Our number one priority right now as a country is to drive economic growth that creates jobs. We need to grow the pie in such a way that more people get a slice of it.
Instead, President Zuma has taken a feudal approach to our political economy. It seems his aim is to secure a bigger slice of the pie for him and his cronies, no matter how stagnant or shrinking that pie may be.
President Zuma is actively growing a patronage network in order to facilitate the flow of money upwards. The most recent addition to this distribution grid came last Tuesday, when he replaced Ngaoko Ramatlhodi with Mosebenzi Zwane as Minister of Mineral Resources.
This appointment, which came as an unwelcome surprise to the mining industry, analysts and even many of his fellow ANC leaders, is disheartening for two important reasons. The first is who Mr Zwane knows, and the second is what he doesn’t know.
Firstly, who does Zwane know?
Free State Premier, Ace Magashule, is his recent boss and mentor. Magashule is one of President Zuma’s most important and consistent allies. He has been allowed to run the Free State as his own private kingdom in return for loyalty to Zuma. He is implicated in a catalogue of corruption cases, most notably the R570M Vrede Dairy Project and the Letlaka Media scandal. Hundreds of millions of taxpayer rands have been funneled through these and other dodgy deals to fund Magashule’s patronage network. It is no wonder the Free State and its municipalities are bankrupt.
Zwane is also openly connected with the Gupta Family, which has extensive interests in the mining sector. While MEC for agriculture in the Free State, he played a key role in setting up the Vrede Dairy Project for Estina, a company linked to the Guptas. He also played a role in the scandal that has become known as Guptagate, when Gupta wedding guests landed at Waterkloof Air Force Base.
It is hard not to conclude that Mr Zwane’s appointment will provide the Gupta family with more favourable access to mining licenses. At this point, we should note that President Zuma’s son, Duduzane Zuma, has business interests in the mining sector that are closely aligned with those of the Gupta’s.
Secondly, what doesn’t Zwane know?
Mr Zwane has no former experience in the mining sector and no experience of running any national ministry, let alone one as important as mining.
Our mining sector is on its knees right now. It is battling a toxic combination of low demand and falling commodity prices on the one hand, and a hostile labour regime, high input costs, policy uncertainty, and capricious regulatory practices on the other. The former are external factors beyond our control, but the latter are self-inflicted challenges entirely within South Africa’s means to address.
Ramatlhodi has recently been somewhat successful in bringing together government, industry and labour to try to find solutions. They had just produced a 10-point plan to rescue the industry. It aimed to save jobs and provide relief for those workers whose jobs could not be saved.
It also aimed to find ways to preserve and develop the mining industry. We need to understand and accept that many of our big mines are nearing the end of their lives. Most of the thickest and more accessible seams have long ago been mined. What is left is both harder and more expensive to extract.
Zwane’s appointment is therefore both untimely and unwelcome. Industry and labour had just formed a tenuous but working relationship with Ramatlhodi, who himself only replaced the former mining minister Susan Shabangu last year.
Perhaps Association of Mineworkers and Construction Union (AMCU) leader Joseph Mathunjwa is correct in speculating that President Zuma was unhappy with Ramatlhodi’s inclusion of AMCU in these talks. AMCU is the main rival of the COSATU-affiliated National Union of Mineworkers (NUM).
Perhaps Zuma wanted to appease the well-connected Bridgette Radebe (wife of Jeff Radebe, Minister in the Presidency, and sister of Patrice Motsepe) and punish Ramatlhodi for approving the sale of Total Coal to Exxaro Resouces. Radebe, a BEE shareholder in Total Coal, opposed the deal.
Perhaps he has been bought by the Guptas, who have significant uranium and coal interests. These include the Vierfontein and Brakfontein coal mines in Mpumalanga, and a large stake in the Shiva gold and uranium mine in North West Province.
Certainly, this was not a move aimed at throwing the mining industry a lifeline. Right now, mining is an industry in distress. What it needs is a government and a policy environment that is bending over backwards to help it survive.
Like it or not, our mines have to compete globally. And with militant unions demanding wage increases above the inflation rate, an expensive and unreliable power supply, relatively high logistics costs and policy uncertainty amidst ever-changing political leadership, we’re simply uncompetitive.
Mining earns most of SA’s foreign exchange. It is essential to our balance of payments. It sells most of its product overseas, but spends most of its earnings locally. In this way it is the important creator of a positive foreign exchange balance which enables SA to import the foreign technology, products and inputs that help fuel our economy.
With most of our big mines in decline, we urgently need to be exploring and creating new export opportunities. Instead, our government is killing all incentives for local and foreign companies to invest in South Africa.
Government and union bosses are both stuck in an outdated mindset. They’re still operating as if the mining industry is making super profits using exploited labour. This was certainly the case in the past. But increasingly, the cost of extracting an ounce of mineral is very close to or even higher than the price that can be got for it.
During the apartheid era, the mining industry operated in a boom environment. South Africa was globally competitive. Not only were commodity prices high, but our major mines were still at the beginning of their natural lifespan, and the power supply was cheap and reliable.
We have to understand that the pendulum has now swung to the other extreme, and that neither extreme is in the country’s best interests. The odds are now totally and irrationally stacked against the mining industry and therefore against any further investment in this sector.
Let me be absolutely clear here. This is not a case of siding with big business; this is a case of not wanting to kill the goose that lays the golden eggs. The crippling of our mining industry and the resultant loss of investor confidence is not in anyone’s best interest. It will do severe damage to job creation in South Africa. We have to be pragmatic here.
Government and union bosses are behind the times. They have not adjusted their demands and behaviour to keep up with prevailing conditions. So mining companies have little financial incentive and huge disincentive to help extend the lives of our ageing mines or invest in new mines. Only very exceptional investments are being made. All others are just too risky.
This means less economic activity and fewer jobs. We should be very, very worried.
The mining industry is critical to South Africa, not just as a source of foreign exchange. Almost one fifth of SA’s economic activity is attributable back to the mining sector. It directly contributes 8% to GDP, and this can be doubled if you include indirect economic activity generated by mining, such as downstream industries that use mining inputs, and the mining supplier industries upstream.
Relative to other industries, mining makes a disproportionately high social contribution: it earns 8% of GDP but pays 14% of corporate tax, in addition to paying mineral royalties and other social levies.
Most crucially of all, mining is a major engine of job creation. In 2012 mining accounted for 524 632 jobs directly and another 841 260 indirectly. But recently, the industry has been shedding jobs at an alarming rate.
So, far from growing the pie in such a way that more people get a slice of it, we now have fewer and fewer people sharing in a shrinking pie. This is a dismal state of affairs and one which should not be accepted.
It is government’s job to maximize mining’s “social license”, to extract the greatest possible benefit for society from our mining industry. Right now, society needs a government that asks the mining industry: What can we do to help you survive these challenging times?
The DA can be that government.
If the DA were in charge of the Mining Ministry, we would move swiftly to give the industry the policy certainty and political leadership it needs to restore confidence and end the current investment paralysis.
The DA would choose a mining minister with industry knowledge and experience, not political and business connections. Mr Zwane would not have made it to the first round of interviews.
We would support empowerment deals that make mine-workers co-shareholders in mining companies. This would better align the incentives and priorities of mining companies and mining workers, and in so doing somewhat release union pressure on the industry.
In these and other ways, confidence could be restored, mining capacity regenerated, and the social license from mining maximised, both now and particularly when commodity prices rally.
It is now up to society to give the DA the license to govern.