With mining a key source of revenue, we should be approving more projects and fixing bottlenecks such as Transnet’s issues 

SA is its own worst enemy. Until we acknowledge this and fix it, we’ll keep talking about economic growth and jobs while nothing tangible happens. Three sets of interrelated facts provide a clue of how we are ruining our economic potential from a mining perspective. The first is the decline in the competitiveness of SA’s mining sector as reported by The Fraser Institute in its latest survey of mining companies. The second is the 2022 revenue collection statement issued by the South African Revenue Service (Sars). The third is the deterioration of Transnet. 

According to The Fraser Institute think-tank, SA came 75th out of 84 countries in the latest rankings on mining and exploration attractiveness to investors. The ranking reflects the sentiments of mining executives, who determine the destination of capital. When they are overly negative, we must correct the factors that inform their perceptions. When their perceptions are positive, we have to find ways to keep up the good work. Positive sentiments are more likely to translate to investment. Increased investment is a sure way to get much-needed growth that will create jobs and increase taxes and royalties paid to the state. With resources in hand, the state can finance a number of developmental priorities. 

Through the National Development Plan, the government has committed to creating a capable state. In ancient times, the most capable states were those with the ability to collect taxes to raise armies to defend or expand their territories. The most capable states have the ability to create an environment for economic growth and to collect taxes to finance pressing needs in society, including looking after the indigent. We must tackle head-on anything that hampers growth and tax revenues. 

We should be worried that in Africa investors see Morocco, Ghana and Botswana as the leading countries in terms of regulatory certainty. The Fraser Institute Index shows that SA ranks 13th out of the 15 African countries mining executives were asked about. The ranking reflects an uncertain regulatory environment that has made it difficult for new mining projects to be launched. This means we are not converting our natural endowment into economic opportunities at a fast enough rate. 

I have a suspicion that investor frustration might be because mining executives are fully aware of SA’s potential and that the country is largely responsible for holding itself back. It might also be a result of good regulations too complicated for bureaucrats to administer efficiently.  There are numerous unintended consequences of regulatory uncertainties. They stifle investment, stall job creation and hobble tax revenue generation. 

President Cyril Ramaphosa is concerned about red tape when it comes to the processing of applications for environmental authorisations and water use licences. He has repeatedly called for the government to adhere to its own time frames for approvals and appointed business leader Sipho Nkosi as his anti-red tape tsar. 

With more than R90bn worth of projects awaiting regulatory approval, as reported by the Minerals Council SA, the negative perceptions recorded by The Fraser Institute cannot be refuted easily. The perception must be addressed urgently, with a clear understanding that there is a tough global competition for capital. Countries like Australia have positioned themselves as favourable investment destinations. 

It is clear that we desperately need a competitiveness strategy to revive our mining sector. While our mining investment competitiveness has slumped, there is evidence that the state depends heavily on mining for tax revenues. Sars has reported increased tax collections of R1.564-trillion, according to preliminary numbers for the 2021/22 financial year. “Revenue collections have been buoyant because of strong economic recovery boosted by elevated commodity prices for much of the reporting period,” Sars said. 

Commodities are key to SA’s creation of a capable state in so far as they are a cash cow for the fiscus during good times. In the past two national budget speeches, the government acknowledged that the fiscus had looked better than expected thanks to export earnings generated by commodities. 

While overdependence on cyclical prices is not advisable, the reality is that SA has built its economy on the back of mining and commodity price appreciation means good revenue-collection numbers.  Economic diversification beyond mining remains critical for SA’s future. The question for policymakers is: how best to maximise the value extracted from commodities during boom times? Even at the best of times, SA has not fully reaped its potential. The slow pace of regulatory approvals of mining projects is an important drag factor. It is compounded by the third factor: Transnet’s declining ability to service clients. If Transnet cannot service clients when there is eagerness to produce, it discourages investment. 

Take coal as an example. Transnet Freight Rail CEO Sizakele Mzimela recently said Transnet shipped 58.3million tonnes of coal through Richards Bay Coal Terminal last year, almost a quarter below its annual capacity of 77-million tonnes. “The frustration is more about the loss of opportunity, because of course if we were able to move more [coal], we would benefit, they [coal producers] would benefit,” she said. “We are tied at the hip.” She is right. She might have added that SA’s fiscal position and overall well-being is also tied to Transnet’s hip. 

One of the many factors that has affected Transnet’s capability is the dispute with China South Rail over the locomotive contract that has been the subject of the state capture inquiry. The investigation has resulted in China South Rail not being able to service the locomotives it supplied to Transnet. This has severely constrained Transnet’s abilities, making me wonder why Ramaphosa is not giving China’s President Xi Jinping a call to find a quick solution to the problem. 

Both China South Rail and Transnet are state owned. Neither should be a constraint to good trade and investment relations between China and SA. The two leaders can ensure a speedy resolution. China is the largest importer of South African minerals and it is in its economic interests that Transnet works efficiently.  Hopefully, Ramaphosa and Xi are fully aware of what officials on both sides of the dispute are doing. 

This opinion piece was published in Sunday Times: https://www.timeslive.co.za/sunday-times/opinion-and-analysis/opinion/2022-05-15-sa-is-holding-itself-back-from-greater-growth/?utm_medium=Social&utm_source=Twitter#Echobox=1652595081