Towards a more effective mining policy

The Johannesburg Mining Indaba recently invited the Institute of Race Relations (IRR) to present at the annual gathering, allowing us free rein to imagine a bold new policy framework for the mining industry – one that we are certain will align the best interests of South Africans with those of the industry, the government and trade unions.

We explained that current mining policy met none of the conditions of being the “predictable, competitive, and stable regulatory framework” that the ANC had called for when it endorsed the National Development Plan as South Africa’s overarching policy blueprint. 

Rather, the Mineral and Petroleum Resources Development Act (MPRDA) of 2002 and its accompanying Mining Charter have introduced vagaries and regulatory uncertainties that have muted levels of mining investment while opening avenues to corruption and abuses of political power.   

The implications are tragic when considering that mining supports 1.5m jobs in the country, that mine wages are substantively higher than those in comparable industries, and that mining accounts for 11% of gross fixed capital investment, almost a quarter of all foreign direct investment (FDI) into SA, and that mining exports make up 60% of merchandise exports.

Through these contributions the mining industry has had a far greater positive impact on the lives and livelihoods of all South Africans than its critics allow.

Take for example mining profits, which are not the preserve of mine owners, but play an important role in supporting the government’s service delivery and welfare programmes, which have collectively brought about a significant increase in basic living standards since 1994.

Dividend payments likewise do not go mainly to a wealthy elite, but rather to pension funds and other large financial institutions that safeguard the futures and savings of millions of ordinary, hardworking South Africans, both black and white.

Some of our advice to the Indaba was to drive at recasting mining policy to reflect more accurately the actual contribution made by the industry to the country.

Fixed investment, exports, employment, and tax and dividend payments are the benchmarks against which this contribution should be measured – more than the sector’s contribution to corporate social investment (CSI) spending and narrowly defined empowerment obligations.  

We also advised the Indaba to look a short distance to the north for a better mining policy model than that which currently applies in SA.

Both SA and Botswana recast their mining policies in the late 1990s. Botswana adopted predictable and clear policy where mining rights depend, in the main, on applicants having “adequate financial resources, technical competence, and experience to carry on effective mining operations”.

Officials in Botswana have relatively little administrative discretion, making the licensing process transparent and predictable. Time frames for decision-making are also brief. 

SA went in the opposite direction and today Botswana is 30 places ahead of SA in the Fraser Index of mining investment destinations.

We therefore advised that “if South Africa is to start catching up, it should, as a starting point, recast the MPRDA along the lines of its neighbour’s mining law and make it clear that these reforms will not be reversed in the future”.

While there is much to be learnt from Botswana, the success of SA’s future mining policy will also hinge on its ability to meet the empowerment challenge. At the IRR we have been drafting a new empowerment policy framework for SA that we call Economic Empowerment for the Disadvantaged, or EED policy.

It differs from current policies in that it seeks to promote and enable job creation, fixed investment, exports, and tax and dividend payments – as the critical factors necessary to empower disadvantaged people.

Under an EED mining charter, companies would earn EED points for their contributions in four categories: economic, labour, environmental and community. 

- Economic: Mining companies would gain EED points for capital invested, minerals produced, profits earned, dividends declared, and contributions made to tax revenues, export earnings and R&D spending.

- Labour: Mining companies would earn EED points for jobs maintained and, better still, expanded, as well as for salaries paid and/or increased. Additional points would also be available for companies that improve skills, safeguard health and enhance mine safety, among other things.

- Environment: Companies would obtain EED points for reducing electricity and water consumption, minimising rock and other waste, treating polluted water and rehabilitating mining land.

- Community: Companies would earn EED points for topping up the education, housing and healthcare vouchers of poor households in mining communities, or for helping to improve the standard of provision in these key spheres. Tax-funded vouchers for education, housing and healthcare are integral to EED.

The success of an EED approach to policy in mining (and more broadly) is that it will align the best interests of South Africans with those of the industry and policymakers.

This is the fatal flaw in current mining policy: that what policy often seeks to achieve and what is needed to attract investment, create jobs and generate increased tax revenues and dividends are different things. Aligning those objectives is a necessary condition for more effective policy.

Frans Cronje is a scenario planner and CEO at the Institute of Race Relations (IRR), a think-tank that promotes political and economic freedom. 

This article originally appeared in the 16 November edition of finweek. Buy and download the magazine here.