Strong state intervention in the post-apartheid South African economy has more often than not failed to achieve the desired results. The new Government of National Unity can reverse this trend by emphasising pragmatism and outcomes over ideology. Mining would be a great place to start.
In his inauguration address on 19 June, President Cyril Ramaphosa described the Government of National Unity (GNU) as “the beginning of a new era”. In political terms, indisputably: the GNU comprises 11 different political parties, seven of which hold Cabinet positions in a national administration that for more than two decades was completely dominated by the African National Congress (ANC).
The birth of the GNU has buoyed the country’s mood, with “hope”, “happiness” and “joy” trending upwards over the past month, according to the Gross National Happiness Index.
But the real test of the “new era” — and whether the good vibes can be sustained — will come in the economic realm. South Africans won’t care much about the new politics if their lives don’t get better.
Plenty of monsters are waiting in the wings, banking on the GNU to fail, so they can recapture the state. The revival of key sectors of the economy would help ensure that they stay waiting forever.
No sector in SA’s economy is as tightly woven into the fabric of the country’s history and identity as mining. Today it contributes about 7.5% to gross domestic product, about three times less than it did in 1980. South Africa then stood atop the global mining industry, boasting two of the top five mining houses. Its dramatic fall to a third-tier destination for mining investment is a salutary parable, not least for this new government, which has committed to doing things differently.
Whatever the merits of the failed takeover bid by the Australian mining giant BHP of Anglo American earlier this year, the discussion it generated — plenty of heat, not much light — should be seen in this context.
It was an opportunity to consider how international capital or multinationals might leverage technology or expertise, like cleaner mining practices, and market access to boost a floundering sector, create more jobs and deliver better development outcomes. Instead, the “debate” was dominated by those clinging to outmoded dogmas, pridefully stoking fears of foreign meddling in a South African (it no longer is) company.
This short essay is our modest attempt to inject some light back into the conversation.
Fall of a mining giant
South Africa’s mining industry no longer features among the leading global mining players. Objective measures of this — from share of mining in GDP to market capitalisation to production volumes — find echoes in subjective ones: (poor) investor sentiment and the (dire) state of relations between industry and government. In 2023, Canada’s Fraser Institute once again ranked South Africa in the bottom 10 of its global mining survey, at number 57 (out of 62 jurisdictions assessed).
Most powerful as a symbol and hard manifestation of its decay is the fate of mining in the JSE, expressed in the melting away of its once dominant domestic and international functions, and the near vanishing of South African mining houses from the commanding heights of the global industry.
In the early 1980s, South African mining giants Anglo American and Gencor together with four other South African miners (together known as the Big Six) accounted for 80% of market capitalisation on a JSE that housed nearly 50% of global mining capitalisation. Before international sanctions hit, most were present globally through acquisitions and foreign listings on all continents.
Armed with the repressive powers of the apartheid state, buoyed by high gold prices, and supported by plentiful, cheap electricity and a huge pool of cheap black labour (in 1980, SA’s gold mining industry alone employed 472,000 workers, more than 90% of which were black), they expanded through innovation and cross-sectoral diversification. This twin process consolidated their dominant place in the economy and equipped them with world-leading skills, know-how and technologies.
In the 1980s, Chester Crocker, US assistant secretary of state for Africa under then President Ronald Reagan and the most influential US voice on African affairs during the Cold War, repeatedly spoke of South Africa’s singular place in global mining, describing the country as “the Saudi Arabia of minerals”.
But South Africa’s Big Six were more than mere mining companies. They were sophisticated mining finance houses, experts at finding and developing new mines, modernising existing ones and cooperating with each other through cross-ownership, commercial and management relationships.
They had long learnt to raise capital on the international markets because of the technical complexity, and thus cost-intensity, of the ore bodies. Thanks to this, they contributed to structuring a highly sophisticated financial services sector — from investment and corporate banking to stock exchanges — which significantly softened the blow of sanctions.
The Big Six could be seen with today’s eyes as an amalgam of venture capital, private equity and conglomerate firms. Capital was pooled to finance the development of new, risky ventures; technical expertise was used to identify and develop promising mineral deposits; controlling stakes were forged in a portfolio of companies; and their reach extended into manufacturing, finance, industrial and other sectors.
For its part, the Afrikaner-dominated governing National Party, despite strong statist instincts, did not nationalise the industry, which was run primarily by the English business elite. The apartheid regime saw the mining industry as serving the economic policy objectives of the racial oligarchy writ large. End of story.
