Economic Watch

Mining sector becoming disaster area as latest plan falls apart

Mining sector sinking faster than any shaft ever
Mine.jpg

More than six years after the first stakeholders ‘task team was created to improve its competitive prospects, South Africa’s mining sector is in deep crisis as the latest plans are fast becoming unstuck.

In December 2008, at the height of the international financial crisis, the Mining Industry Growth Development and Employment Task Team (MIGDETT) was established and included stakeholders like the Department of Mineral Resources (DMR), Chamber of Mines, Mining Development Association and trade unions.

It set out to achieve two critical outcomes:

  • To help the industry manage the negative effects of the global economic crisis and to save jobs; and
  • To position the industry for growth and transformation in the medium to long term.

MIGDETT held a summit in March 2009, with a declaration of intent, followed in June 2010 by a signed set of 13 commitments.

Since then the industry has not only experienced the longest strike in the history of the platinum mining sector, but also the Marikana shootings. Its contribution to both GDP and job creation remained in negative territory.

This was well illustrated by an article on Moneyweb last week, indicating that the finance, real estate and business services sector accounts for more than 20% of GDP, while mining, once the bedrock of the South African economy, has shrunk to less than 8%.

The next plan

In his State of the Nation Address to parliament in 2014 President Jacob Zuma announced Operation Phakisa, designed to fast-track the implementation of solutions to critical development issues.

It took until May of this year before the then Minister of the DMR, Ngoako Ramatlhodi, announced that “work on moving forward the mining sector, through mining’s Operation Phakisa, will start in August”.

By the time August came round, developments on the global economic front, especially surrounding the Chinese economy, have seen the bottom fall out of the commodities market. That, and ever-increasing costs, including large trade union-driven wage demands and electricity constraints had the industry in deep crisis. Large scale job losses loomed.

In early August, Minister Ramatlhodi called a crisis stakeholders meeting. Roger Baxter, head of the Chamber of Mines, according to a Reuters report, went on record that over 50% of the country's mines were operating at a loss.

By the very end of August a mining sector stakeholder’s jobs task team signed an agreement on how to manage the unfolding crisis.

Signs of trouble

Early-on in the life of the jobs task team it became clear how tough achieving stakeholder consensus on a way forward would be. Trade union Solidarity’s general secretary, Gideon du Plessis, said the talks have been characterised by infighting. According to him it was “nothing more than a public relations exercise”.

“I don’t think there will be success story coming out of the job saving task team,” he said

Minister Ramatlhodi’s spokesperson, Mahlodi Muofhe, however, said the tension was normal. “It can never be a public [relations] exercise when people are talking about jobs. As far as the minister is concerned, it’s worth it to have that task team to deal with these issues.”

At the end of August, after three weeks of intensive discussions, it would seem that DMR’s assessment was correct. It was announced that stakeholders had signed an agreement on how to manage the unfolding crisis.

Details released into the public domain were on the thin side, but what did emerge indicated that it included joint programmes for ten interventions, which included:

  • government to establish a fund that would financially assist in retraining retrenched mineworkers;
  • joint promotional initiatives to promote South African minerals;
  • agreements to enhance productivity; 
  • an agreement that when mines were intended to be mothballed or sold, saving jobs would be prioritised;
  • a government commitment to financially assist in retraining of retrenched workers; and
  • the setting up of a technical task team between parties to, according to the minister to deal with the Treasury regarding “these financial matters, but one of them is the import of capital goods”.

Chamber of Mines vice-president, Andile Sangqu, said the initiatives would hopefully “restore confidence in the industry”.

Representatives from the four largest mining unions also welcomed the initiatives.

Coming unstuck

Barely a month later it appeared that Solidarity’s original assessment was the one closer to the truth.

Not only did news of job losses kept coming in, but wage negotiations in the coal mining sector got stuck. About 30 000 members of the National Union of Mineworkers (NUM) downed tools in what looks set to become an indefinite strike.  

The union was accused of backtracking on the stakeholders’ agreement. They, in turn, accused mining companies of not acting in good faith and of playing politics ahead of next year’s local government elections.

At the time of writing the gold mining sector seemed to be heading for a similar situation with its wage negotiations

Part of the background of these developments is the rivalry and competition for members between NUM and the more militant Association of Mineworkers and Construction Union (AMCU).

Wider issue

What is happening in the mining industry is, however, probably a symptom of a wider issue that South Africa is struggling to come to grips with – the fundamental restructuring needed in the economy to deal with changed global and domestic realities – as among others indicated in the article on the dwindling GDP contribution of mining referred to above.

At times there seems to be a psychology of denial present in both the government and private sectors.

At the time of this year’s national budget, in which Finance Minister Nhlanhla Nene acknowledged that SA would face headwinds for several years as a result of its own electricity constraints, weak commodity prices, slow growth in its major trading partners and volatility in capital flows, one top private sector commentator was quoted as saying about the mining sector’s “phakisa laboratory”:

             “Before realising more revenue from this sector you have to get it to operate as it used to.”

That is simply not going to happen. Ad hoc initiatives to deal with crisis situations in individual sectors, as has happened in mining, will not have the country coming to grips with its triple problems of poverty, unemployment and a low growth rate.

The time has come for a much more holistic approach to realise Minister Nene’s long-term view during his budget speech that, “…in the long term, structural changes will boost the country’s growth potential. One of these will be a shift in mining production and investment towards newer, better-performing export sectors such as iron ore, coal and manganese”.

The time has come to heed the advice of institutions like the International Monetary Fund and others, to embark on reforms in education, labour and product markets, in order to raise competitiveness and productivity, improve government service delivery and address infrastructure ‘bottlenecks’, like electricity supply, for faster economic growth to be possible.

Some existing policies like cadre deployment, the way black economic empowerment is implemented, and many more of the same ilk, need revisiting.

In the words of Proudly South African CEO Leslie Sedibe, South Africa needs a mindset change in order to become productive, competitive and profitable in the current economic situation.

Also read: South Africa’s last bullion bluechip battles relegation

by Piet Coetzer

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