Dark clouds gather over South Africa’s most important industry

Mining analyst Peter Major warned that South Africa’s mining industry is not on the right track and poor policy decisions are crushing the sector.

Major is one of South Africa’s most respected and seasoned mining analysts and is currently the Director of Mining at Modern Corporate Solutions.

In an interview with Phumulani Majozi, Major said that when the ANC started to govern, it changed the direction of the mining industry.

“By 2002, the ANC decided to go for a radical economic change in the mining industry, and I mean radical. I don’t know of a country that did such a radical change.”

It included changing mineral ownership rights, strict black economic empowerment (BEE) requirements, and BEE procurement policies.

• The Mineral and Petroleum Resource Development Act (MPRDA) transferred mineral ownership from the private companies that owned the mines to the state.

• BEE policies forced mining companies to give 26% of their equity to previously disadvantaged individuals.

• BEE procurement policies forced mining companies to source most of their goods and services from B-BBEE entities.

These radical changes, contained in a leaked document, caused the South African equity market to plummet. The JSE mining sector fell by 30%.

“That showed what the world thought of the changes, but the ANC went ahead with them anyway,” he said.

When these radical changes became policy in 2004, the South African mining sector plummeted by another 20%.

Major slated the government’s decision to implement these changes despite warnings from the industry and the dire consequences for South Africa.

He explained that the policy changes have harmed the South African mining industry more than any other Act or person.

Major ascribed these policies as a result of the ANC’s “enormous amounts of ignorance, arrogance, and greed”

Zambia’s mining example

South Africa’s damaging policies are not unique. Major said Zambia also implemented poor policies, which destroyed its mining industry.

By the end of the 1960s, Zambia was one of the world’s largest copper producers, producing 709,000 metric tonnes of copper by 1969.

Until then, Zambian mines were privately owned by private companies like the mining giant Anglo American.

In 1969, Zambia started implementing policies to nationalise mines. By 1974, the country achieved full nationalisation of mines.

This required that the government own 51% of mines within Zambia. These policies remained in place into the nineties.

While these ownership policies were in place, Zambia experienced a significant decline in its mining production. It continued to produce less each year.

Zambia’s copper production saw a significant decline, and by 2000, the once-significant copper producer produced only 260,000 metric tonnes of copper.

However, between 1997 and 2001, under President Frederick Chiluba, major privatisation occurred in the Zambian mining sector, ending the nationalisation policies.

The destructive nationalisation of mines policies was discarded, and the road was paved for the private sector to rebuild the damage caused by the government.

Since 2001, Zambia’s mining industry has been revived. The sector experienced a return to its former glory before the government ruined it.

Major explained that Zambia has received tens of billions of dollars in foreign investment since making these positive policy changes.

Within 9 years, Zambia was back to producing 700,000 tonnes of copper per year, and its unemployment rate fell from around 20% to its current level of 6%.

Democratic Republic of the Congo’s mining industry

The Democratic Republic of Congo (DRC) experienced a similar trend to Zambia when mines were nationalised in the 1970s.

After the DRC implemented nationalisation policies, its mining production decreased to the point that the country did not produce any refined copper from 2000 to 2005.

In the early 2000s, a significant change was introduced where mines were privatised in the Democratic Republic of Congo.

This allowed significant foreign investment to enter the country, with large players such as Glencore investing heavily in it.

After this policy change, the DRC has become one of the world’s largest copper producers, creating wealth and jobs for many of its people.