The South African government needs to concentrate on creating a more inviting investment environment for foreign investors if it is to take advantage of future upturns in commodities prices and remain competitive in the global market, says specialist financial adviser Craton Capital cofounder Markus Bachmann.

“South Africa is one of the world’s best mining domiciles in terms of mineral wealth, hosting 80% of the world’s platinum-group metals reserves and some of the world’s largest reserves of gold, manganese, diamonds, chromite ore and vanadium. However, despite these riches, the country is at high risk of losing out on the recovery in commodities prices and potential future mining booms, as there are not sufficient conditions in place to foster foreign investment.”

Bachmann highlights that mining projects require a significant amount of upfront capital and are by nature long term, typically requiring a commitment of about 15 to 35 years. Investors, thus, need to be assured that the risks to their investments are limited and that, regardless of the country in which they are located, their operations can run without unnecessary hindrance to the benefit of all stakeholders involved.

Therefore, talk of nationalisation and land claims by Economic Freedom Fighters leader Julius Malema and the implication of South Africa’s Mineral Resources Minister Mosebenzi Zwane in the ‘State of Capture’ report, released in November 2016 by former Public Protector Thuli Madonsela, do not contribute to attracting and securing investor interest. The Chamber of Mines said in November last year that Zwane’s implication in the report could compromise investor confidence in the mining industry.

“It is simply a very hostile environment that investors are facing in South Africa, and this is further aggravated by the ever-changing regulatory environment.”

Investors have choices in terms of where to devote their finances regarding mining, with an array of options in Australia, Canada, Latin America and West African countries among others, Bachmann adds.

“Globally, there are a lot of opportunities, particularly in the resources sector, and the competition for foreign direct investment is stiff. It is, thus, imperative that South Africa focuses on providing a more welcoming and stable environment for investment.”

He points out that it is crucial that the South African government and the mining industry partner in this endeavour, as a lack of cooperation between the two parties is stifling the growth of the country’s industry.

Bachmann stresses that international mining companies have significant capacity to provide material and social upliftment for the countries in which they mine. With most mining developments taking place in outlying, impoverished rural areas, this often leads to the acceleration of infrastructural development, job creation, the provision of healthcare and other services, and the stimulation of mining-related business activities, subsequently improving the areas’ socioeconomic status.

“Any reputable, listed mining company will uphold its obligations to the country in which it operates in terms of curtailing the environmental impact of its activities and letting the community benefit. Creating conditions that invite these kinds of companies to invest in the country, making it as easy and attractive as possible for them to conduct their business, produces a win-win situation.”

He points out that other countries – such as Canada, Australia and Burkina Faso – have recognised that collaboration with mining companies and the implementation of regulations that facilitate, rather than discourage, investment can be highly mutually beneficial. These countries have implemented relatively favourable regulations in areas such as taxation regimes, labour regulations and security; they have also provided more certainty regarding the administration of such regulations.

“If South Africa can follow suit, the growth potential for the local mining industry will be substantial. If it doesn’t, however, mining in South Africa will be history in the not too distant future,” says Bachmann.

He avers that the confusing political rhetoric surrounding mining in the country, which has an almost unmatched history of success on a global scale but which did not directly benefit many communities that now feel short-changed, has led to many in the political class now being in pole position to present the policies they pursue in the industry to affect redress. Bachmann explains that a number of these policies are increasingly being questioned by stakeholders in the mining industry and more broadly, as they concern the future of an industry that has shouldered the growth of the country, but which is faltering under this increasing burden.

Craton Capital is a specialised adviser to two focused funds that offer clients exposure to distinct parts of the natural resources sector. Bachmann, adviser of the Craton Capital Precious Metal Fund and Global Resources Fund, will speak at this year’s Investing in African Mining Indaba, which he says is a valuable platform for forming business connections and exchanging ideas. The Cape Town event will run from February 6 to 9 at the Cape Town International Convention Centre.