policy environment for this sector if it is to flourish as it once did. The alternative is too awful to contemplate, for everyone.
Ivo Vegter is an independent researcher and writer, and author of Why Mining Still Matters, an occasional report for the Institute of Race Relations.
