Only strong investment can grow mining’s win-win offering

Mining has the potential to grow South Africa’s gross domestic product (GDP) significantly, which is its main potential contribution to the country.

But it needs investment flow and currently investors are deserting the mining sector.

Mining’s equity model is at breaking point and the huge advantage of capital inflow is being lost to South Africa.

Moreover, hundreds of millions of dollars of planned capital investment in mining projects is being delayed or cancelled.

The industry has gone ex growth, which is the ugly antidevelopmental story of the day.

How can South Africa reverse this devastatingly dangerous trend?

The main objective of governments the world over is, or should be, to improve the incomes of every single one of their citizens.

But in order for South Africa to achieve that goal, it needs investor confidence, political certainty and the capacity to deliver, without which there can be no economic growth and thus no economic transformation, as has been proved globally.

Because the mining economy can grow the overall South African economy, it is essential that South Africa puts positive emphasis on its mining economy.

An analysis of 40 mining-driven global economies shows that, in each case, more than a quarter of total export revenue is derived from the sale into the world of metals and minerals.

Without those mining-related exports, the economies of those countries would be severely stunted.

Mining’s direct weighted average contribution in Brics (Brazil, Russia, India, China and South Africa) countries and seven selected resource-rich countries found that a 3% GDP growth translates into benefits worth $340-billion for the country concerned.

With the 2.6-times multiplier effect that mining provides, the contribution rises to 7% of GDP, or $850-billion.

“If we could improve by just 1% in those 12 countries – the five Brics and the seven resource-rich countries – we could add value of $9-billion,” Gold Fields CEO Nick Holland, who addressed the Gordon Institute of Business Science last week, states in a presentation that he will be taking on the road to Australia, Peru and the US.

That 1% compounded every year for five years would add $45-billion, which shows the magnitude of mining’s potential economic contribution.

If the global mining economy grows, the global economy experiences many more notches of growth, which creates jobs, improves lives and generates more money for the fiscus, employees, shareholders and communities.

“That’s the win-win pie,” says Holland, who points out that such a win-win situ- ation has been achieved in Chile, which has a consistent mining regime that supports incoming foreign investment.

Mining’s direct benefit to Chilean GDP in 2010 was 14%, not because of its State-owned copper company, Codelco, but as the result of new private-sector investment from mining giants.

MINING'S MAGNIFICENT MULTIPLIER

The multiplier effect of mining creates signifi-cant value in an economy, the GDP contribution of mining first manifesting itself through direct mine supply and then through indirect supply to the mine suppliers.

This puts more money into the pockets of the people at home, who can, in turn, invest and spend it in the general economy.

Adding all that up proves that every 1% GDP growth in mining is worth 2.6% for the overall economy.

But there is another multiplier, too, in that mining is also a proxy for capital inflows, skills, other industries, technology transfer, infrastructure development and community upliftment.

EVERY MINING JOB HELPS 27 PEOPLE

In South Africa, mining employs 500 000 people directly and 900 000 indirectly, totalling 1.4-million jobs.

In turn, on average, every direct and indirect worker has nine dependants.

The secondary and tertiary sectors then extend the number of dependants to 14 and the informal sector adds another two, which takes the total number of dependants to a very substantial 27.

Mining’s outreach to 27 people for each employee gives it the potential to dig deep into poverty alleviation.

MECHANISATION AND TECHNOLOGY

The ingress of mechanisation and technology into mining should be welcomed because the industry has to modernise.

Also, the next generation is likely to be reluctant to do the arduous work of manually drilling rock in restricted mining stopes.

Twenty-first century solutions need to come to the fore and mining needs to catch up with the likes of the automotive industry in the way it goes about doing its work in the mines of the future.

If the mining industry can create more value, it will receive additional capital input, which can be reinvested into many other job-creating activities.

Technology that brings greater safety and pro- ductivity simply has to be embraced and the spin-off will be technology transfer and upskilling.

Investment in enabling infrastructure is an important addendum to mining, which is also a far-reaching catalyst for small business development.

Mining’s full benefits go beyond pure quantification.

RESOURCE NATIONALISM IS NOT NATIONALISATION

Holland defines resource nationalism – as distinct from the very different nationalisation concept – as the effort of countries to extract the maximum value and developmental impact for their people from their finite natural resources.

“In our view, there’s nothing wrong with resource nationalism. In fact, it is very rational for governments to have this as a key objective.

“Surely, governments are correct to want to extract as much as they can for the benefit of their country and people out of what are finite resources.

“In fact, we would even go further and say that not only is it legitimate but it’s actually the duty of government to see that a country’s natural resources benefit its people,” adds Holland.

The central government debt of 40 countries analysed has rocketed to 75% of GDP over the last year from 20% in 2003, making it understandable for governments to want a bigger piece of the mining pie.