Chilean mining policy championed for South Africa

CHILLED OUT Chile, the world’s leading copper producer, boasts a thriving mining industry, positioning it as prime example of good mining policy

WARM RECEPTION Chile has worked to encourage mining investors who would like to invest in the country

Photo by Bloomberg

23rd March 2018


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Chile, the world’s leading copper producer, serves as a good example of mining policy for South Africa to emulate, postulates research and policy organisation the South African Institute of Race Relations (IRR).

The organisation indicates that, in light of the judicial review of government’s “controversial” Mining Charter III, attention is being heightened regarding what works, and what does not, in stimulating an industry capable of attracting investment, creating jobs and pulling up the growth rate.

Without positive policy interventions – not least lifting the “stifling burdens” imposed on the industry by the Mining Charter – none of these outcomes can be achieved, emphasises the IRR.

The organisation asserts that better policy is not hard to make, and good examples of its effectiveness are not hard to find – with Chile as a prime example.

The South American State, which boasts a “thriving” mining industry today, is classified as a high-income country. It is ranked the thirtieth most competitive country in the world, and the most competitive in Latin America.

The country owes much of its present status to the booming mining industry, which Chile has had since the early 1990s – when it refashioned its mining law.

The reforms made it easier for investors to come into the country, and provided them with a secure and stable policy environment, according to the IRR.

The IRR says that, while South Africa has implemented policies that harm miners and hinder mining investors, Chile has worked to encourage those who would like to invest in the country. Moreover, this has been done through fairly simple policies.

Chile further has an ‘invariability’ clause, which guarantees the tax regime for new investors for a period ranging from 12 years to 20 years.

There are also no limits on foreign ownership, and foreign investors are not discriminated against. This is in contrast to the proposition in South Africa, where miners have to give up 26% of their investment – a target the new charter wants to push up to 30% (and sometimes to 51%).

The Chilean government also has to generate a revenue surplus every year. It does this by saving some of the taxes it receives from mines in years when the copper price is high. This policy is enshrined in law through the Structural Surplus Fiscal Rule. These accumulated reserves were worth nearly $15-billion in 2016, the IRR points out.

By contrast, South Africa has followed a policy which is the opposite of Chile’s, especially since the Zuma administration came to power, the IRR indicates. The organisation says that the current mining policy is at best unclear, and at worst, hostile to investment.

“Mines can be shut down at the whim of mine inspectors (ostensibly for safety reasons). [Further,] as noted, investors are expected to give away at least 26% of their investment in the name of black economic empowerment. This is supposed to help the poor, but is really a way of making the well-connected rich, or even richer.”

In this regard, the organisation emphasises that the contrast of the two mining regimes is telling in its effects.

The average per capita income in South Africa was higher than that of Chile until 1990. This is roughly when both countries began reforms and moved towards democracy – South Africa away from apartheid and Chile away from the military rule of Augusto Pinochet. In 1990, per capita incomes in South Africa and Chile were roughly similar – about $6 000 a person measured in constant 2010 US dollars.

Since then, Chile’s per capita income has rocketed. In 2016 it was more than $15 000 a person. Conversely, South Africa’s per capita incomes have essentially stagnated – measuring only $7 500 in 2016.

South Africans are also now poorer than they were two or three years ago, with per capita incomes slowly declining, highlights the IRR. By contrast, the average Chilean is now twice as rich as the average South African, despite the two populations having had similar average income levels less than 30 years ago, the organisation points out.

The IRR indicates that Chile’s economic growth and rise in incomes are largely as a result of mining (accounting for 50% of foreign revenue), which has been a major contributor to the country’s increasing wealth.

“Chile has shown that mining can be a tool to make a country and its citizens richer.

In South Africa, creating an environment which makes it easier for investors to put their money into mining will do far more for empowerment and transformation than current rules imposing onerous social- and race-based burdens on mining ventures.”

The organisation further emphasises that a mining industry supported by “good, sensible policies” will act as a tailwind for the economy, will serve to make everyone better off and will deliver increased tax revenue to government.

The IRR acknowledges that Chile is not perfect – the country suffers from an over-reliance on mining to some degree – but “sensible” free-market policies in the economy in general and mining in particular have seen the country boom since the end of the Cold War. This has made all its citizens better off, enthuses the IRR.

“South Africa would do well to look across the Atlantic to Santiago to see what we can and should be doing better,” the organisation concludes.

Edited by Mia Breytenbach
Creamer Media Deputy Editor: Features




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