By Andrea Hotter / February 05, 2018 / www.metalbulletin.com /
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South Africa urgently needs to get investment back on the agenda, according to the deputy chairman of Anglo American South Africa.
Speaking during the annual Mining Indaba in Cape Town, Norman Mbazima said that while South Africa may have one of the world's most endowed mining jurisdictions, it has not been able to bring this endowment to account.
"We need to attract capital for South Africa's mining industry, whether foreign or domestic, and we must accept that such capital needs to get a competitive return," he told conference attendees.
Describing the statistics as "alarming," Mbazima noted that last year, South Africa's gross domestic product (GDP) grew by just 0.7% - well below its population growth of 1.61% and below most of its neighbors.
By the third quarter of 2017, unemployment had reached 27.7%, its highest rate in 13 years, he added. And the Finance Minister indicated in his Medium Term Budget Speech that there would be a revenue shortfall of some 50.8 billion South African rand ($4.2 million), and the budget deficit would be 4.3% of GDP.
In December last year, the South African Chamber of Mines published a report on mining investment in South Africa, showing that gross fixed investment in mining has been stagnant since 2009, and has declined by 5% over the course of the last three years. Net investment in mining has declined by 57% since 2008, the report also showed, and despite commodity prices improving by about 11% on average since 2006, mining's output as an industry has been stagnant.
Politics and regulation
Mbazima said that there are several ways to fix the problem, including viewing the political environment more positively.
"Although it may unsettle us at times, the changing dynamics in our politics is a shaping force that we must reckon with positively. In this regard, it was encouraging to see how the internal rules and processes of the African National Congress, South Africa's governing party, were observed even during a hotly contested elective conference last December," he said.
"This resulted in a credible outcome, which we think is a significant 'first step' towards stabilizing the political dynamics in our country. As the country prepares for its fifth democratic election, which will be held next year, we look forward to an exciting period of debate and democratic contestation," he told delegates.
"Our view is that if the right choices are made, South Africa will regain its momentum and this will bring together all social partners - government, business, labor and civil society - and provide a renewed sense of hope," he said.
According to Mbazima, Anglo American is in the business of mining, not politics.
"The people of each country in which we operate choose their leaders according to their processes. We will work with those leaders and are interested in the policies that are adopted and how those policies are applied," he said.
Mbazima also noted that it is important not to underestimate the negative effects of poor and inconsistent regulation.
"Very large amounts of capital are needed to start a mine. Your capital is deployed over a very long period of time before it can be recouped. It is for this reason that investors require a clear, concise and consistent regulatory environment to justify investing," he said. "At present, we have anything but a conducive regulatory environment," he added, citing several examples.
But Mbazima said Anglo American is very encouraged by comments made by South Africa's deputy president Cyril Ramaphosa at the recent World Economic Forum in Davos, Switzerland, where he stated that urgent action is needed to resolve the current Mining Charter impasse.
"I am very hopeful that with the improvement in the political environment that we have seen since December, we can now find the 'reset' button and get back around the table. I cannot wait to participate in this," Mbazima added.
Infrastructure, returns, investment
Mbazima also noted that bringing back investment into mining depends on South Africa's ability to revitalize crucial infrastructure, especially rail and port networks.
He stressed the importance of management being able to present a convincing investment case to committees and boards, and justify why it is appropriate in South Africa and not elsewhere.
"This, of course, means being able to demonstrate that the project will be able to meet all the costs that are legitimately required to be borne before a profit can be returned - including taxes, labor, procurement, community and regulatory costs," he told delegates.
"Given the large dollar amounts involved and the lengthy investment periods, we also have to consider the likelihood of the various costs forecasted being very different when they are actually incurred. This is most difficult to predict in the regulatory space, where rules can be changed by promulgation by government," he explained.
"Equally important is the certainty of a consistent and clear mining policy, stable and functioning government institutions and efficient processes," he added. While conditions have improved, "we're not quite there yet."
And volatile commodity prices have made it difficult to justify new projects, too.
"Put yourself in the shoes of the boards taking these multi-decade investment decisions. It's tough and we have to compete for limited capital," Mbazima noted. "Unless investors can see that all of us have confidence in our economy, our democracy and our institutions, they will take their money elsewhere. We have to go out there and talk about our investment climate - how and why it is a welcoming one for investors."