Turning a corner

In summary:
• South Africa largely has the right policies but often falls short with implementation.
• Therefore, it is at risk of not capitalising fully on external windfalls.
• Nonetheless, there are reasons to feel more optimistic about economic prospects.

February is a busy month in Cape Town. The summer tourist season might be winding down, but three big annual events shine the spotlight on South African economic policymaking: the Mining Indaba, the State of The Nation Address (SONA), and the Budget Speech. This year, there is something of a golden thread running through these events (excuse the pun,) as they occur against the backdrop of record global precious metals prices. There is also renewed international interest in metals and minerals that are critical for the electrification of the global economy, a process that is urgent not only to combat climate change but also to enable artificial intelligence (AI).

Digging deep
Delegates at the Investing in African Mining Indaba, to give it its full name, therefore have reason to feel bullish about the prospects for their industry, which has not been the case for much of the past decade.

However, South Africa remains a difficult country in which to run a mine. It has a long history of mining, which means there is a deep body of knowledge, but there are also memories of racial discrimination, worker exploitation and lax environmental management. This complicates the current environment, leading to sometimes frosty relations between government, labour and the mining houses. It also contributes to unsettled debates on empowerment and other matters, which is problematic in an industry that craves regulatory certainty given that a mine is a multi-decade investment.

Infrastructure is arguably an even bigger bottleneck for mining than for other sectors. Mines are electricity-intensive and cannot afford power outages when workers are kilometres underground. By far the most economical way of transporting ore is by rail, but both the Saldanha iron ore and Richards Bay coal corridors operate below capacity. Crime is a growing problem for the industry, with cable theft contributing to rail and power disruptions, while illegal miners (“zama zamas”) often violently disturb legitimate activities.

Despite the country’s resource endowment, very little exploration activity is being done. This does not bode well for the development of future mines. Mzila Mthenjane, CEO of the Minerals Council, told the Indaba that exploration spending was only R781 million in 2024, a fraction of the 2006 peak of R6.2 billion. There are things that can reverse the decline. A functioning cadastre, a fully online system where all mining rights applicable to a particular piece of land can be viewed, is necessary. It will also allow a move away from paper-based processes that will reduce the risk of corruption around the awarding of mining rights. A distinct regulatory and tax regime for junior miners is also necessary, given that exploration work is risky. Similarly, South African investors will have to think differently about how to fund such companies.

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