Policy Paralysis kills job creation in Mining

James Lorimer, Shadow Minister of Mineral Resources
10 May 2012

Documents to Download

Note to editors: This is an extract based on a speech delivered by DA Shadow Minister of Mineral Resources James Lorimer MP during today’s debate on the Mineral Resources Budget vote.

To look at South Africa’s mineral resources is to see one fact of overwhelming significance. We have more value under our soil than any other country in the world. It is estimated to be around $2.5 trillion. That is one competitive advantage that South Africa has. That is one fact that means we could create tens of thousands of jobs and provide the impetus that will get us out of the economic doldrums in which we languish.

The mining equation is simple: to get that wealth out of the ground in such a way as to create the greatest number of jobs and provide the greatest amount of money for the fiscus in a way that has the greatest amount of economic spinoff to the greatest number of people. And all this must be done in ways that when mining is finished land, water and other resources are not left polluted or otherwise destroyed.

This fact must then be followed by one big question: Why is our mining industry shrinking?

Why is the South African mining industry smaller today than it was in 1994? If the decline is measured in how much mining contributes to the GDP, our industry contracted by one percentage point between 2001 and 2008. Our top twenty competitors in the same period grew by around five percent each year.

The news gets worse. In three of the four quarters last year, production fell. In January, mining production was down by 4.9 percent year on year; in February, by 14.5 percent. February boasted our lowest mining output in 50 years.

All this isn’t some academic exercise. A decline in the mining industry means that people lose their jobs. Stats SA says 179 thousand people lost jobs in South African mining between 2001 and 2011. According to Stats SA figures that’s a 36% drop. Every decline in production means that there will be job losses sooner or later. It is incumbent on this government, urgently, to review the situation, find out what is causing the declines in the industry and address them.

If the 5% growth enjoyed by our competitors had applied to our mining industry, more than 300 thousand jobs would have been created. That’s what mismanagement of the industry has cost us.
The National Planning Commission says constraints to growth must be addressed by ensuring certainty in respect of property rights and a predictable, competitive and stable regulatory framework. The Minister has indicated that the framework will be improved, but why is it taking so long? We suspect government is waiting for direction from ANC conferences happening later this year. And while we wait for this to happen the industry is on hold, production is plunging and jobs are under threat. Once again party has been put before country.

The difference between certainty and uncertainty is the difference between investment and no investment the difference between employment and unemployment is the difference between wealth and poverty.  

Mining is a giant in our economy. In South Africa’s past it was a giant monster. It embodied some of the worst aspects of apartheid – migrant labour, repression and unsafe working conditions. It was an industry where workers didn’t count.

Things have changed though. Most mining companies have had a paradigm shift in their attitudes, advised by our new democracy and with pressure from everybody from government to their own shareholders. But that change has not been acknowledged.  It’s no longer helpful to see mining as a monster but rather as a giant which can work for us all and produce the employment and growth we seek.

And here’s the root of the problem. The legislation has not been a success. Together with the mining charter it has caught mining companies in a web of rules that continues to raise the costs and difficulties of mining successfully. One major mining company tells me they’ve had to employ 20 new staff at head office, just to deal with compliance, and those issues demand highly skilled resolution and 20 highly skilled people do not come cheap. Once again the cost of mining is raised and South Africa becomes a less attractive place to put your money.

There’s an argument that one hears in government circles. That argument says, ‘we’ve got so many minerals that mining investors will have to come to us and mine on our terms, so we don’t have to worry about attracting them’. The poverty of that argument is made clear by the statistics I’ve already mentioned. People’s jobs are at risk, we’re missing opportunities for poverty relief that will not wait. We need to act now!

Let’s look at some specifics, starting with one of the major reasons cited by mining companies for the current fall in production. Safety stoppages under Section 54 of the Mine Health and safety Act. AngloGold Ashanti Chair Tito Mboweni has described these stoppages as a ‘sledgehammer’. Miners everywhere complain that whole mines are closed for relatively small infractions. For example, the taillight of a vehicle operating on the surface is broken and the whole mine gets shut down for 48 hours. Or the fire extinguishers are past their expiry date. Rather than issue a section 53, which would give the mine some hours to comply, the whole mine is closed and two days of production are lost.

The problem is not section 54 in itself, but rather the form DMR 235 and the guideline which strip inspectors of discretion. That’s what is meant by a sledgehammer.

Now I can predict a response, that’s to use this as a political football and say: ‘what about the workers?’ What about the workers indeed! Let’s regulate efficiently rather than indiscriminately because those who allow indiscriminate regulation will cost workers their jobs and their livelihoods, as has already happened to so many. We cannot continue to use this issue as a political football.

The Department is responding, and says it is working more closely and constructively with mine management. But is this happening fast enough? As this so directly affects production we’d like to see a lot more money from this budget put into the retention and hiring of inspectors. Early and frequent inspections, where the inspectors can use reasonable discretion would mean fewer closures, and less lost production. We are aware of the difficulties in this area but we think this is such a key area it merits more vigorous intervention.

The most important thing the state needs to do is change its attitude towards mining. The Minister usually says the right thing but investors are unconvinced because actions speak louder than words.

When the legislation and regulation is reviewed it should be with an eye to removing the shackles that bind the industry, to set it free to do what it does best, that is mine, not conduct social policy or beneficiate.

Government must move away from trying to make mining companies do what they are not good at. It must listen to them. If the mining industry is treated sensibly, and as a partner, it could turn into the engine that drives employment and economic growth. It could turn from monster to saviour.