Tuesday, August 13, 2013

For mining’s sake, think like Peru, not like France

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13 Aug 2013 | Tony Leon  | Original Publication:  BDlive

Unlike France, with its antibusiness rhetoric, Peru prides itself on the investor certainty and protection it offers resource companies, writes Tony Leon

A YEAR ago, few South Africans had ever heard of a small town in the Platinum Belt called Marikana. But 12 months ago this Friday it became, in a hail of police bullets that killed 34 miners, a synonym at home and abroad for everything that has gone wrong in South Africa: dysfunctional labour relations, police excesses, short-term management thinking, and legislation and regulations that ignore our economic reality.

The results were enough to start a new page in a local doomsday book: R10bn in lost mine production, which cut half a percentage point off last year’s gross domestic product, three credit-rating downgrades and a resulting record current account deficit, a currency plunge and mining job losses north of 15,000 in an industry that accounts for about 60% of South Africa’s exports.

This data — collated recently by mining lawyer Peter Leon (disclosure: my brother) — does not capture the human lives and the lived reality affected by this violent eruption. Marikana was like a thermonuclear blast of such intensity that we will feel its shock waves for many years hence.

Three seemingly unrelated recent announcements caught my attention regarding the crisis on our mines. First, on Friday, Mineweb analysed the June statistics for our mining production and noted a 6.2% decrease year on year, of which decreases in platinum group metals and gold were the main contributors. But, amid a plethora of facts and explanations — not least of which are low metal prices, violent labour disputes and old mines — there was a standout surprise: Peru has just overtaken us as the fifth-biggest gold producer and, whereas back in 1970, South Africa produced 80% of the world’s gold, now we manage only about 6%. This led the journal to conclude: "How the mighty have fallen!"

Obviously there are differences between the underexploited and more accessible mining resources in South America and our own more inaccessible and ageing mines. But Peru — notwithstanding a populist history and social protests against mine operators — prides itself on the investor certainty and protection it offers resource companies.

A second announcement — appropriately made on Bastille Day — is that French President Francois Hollande is to make a state visit to South Africa in October. Doubtless his populist prescriptions, such as a proposed 75% supertax for France’s richest citizens, will find an appreciative audience among some in the corridors of local power.

But these atmospherics, in a depressed eurozone, led the Financial Times to warn France of "an antibusiness rhetoric which has created an atmosphere of mistrust between government and companies that is penalising the economy". In a recent note on the stuttering French economy and the recovering US one, the New Yorker drew attention to a difference in the governing ethos between the two nations: "Americans insist that the poor do better, the French insist that the rich do worse."

Much of this "French philosophy" underpins our mineral resource legislation and the entire paraphernalia of the government’s economic thinking. Attracting, incentivising and maintaining investor confidence is somewhere at the back of the queue, way behind racial wealth transfers, tightened state control and mandatory beneficiation. The French invented a useful word to describe all of this: dirigisme — or where the state directs, not merely regulates, all economic activity.

A benevolent and even-handed government, sitting on a resource pile, might be able to be dirigiste and bring home the bacon for its citizens. But in South Africa in 2013, the bedrock mining industry is not witnessing such benefits. Indeed, the latest round of amendments to the Mineral and Petroleum Resource Development Act suggest a further generous dose of "rent-seeking", which economist John Kay defined as "the accumulation of fortunes not by creating wealth but by the appropriation of wealth after it has already been created by other people".

But a third and more hopeful voice also made itself heard last week. Neal Froneman, CEO of Sibanye Gold, made a speech amid the ghosts of randlords past at the Rand Club. He graphically sketched what he termed the "doom and gloom" of the mining industry. But he then went on to sketch a scenario for a "post-Marikana revival package". Topping his "urgent list" was a call for leadership to provide a trade-off between popular politics and long-term national interest. From his own industry, he called for long-term thinking, including "profit-sharing which aligns workers’ interests with shareholders and containing rampant wage increases". And the state, instead of directing economic activity, needs to improve and make transparent its regulatory environment and reimagine black economic empowerment in the interests of the many, not the well-connected few.

Forward thinking like this provides a road map out of Marikana — not a cul-de-sac of diminished hope and dashed expectation.

Leon is the author of The Accidental Ambassador (Pan Macmillan). Follow him on Twitter: @TonyLeonSA OR on Facebook: facebook.com/TonyLeonSA


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