The performance of commodity-driven economies is more influenced by policy than the commodity pricing cycle.<\/p>\n
This was heard during a panel discussion on the repricing of African commodities, at Deloitte\u2019s Africa 2017 Outlook conference, held in Woodmead on Wednesday.<\/p>\n
Mining industry representatives on the panel discussed the role of policy in shaping the economy\u2019s performance.<\/p>\n
\u201cYou can\u2019t get policy change without regime change,\u201d said Peter Major, head of mining at Cadiz Corporate Solutions.<\/p>\n
Using the example of Chile,\u00a0following regime or policy changes, the country went from producing 600,000 tons of copper in the 1970s to 6 million tonnes in production after.<\/p>\n
\u201cThe wrong regime changes happened in the DRC and Zambia and they went from having 600,000 tonnes to less than 100,000 tonnes,\u201d Major\u00a0said.<\/p>\n
\u201cWe [South Africa] have not had a policy change since 1994. Policy continues to push production down,\u201d he said.<\/p>\n
The implications of policy must be considered. Given existing legislation, Major asked whether these policies are designed to produce more commodities, at lower cost and drive job creation. \u201cNone are designed to do that,\u201d he said.<\/p>\n
When investors consider deploying their capital, policy by far is more important than anything else, more important than commodity prices, he explained.<\/p>\n
Second concern for investors is infrastructure – and commodity prices is a \u201cdistant third\u201d issue.<\/p>\n
Macro-economic developments are \u201csmoke and mirrors\u201d for emerging markets. Brexit and the election of US President Donald Trump\u2019s impact on emerging markets will be smaller than what policymakers make it out to be, he said.<\/p>\n
Growth is determined by what countries do internally as opposed to what happens in the macro-economic environment. \u201cIf we have the right policy, we will have growth,\u201d explained Major.<\/p>\n
When times are tough it is easier for companies to shift the blame to government policy, said Bernard Swanepoel, director at To the Point and formerly CEO of Harmony Gold.<\/p>\n
He said that it took mining companies two to three years to make adjustments following the slowdown of the commodity super cycle. \u201cThe delay action by mining companies shielded or prevented government from realising how big the problem is,\u201d he said. \u201cWe are shielding government from the policy changes to deal with the commodity cycle.\u201d<\/p>\n
Chris de Vries, managing director of Venmyn, Deloitte shared these views. He said that with the knowledge that commodity prices work in cycles, companies should have seen it coming and should have made preparations to lower the impact.<\/p>\n
De Vries added that when things seem to be going well for commodities, governments often want a \u201cpiece of the pie\u201d and this may influence policies formed. In other countries like Zambia where the issues are linked to revenues,government had good policies but introduced tax reforms to benefit from the revenues generated.<\/p>\n