[miningmx.com] — LAST week was a fateful week for the economy, and one can only hope it won’t prove fatal, as well.
The fact that South Africa has been overtaken as the world’s leading gold producer by China, after more than a century, may seem little more than symbolic, but it does bring home the changing structure of the economy.
It’s some years since platinum replaced gold as our most valuable mineral export. When the gold mining industry was founded, anybody who’d suggested it would still be going strong 120-odd years later would have been considered mad; but it is, even if many people feel that it’s not made the most of the opportunities the current bull run in the metal price has offered.
It’s remarkable that outfits like Wits Gold and the somewhat more solidly based Central Rand Gold still have ambitious plans for the metal, but even if these do prove to be more than just castles in the air, platinum is where the future lies.
And this is precisely a key area that has been put under threat by last week’s other development: the revelation that Eskom has advised government, even if only informally that it wants South Africa marketed only from 2013 for major energy-consuming capital projects.
There’s a element of “Boo, sucks, we told you so’, not to say schadenfreude, in this, as my regrettably recently retired fellow-columnist from the ANC has admitted that government some years ago blocked Eskom’s pleas to be allowed to invest in new capacity.
Say what you like abut the old Eskom, under the likes of the late Rudolf Straszacker and his successors it capitalised on South Africa’s seemingly limitless resource of cheap coal to ensure that supply of electricity always ran well ahead of demand.
No doubt there was a political element to this, to cushion South Africa against sanctions on oil imports.
But Eskom always agued that it was simply anticipating the market, and that it was always cheaper to expand capacity this year rather than next; however, when demand growth slackened and the political imperative eased, it was easy to dismiss the high level of surplus capacity as wasted investment, and divert investible funds to other, ostensibly higher-priority areas.
Well, now we’re paying the price for that.
Although some circles of officialdom are trying to obscure the issue, it’s clear that certain specific projects in the platinum and chrome sectors have been told that they can’t be guaranteed the essential supplies of electricity.
There are even conflicting reports on how this will affect the Coega aluminium smelter, which must be mildly amusing to Anglo American CEO Cynthia Carroll, who worked for Alcan (since taken over by Rio Tinto) when that company was involved in the original proposal.
Perhaps the most chilling statement of the week came from Eskom finance director Bongani Nqwababa (BA Acc (Hons), University of Zimbabwe), who said of the 25-year power supply agreement signed between Eskom and Alcan in November 2006: “There must be penalties but I am sure they are cheaper than building a power station.’
Wow! If not Good Golly, Miss Molly! Is he serious? Does he really want to give South Africa a reputation as a country that goes out of the way to attract major foreign investors, only to warn them barely a year later that we may renege on our side of the deal at the drop of a hat?
Maybe he should go back to his native country, which seems in even more need of his skills than we are. I can just imagine the reaction of top execs of the world’s leading resource companies, as they come across this quote in the news summaries that are no doubt laid on their desks each morning.
“So much for SA,’ they will say. The next aluminium smelter, or whatever, will be directed towards Australia, or South America. And at Anglo and Gencor, they’ll be congratulating themselves on their prescience for moving offshore and focusing on opportunities in other parts of the world.
As for me, I must apologise to Tito Mboweni for questioning his suggestion late last year that South Africa’s current growth rate is unsustainable. He was clearly right, and the implications for redistribution, unemployment and poverty relief are huge.
Without minimising the HIV/Aids saga, the fact that economic growth will be held back by inadequate power supplies for at least the next five years – and probably longer – as a direct consequence of government trying to second-guess the national power generator will go down as the worst of many indictments of the lamentable Thabo Mbeki administration.
Fortunately, I’m just a teenage scribbler columnist, under no obligation to find a solution. Because, frankly I can’t see that there is one.