[miningmx.com] — FINANCE Minister Pravin Gordhan on Tuesday gave a frank assessment of why South Africa’s mining sector has failed to keep up with its peers in attracting new investment in recent years, singling out energy shortages, limited transport infrastructure and regulatory uncertainty as the main culprits.
Delivering his medium-term budget policy statement (MTBPS) for 2011 in parliament, Gordhan lamented the fact that although South Africa has benefited from the boom in commodity prices, this has not translated into significant growth in mining production.
“Energy constraints, inadequate transport capacity and uncertainty in the regulatory environment have held back progress,’ Gordhan said. “In contrast, mining production expanded by 30% in Australia, and 44% in Brazil between 2003 and 2010. This has provided a huge boost for investment, tax revenues, jobs and incomes in these countries.’
The official policy statement went further, stating that while the value added in South Africa’s mining sector remained flat between 2001 and 2008, Chile achieved 12% growth. Similarly, while investment growth in South Africa averaged 7% per year during the 2000s, Australia recorded a 24% average.
The policy statement listed six factors contributing to this underperformance:
– Uncertainty in the regulatory environment governing the transfer of mining rights and an opaque permit-granting process, compounded by inefficient administrative processes and lengthy waiting periods for the issuance of water licences.
– Logistical challenges, including operational inefficiencies in the rail system and high port charges.
– Investment in electricity generation capacity remains crucial to prevent production stoppages.
– Volatility of the exchange rate leads to widely fluctuating rand commodity prices.
– The debate on nationalisation has fed uncertainty among investors.
– Gold mining now occurs at very deep levels, with higher costs and risks.
Giving a breakdown of mining’s contribution to South Africa’s overall economy, the MTBPS said mining value added grew by 6.3% in the first half of 2011, year-on-year, with the production of PGMs rising by 16.3% over this period.
However, overall mining production has decreased 4% in the year to end-August, with steep falls in diamonds and gold, despite a 12% increase in primary commodity prices.
INFRASTRUCTURE SPEND
Gordhan has reiterated government’s infrastructure building programme, saying it would help to stimulate the economy and increase job creation.
“Following a sustained decline between the early 1980s and the mid-2000s, capital investment by government and state-owned enterprises has grown rapidly in real terms over the last six years, rising from R67.5bn in 2005 to more than R140bn today,’ read the MTBPS.
This included continuing investment in bulk freight rail to support mining production, including coal haulage capacity and the iron ore line to Saldanha Bay.
“Eskom’s capital expenditure programme is intended to double its electricity generation capacity from 40,000MW to 80,000MW by 2025 and ensure the economy benefits from a reliable supply of electricity,’ read the statement.
“The Ingula, Medupi and Kusile power stations are projected to be completed by 2014, 2015 and 2018 at a cost of R21bn, R99bn and R121bn respectively.’
ACID MINE DRAINAGE
Treasury earlier budgeted R225m to deal with acid mine drainage in the Witwatersrand. On Tuesday, Gordhan made an adjustment of R208m to provide for “unforeseeable and unavoidable’ expenditure, saying the amount was earmarked to meet “urgent needs’ associated with acid mine drainage.
“I understand that progress has been made towards a partnership between the water authorities, municipalities and mines that will contribute to addressing the region’s water supply needs over the long term,’ Gordhan said.
