Eunomiz CEO Claude Baissac
Photo by: Creamer Media
South Africa's minerals policy has changed the market in inefficient ways, exacerbated the impact of external factors such as volatile commodities prices and failed to meet its primary objectives, Eunomix CEO Claude Baissac told attendees at an African Mining Network (AMN) session last week.
Framing his presentation around Eunomix’s ‘Mineral policy impact on South Africa’s mining sector’ study, released in August 2018, he explained that the Minerals and Petroleum Resources Development Act (MPRDA) and the Mining Charter had made the industry more vulnerable to shocks and failed to facilitate the redistribution of wealth or to transform the sector.
“What’s interesting is that we have seen a decline in two things – and we only talk about one – policy certainty is a concern of course . . . but policy quality is also a key factor.”
Baissac stated that the danger of focusing on policy certainty only was that it resulted in Ministers and policymakers prioritising certainty over quality, resulting in legislation that, “is certain . . . but it’s certainly bad.”
He explained that policy intervention in South Africa had, aside from exacerbating external economic shocks, changed the market in inefficient ways, and dampened the production function – the correlation between prices and production that leads to economic benefits – of the local sector.
“We agree that to correct the mistakes of the past there is a compromise to made,” he stated, adding, however, that even with everyone agreeing to these compromises, neither the charter nor the MPRDA had achieved redistribution or transformation targets.
“In my mind, a transformed industry creates more jobs, more economic growth, more stable communities . . . the opposite has happened. To some extent that can be attributed to bad policy – bad design and implementation . . . incompetence – but there has also been bad decision-making by mining companies,” he commented.
He reaffirmed the study’s conclusions that, “policy interventions will lead to the continuous decline of the South African mining industry and South Africa will remain an underperforming international mining jurisdiction”.
Further, the study stated that, “these interventions will also fail to achieve their transformational mandate as the role of mining continues to decline, and its overall impact on the economy and national socioeconomic wellbeing decreases”.
Baissac noted that the decline in mining’s relevance to the South African economy was evident in the market’s reaction to each iteration of the Mining Charter.
“There were very significant reactions after the first Mining Charter, but after Charter 3 there was barely any movement . . . why? Because South Africa had already been discounted . . . the market was no longer reacting.”
The 2018 study confirmed this and pointed out that, “the fragility of the economy increases after every iteration of the Charter . . . but is more pronounced than after the 2002 iteration.”
Speaking on the sidelines of the AMN event, Baissac told Mining Weekly Online that, if South Africa scrapped its current polices and mimicked that of Botswana – consistently regarded among the best mineral policy in the world – the mining sector would be better off.
Further, even if policymakers decided on a less drastic approach, and instead mimicked Botswana’s approach to certainty, that would be a vast improvement on the current state of affairs.
“Botswana doesn’t change its framework every five years. The African National Congress has been in power for 25 years and yet the policy is constantly changing. What’s the point of having the same ruling party for decades when it behaves as its own opposition, when it undermines its own policy? When every new administration tries to reverse what the previous one did?”
Baissac stated that policy certainty, particularly in terms of mineral policy, should be underpinned by long-term timelines. “You don’t change your policy when commodity prices change . . . your policy should include provisions for superprofit taxes and royalties to accommodate those types of fluctuations. Your policy should accommodate the lows and highs and should be there for the long run.”
He added that policy need not be private-sector friendly to be successful, noting that he firmly believes the country’s mineral resources should benefit its citizens.
“Nationalisation is not inherently unsuccessful . . . Norway’s policies are very nationalistic but then they have the skills and capacity to support such a framework. Zambia, on the other hand, always applies the wrong policies at the wrong time.”
Baissac noted that Eunomix uses a country risk service to help its clients understand their jurisdiction and how that risk impacts on their business. “Your business is only going to be as good as the business environment in which you operate.”
He noted that South Africa had been declining in all key measures of state performance – peace and security, democracy and governance, competitiveness and economic growth – year-on-year since 2007.
“We recently measured the rank loss on the Fragile State index. In 2006, South Africa was ranked thirty-seventh out of 178 countries. In 2017, it ranked eighty-third out of 178 – the worst decline in rank loss of any country in the world that is not at war.”
Baissac said Eunomix expected that, unless things changed, South Africa would lose 40 additional rank positions over the next ten years. “We’re not yet a failed State but we are now a fragile State. And we shouldn’t be surprised that this is the case.
“There cannot be economic growth without efficient government.”
Further, he stressed that, “If [former President Thabo] Mbeki – under circumstances where you had solid economic growth, international support for the ‘Rainbow Nation’ project, and rising commodity prices – could not keep power and defeat the Zuma crowd . . . what were the chances Ramaphosa could do it, with only 50% of the vote?
“We need to stop hoping that someone can save us . . . that is not how countries work.”
He said that unless something fundamental changed in South African society, the country would continue on its downward trajectory.
“Poverty will continue to increase. It will become almost impossible to mine in an environment where you have poor, excluded communities who are victims of both disinvestments from mining companies and of the inefficiency, greed and corruption of government.”
He concluded that citizens had to take individual responsibility and become more engaged.