Is South Africa benefiting enough from Extraction of its resources?
The question of whether the South African economy is deriving maximum benefits from its natural resources is a critical question especially given the historical experience of the so called ‘Resource curse’ in all resource rich countries. The resource curse, also known as the paradox of plenty, refers to the paradox that countries with an abundance of natural resources (like fossil fuels and certain minerals), tend to have less economic growth, less democracy, and worse development outcomes than countries with fewer natural resources.
One culprit for the resource curse (also known as a “Dutch disease,) is the unfortunate reality whereby resource revenues raise a country’s exchange rate, hurting competitiveness in non-resource sectors. Other factors may include the volatility associated with commodity prices, which can have especially negative impacts on weak-state economies; and the underdevelopment of agricultural and manufacturing sectors during boom periods in resource-based economies.
Natural resources belong to the people. Profits should benefit the people, not a company or a president or the individual who happened to own the ground where natural gas or iron ore was found. A strong and universal principle of natural resource ownership by the people will increase pressure on governments to use revenues for public services rather than for private gain.
The first problem then In South Africa is that natural resources are not mined by the state, therefore the majority of its revenue goes to shareholders of the companies licenced to mine and only taxes and some rents are due to the state. This means the amount of money that is suppose to be derived from the natural resources for the benefit of the entire country now must go to a few mine company owners. How is this even rational or acceptable for government. Much of the problem of course is historic. It is true that it is mining companies that discovered much of these natural resources where governments were just sitting on land unaware of the wealth beneath it. It is also true that even when governments became aware of the natural resources beneath their lands, they still did not have the know how and technical capacity to mine them so it was again left to these companies to mine the resources.
What has happened however is that whist all deals with mining companies should have involved a transfer of skill to the indigenous people, most of these deals have had huge gains and kick backs for the political elite, especially during colonialism and apartheid so that today, government, through the indigenous people is still largely excluded from ownership in the mining industry. The transfer of skill has been the biggest failure all Industrial Policy Action Plans (IPAP) and continues to strangle transfer of ownership in all industries.
It is true that Mining in South Africa has been the main driving force behind our advanced economy. Large scale and profitable mining started with the discovery of a diamond on the banks of the Orange River in 1867 by Erasmus Jacobs and the subsequent discovery and exploitation of the Kimberley pipes a few years later. Gold rushes to Pilgrim’s Rest and Barberton were precursors to the biggest discovery of all, the Main Reef on Gerhardus Oosthuizen’s farm Langlaagte, Portion C, in 1886, then the Witwatersrand Gold Rush and the subsequent rapid development of the gold fields there, the biggest of them all.
200 years later, Diamond and gold production is now down from its peak. South Africa is still number 5 in gold and remains a cornucopia of mineral riches. We remain the world’s largest producer of chrome, manganese, platinum, vanadium and vermiculite. We are the second largest producer of ilmenite, palladium, rutile and zirconium. We are also the world’s third largest coal exporter. South Africa is a huge producer of iron ore; in 2012, it overtook India to become the world third biggest iron ore supplier to China, who are the world’s largest consumers of iron ore.
The question is what has happened in the 200 years of mining and has South African people truly benefited from its rich mineral endowment. Durban Deep for example, Founded in 1896 and nicknamed the “Grand Old Lady,” was one of the most profitable mines in the world, producing more than $20 billion worth of gold before it closed in 2001. Today, A generation of poor South Africans and migrants now break into this mine scavenging illegally to survive. Many have lost their lives a few days ago. The mines where so many became rich closed down after reserves were depleted even faster than expected. We must ask whether we have not thrown away the wealth of our nation from our natural endowment giving it to others in ignorance.
In South Africa today, Platinum group metals (PGM) years to depletion is still over 200 years while our gold only has about 38 years left. Coal is set to last 118 years. More importantly is how much of these resources have been mined in the last 20 odd years and whether our economy has derived maximum benefits from them?
With an estimated $2.5 trillion (R30 trillion) to $3 trillion in non-energy mineral reserves still in situ, we are looking forward to another 150 years of mining in South Africa,” Minister Msebenzi Zwane said, addressing the Mining Indaba in place in Cape. “As we move mining forward, let’s take everyone along and ensure that the mineral wealth beneath our soil indeed benefits all South Africans,” Zwane said.
In 2003 Coal contributed 21% to total sales of commodities, as at January 2016, Coal contributed around 32% of total commodity sales. Platinum group metals (PGM) surged in 2008 and contributed over 30% of total commodity sales in that year.
The commodity South Africa is best known for, Gold, contributed around 30% of total commodity sales in 2003. As at January 2016, this has dropped to around 18%. Essentially Gold has been smashed by Coal since early 2007, as the value of Gold sales have not been higher than Coal sales since early 2007.
Our Gold is almost finished and our people remain poor. This has to be the gravest injustice to our people of the last 23 years.
We must move with greater vigor and determination to ensure that in the 150 years of mining that is left in our country, by the time all is depleted, no South African is left behind.
As the ANC begins to refine its policy recommendations at its 54th Elective Conference in December 2017, we must remain cognisant of our historic mission of building a genuine people centred developmental state, where the poor and marginalised of our society remains centrefold to our growth trajectory. Business must continue be a vital partner to growth, but this cannot be at the expense of workers and the rural poor. Past practices need a radical shift to a more inclusive economic growth path.
Jessie Duarte is the Deputy Secretary General of the ANC