South Africa mining bill sparks controversy

Stiking miners in south Africa

Stiking miners in south Africa

South Africa is open to amending a controversial mining bill that has alarmed the industry at a time when mining companies are already battling on several fronts, government members have told the Financial Times.

Speaking at the Financial Times alongside Kgalema Motlanthe, the deputy president, and Pravin Gordhan, finance minister, Susan Shabangu, the mining and energy minister, said the government remained “open minded” about how it reaches some of its goals. It was continuing negotiations with mining companies, unions and other stakeholders as parliament opens debate on the bill, she said.

The bill, which among other issues seeks to promote employment by encouraging greater manufacturing of raw materials, falls at a time that rising electricity costs, deepening mine shafts and stagnant productivity already threaten the commercial viability of some mines. Tension with workers over wage settlements was eased by a pay deal with one union this month.

At the same time, the ruling African National Congress has been facing more radical demands for nationalisation from within its ranks and has sought to balance the economic need for fresh investment with the historic political preoccupation of ensuring South Africans benefit more equitably from their natural resources. Mining employs more than half a million people in South Africa and generates 60 per cent of export revenues.

Legal experts and mining companies have been at loggerheads with the mines ministry over certain clauses in the bill, which they say contravene the constitutional provisions on property rights and would deter fresh investment by forcing companies to sell raw materials at a state determined price.

The new bill would also interfere with trade and bilateral investment treaties, including with the UK, and could if passed in its present form lead to South Africa being sued on multiple fronts, according to Peter Leon, a global expert in mining law based in South Africa.

“This is a proposal. It is not an end on its own. It has to be debated,” Ms Shabangu said on a trip to London aimed at reassuring investors.

The most vexed issue is known in South Africa as beneficiation or adding value to raw materials through manufacturing in a way that stimulates employment and industrialisation.

“What you can hear from all parts of Africa and elsewhere is that developing countries don’t want an extractive relationship either with the bigger emerging markets or with the developed countries. They want a relationship where there is value addition to the minerals, so that jobs are created, skills are created and technology imparted, and that this contributes to overall social and economic development,” Mr Gordhan told the FT.

The bill, as it stands, aims to do this by allowing the mines minister the discretion to determine the quantity and set the price at which mining companies sell to local industries.

South Africa’s chamber of mines argues that this would amount to mining companies subsidising manufacturers. They argue that it is the government’s job to foster comparative advantages by, for example, creating free zones where manufacturing industries would benefit from lower taxes and tariffs.

“There is no confusion in South Africa . . . that the issue of value addition forms part of the future. Our discussions currently is about what model we shape our value addition on . . . that is about part of the discussions we are having with the chamber and the unions. We have not wholly concluded on the formula,” the mining minister said.

Senior industry figures have voiced their concern. “We are now confronted with amendments . . . that would create a whole new set of operating conditions for mining companies. This type of thing is terminal for anyone considering investing in our mining industry,” Mark Cutifani, Anglo American chief executive, one of South Africa’s largest miners, said last month.

South Africa’s mining sector has largely missed out on a long resources boom and is still traumatised by the shooting of 34 miners at Marikana, a Lonmin platinum mine, last year amid wildcat strikes and labour unrest. Mining contributes 6 per cent to gross domestic product and 20 per cent of private investment but by many measures the industry has gone backwards. Real GDP in the sector fell by an annual average of one per cent between 2001 and 2008, according to the chamber, at a time when mining in other large commodities-dependent economies was growing at 5 per cent a year.

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