Eskom, the state monopoly responsible for electricity production, transmission, and a large part of local distribution, is heavily in debt (to the tune of about R400 billion, roughly a third of the entire country’s annual budget). (Dean Hutton/Bloomberg via Getty Images
mef not cultivated, mined. Even farming depends on mining for fertilizer and equipment. In addition, the hope of the “green transition” depends heavily on the mining of minerals and metals needed to produce electric vehicles, wind turbines and the production of solar panels.
The World Bank estimates that by 2050 more than double the volume of minerals and metals produced today will need to be extracted. Unsurprisingly, the focus of this year’s Investing in Africa Mining Indaba is to responsibly secure critical raw materials. Cobalt, copper, lithium, platinum group metals, titanium, chromium and manganese supplies must expand if global demand for clean technologies is to be met. African countries must prepare to attract responsible investment to extract these minerals and metals.
Zambia seems to be making progress in this regard. It has a united team approach in indaba – the first time the private sector, state-owned entities and government ministries have come together to attract investment.
Other countries, however, seem more precarious. There are huge risks and opportunities for mineral-rich African countries but, at this stage, the risks seem to outweigh the potential benefits. The “resource curse” literature is unclear as to whether weak institutions in the discovery of commercial quantities of minerals or hydrocarbon wealth are strongly related to underdevelopment. This is partly due to resource rent governance incentives to build a broad-based economy with a diverse tax base. They also finance patronage networks and alter the risk-reward ratio for the ruling elite – the transaction costs of reform are considered higher than the costs of repression or co-optation. In other words, transparency, accountability and participation, the three main pillars of governance, go out the window.
In the worst case of the resource curse, bandits rob resource points and exacerbate violent conflicts. These conflicts are often pre-existing and due to lack of service delivery and investment. In other, potentially disturbing, cases, states use security tools for appropriate resources and form joint ventures with unscrupulous entities to sell these resources on the global market.
South Africa is an unusual case of the resource curse. The relative economic muscle in the region and across the continent is a partial function of a history of unscrupulous mineral extraction at the expense of most citizens. But 29 years of bad governance since 1994 made the situation worse. There are many manifestations shown, the most striking of which is the electricity crisis.
Eskom, the state monopoly responsible for electricity production, transmission, and a large part of local distribution, is heavily in debt (to the tune of about R400 billion, roughly a third of the entire country’s annual budget). The energy availability factor drops to about 40% of the total capacity. This is almost entirely due to the corruption that has been rampant in the entity since 2009.
Of course, even before that, they failed to develop a fleet of electric power stations. However, even where he expanded – by building two of the largest coal plants in the world – corruption in the distribution of contracts undermined the energy availability factor of the station. They are still not fully functional and are planned to be active in 2012. A decade later, the government declared a state of emergency related to the electricity supply.
In fact, President Cyril Ramaphosa declared a state of calamity a day after the Mining Indaba ended, during his state of the nation address. During the indaba, he had told the private sector not to complain and get on board with helping solve the country’s problems. That’s a cheap shot. The basic responsibility of the government is to provide infrastructure, security and justice so that the economy can thrive. Asking mining companies to fulfill these functions is an admission of failure covered by subtle victimization.
What is more ironic is that Minister of Minerals and Energy Gwede Mantashe told mining companies in indaba that value should be added to raw materials before they leave the country. There is no power to do so. We can barely keep the smelters going, and even if we could, the freight rail and port services are so out of order that the mining companies can barely get their goods to market. The combined effect of these government failures is a 9% year-on-year contraction in mining production until November 2022.
Declaring a state of disaster is dangerous, because it only removes obstacles to corruption. While the real goal is to reduce the regulatory red tape associated with independent electricity procurement, the truth is that this red tape can be removed quickly if only government departments work together properly. We now have a catastrophic situation led by the minister of Cooperative Governance and Traditional Affairs; The new Minister of Electricity in the Presidency – a glorified project manager, apparently; the ministry of public enterprises and mineral resources and energy.
The latter minister had decided to have lunch. At the Mining Indaba, he sang the praises of the Goldfields for generating its own power to launch the South Deep expansion. He did not mention that the licensing arrangement took nearly three years to complete.
More recently, he blundered for Business day – in response to the department rejecting the application of significant mining rights from Sibanye-Stillwater to mine the concession that they have prospecting rights – if “the law is clear that when the exploration rights expire, the process will be opened to other companies that want to mine certain areas to advance and apply”. Sibanye insists that its prospecting rights have not expired and intends to appeal the decision. The main problem — going to court costs money and there are no time requirements for the appeals process written into the state’s mineral laws.
This kind of misguided stubbornness of the minister of minerals will be hard to understand except that we have seen this film before. In 2010, Imperial Crown Trading (ICT) applied for lapsed rights on the same day that Anglo American applied. ICT, partly owned by Khulubuse Zuma (yes, the nephew of the former thief-in-chief of the state), has filed a fraud application but the Department of Mineral Resources took the case up to the constitutional court to defend the decision to grant rights to ICT.
The truth is that such a situation can be avoided if there is a proper basic governance structure in place. A simple online cadastre, publicly available, with all licenses properly mapped, would solve the problem. The date – from grant to expiration – will be clear for all to see and therefore not subject to dispute.
What will happen now, unless the courts intervene as they did in the ICT case, is that some politically connected fraudsters will get the right to mine the territory that Sibanye has already acquired. Mining these resources will soon bring wealth to the region, including employment prospects for desperate local communities.
Declaring a state of calamity only adds to the government’s calamity which has resulted in lights going out, mining rights applications not being processed properly and ports and railways becoming unusable. South Africa’s mineral potential, the main channel through which economic growth can begin, is being held back by a government that cannot govern in the interests of its citizens.
Dr Ross Harvey is director of research and programs at Good Governance Africa.