Mining labour disputes and energy shortages are weighing down South Africa’s growth
Labour instabilities in South Africa during 2012 and 2013 with mining strikes and farm worker protest have emphasised the complexity of South Africa’s societal landscape.
With this, it disclosed the need to ensure processes and procedures governing labour relations were adhered to with stringent labour law enactment to warrant an economy attractive to foreign investment.
Mining has the potential to shape and affect economies directly, bringing employment, increase government revenues and provide opportunities for economic growth and diversification.
In South Africa, mining is one of the major players, with more than one million people in mining-related employment, and is the largest contributor by value to black economic empowerment in the economy.
According to Projects IQ, mining contributes heavily towards SA’s GDP, as high as 20% of which about 50% is contributed directly with a total annual income exceeding R330 billion.
In addition to producing the highest amount of chrome, manganese, platinum, vanadium and vermiculite globally, SA is also currently the largest producer of gold, the second largest producer of ilmenite, palladium, rutile and zirconium, the world’s third largest coal exporter and the fourth largest producer of diamonds.
However, in 2008, the global market fluctuations in platinum brought mining’s contribution to GDP down to much lower percentages with a drop in the value of the Rand, thereby damaging the South African economy considerably.
SA’s gold mining revenue has also fallen with 427 tonnes less gold being produced since 1989, resulting in 372,000 jobs being lost. Despite this fall, SA still has an abundance of gold reserves in the ground, and in 2012 gold was still the country’s biggest mineral export, earning R72-billion in foreign exchange, which put it above platinum and coal.
Chief economic strategist at Investment Solutions, Chris Hart, who was delivering the keynote address at the Tenova Mining and Minerals Symposium in Johannesburg early in October 2013, warned that if steps were not taken, the gold industry would be in danger of losing its critical mass. Hart said if the country sets out to save the gold-mining industry, it could benefit from gold’s pivotal economic contribution for another 100 years.
Uncertainty about regulation, use of mineral right policies, mineworker strikes, and the ongoing dispute among labour unions, are areas of major concern, with investors waiting to see how SA’s economy can return to prominence under an umbrella of fair and safe practices before further investing.
In October 2013 President Jacob Zuma told the Mail & Guardian at the launch of the construction phase of the De Beers Venetia underground diamond mine in Musina Limpopo, the country’s mining industry is poised for growth with a bright future.
He said this is evident by the biggest single investment of R20 billion in the diamond industry in decades, which no doubt, will boost diamond production.
“Working together, we have to ensure that our mining sector grows even further. We must therefore provide the right environment for growth. This includes the implementation of transformational measures and promoting labour market stability in the sector,” Zuma said.
But in the interim, to survive as viable businesses able to cover their costs of capital, mine owners have no choice but to plan for lower operational costs which ultimately means, planning for lower levels of production and cutting employment.
The market further fears disruption of mining output by uncooperative trade unions that seemingly do not share sentiments of an industry in crisis. The unions are expected to further resist retrenchment of their members and to continue to demand what shareholders, and also the government, regard as unrealistic demands.
Mineworkers support the union that makes the best case in regards to raising low pay and improving their quality of life in the settlements, totally oblivious of higher management’s predicaments.
SA’s economy is also heavily dependent on coal. Coal provided an estimated 72% share of the country’s total base energy supply in 2007, and accounts for about 85% of electricity generation capacity. Coal is also a major feedstock for the country’s synthetic fuel industry.
The country’s development strategy for electricity supply between 2010 and 2030 includes 9.6GW from nuclear power, 6.3GW from coal (in addition to 10GW already under construction), 17.8GW from renewables and 8.9GW from imported hydro and gas turbines. By 2030, this will increase SA’s electricity generation capacity from 260TWh to 454TWh.
At a roundtable brainstorming session held in Sandton in November 2013, stakeholders debated the challenges and opportunities in the power generation and distribution sectors ahead of the Power-Gen Africa and DistribuTECH Africa 2014 conferences to be held in Cape Town between 17and 19 March 2014.
Key players in the energy sector said the time has come for reviews of the infrastructure management and revenue models. Willie de Beer, Chairman of the DistribuTECH Africa Advisory Board said, “The days of the classical Kilowatt hour business are over.”
“Reselling power for a set margin is no longer enough. The sector needs to look at new revenue streams, and leverage technology to encourage customer engagement and energy efficiency in ways that ease the pressures on the national grid.”
De Beer said the industry was challenged by an ageing infrastructure and an ageing workforce, with serious gaps in asset management and performance management. SA’s Integrated Energy Plan presented an ideal opportunity to revisit existing strategies, operating regimes and models, and to develop a model that supports growth and sustainability.
Also speaking at the roundtable, Prince Moyo, GM: Power Delivery Engineering at Eskom, said a good number of Eskom’s plants are operating beyond their original design life and therefore require higher levels of planned maintenance work.
“It’s a critical decision time for Eskom,” he said, “we have to assess: do we shut down plants as they reach their design life, or do we undertake life extension projects?”
A failure to address mining and energy sectors challenges, creates substantial risk for losses in the overall economy. Long-term prosperity for SA would therefore require sustained industry collaboration, adaptation and innovation.
Word count: 1000
Written for: Capemedia – Opportunity Magazine 62
Editor: Tracee Harvard | traceeh@capemedia.co.za
Deadline: 20 December 2013