When apartheid ended and the economy opened up, the mining industry was well placed to benefit from a process of liberalisation that it helped bring into being. Its reputation was suffering from its labour and human rights practices and association with apartheid. Its “conglomerate” model was out of step with the shift towards prioritising shareholder value, market efficiency and leaner corporate structures.
But it had accumulated vast cash and equity reserves, as well as a world-class set of technologies and skills acquired in the development and operation of deep, low-grade mines. What’s more, the world economy was undergoing its post-Cold War globalisation, integrating China and the ex-Soviet Bloc in a fast-expanding capital and goods market that needed massive mineral resources.
The subsequent restructuring of the industry changed the South African economy, rewrote the relationship between the new governing elite and the private sector, and shook up mining worldwide. A period of feverish expansions and mergers, including the famous shift of Anglo American’s primary listing from the JSE to the London Stock Exchange, diminished South Africa’s weight in the new balance of power in global mining.
A deal is struck
Within South Africa, the industry and the new ANC-led government made a deal: no nationalisation in exchange for the creation of a black mining industry — or at the very least, a significant black ownership of the industry.
On that score — black economic empowerment (BEE) — restructuring has been a success. African Rainbow Minerals is now the sixth-largest mining company on the JSE; Exxaro, Seriti and Thungela are household names in the industry. Mining in SA is also safer today than it has ever been. And it is more conscious of the industry’s social and economic obligations to communities.
Assessed on other metrics, however, the picture is less rosy. The shift to increased local beneficiation, to retain greater potential value from raw materials, has failed dismally. At the macro level, aside from Anglo American, which maintained strong roots in South Africa, the big players internationalised, divested in favour of local firms and BEE partners, or simply vanished. Anglo American now ranks near the bottom of the 10 largest global mining companies, with revenues and market capitalisation near Canada’s Barrick Gold, and will soon shrink further once unbundled.
As for South African mining companies operating mostly or significantly in South Africa and with their primary listing on the JSE, the picture is bleak. Ten years ago, there were 55 Metals & Mining companies listed on the JSE; in 2024, there are 33. The combined value of all the main ones — Anglo Platinum, Kumba, Harmony Gold and several others — is about $40-billion. Australia’s BHP alone is valued at 3½ times that amount. The current market value of the global mining industry is estimated to be $1.4-trillion. South African mining represents just 3% of that figure.
The declining role and productivity of mining make describing South Africa as a “resource-rich” country, let alone the “Saudi Arabia of minerals”, less credible each passing year. The deterioration of the country’s critical infrastructure — rail, ports, electricity — has put a massive dent in mining’s potential renewal.
SA mining is currently focused on commodities with either uncertain futures or niche roles in the market, from domestic electricity-producing thermal coal to platinum group metals to manganese and chromium. Mining innovation, except in some technical aspects of deep mining, has left South African shores. Great deals are conceived, engineered and negotiated elsewhere.
This would be less concerning if mining was waning in the context of economic diversification and modernisation, as happened in Germany and the US in the early 20th century, and then in Scandinavia in the mid-20th century. But not so in South Africa.
From its role as the engine of SA’s industrialisation, mining’s fall has only presaged declines in just about every other sector of the economy, from infrastructure to manufacturing to high-value-added services.
Green transition
There are plenty of reasons to be sceptical about the future of SA mining. Sclerotic leadership at ministerial level and a largely disinterested bureaucracy have allowed retrogressive “strategic policy” to suck much of the life out of this once-mighty industry. Discredited ideas have calcified into archaic policies that hurt South Africa’s economy and its people.
Read more: Gwede Mantashe is still at the helm of SA’s mining sector. What could possibly go wrong?
And yet, the ingredients for renewal exist and can still be harnessed: vast, untapped mineral wealth; a financial sector that is the envy of the continent; scientific and research excellence at universities; and a seam of entrepreneurship that runs thick in parts of the industry. The problem is the recipe: mining desperately needs a new one.
The government’s impressive Operation Vulindlela (isiZulu for “make way” or “clear the path”), a joint initiative of the Presidency and National Treasury to accelerate the implementation of structural reforms and support economic recovery, has demonstrated that the story might not be over once the abyss has been reached.
It was established at the height of the Covid-19 pandemic, when South Africa’s economy was on its knees, having experienced its biggest contraction in a century. Time and again, South Africa seems to discover enough willpower and capacity to change course just when everyone else has written the country off.
If one could imagine a “Mining Vulindlela”, it would surprise no one that ending South Africa’s addiction to coal would be high on its list of priorities. Roughly 85% of the country’s energy is generated by coal. That South Africa is the world’s 40th-biggest economy but its 11th-largest greenhouse gas emitter tells its own story.
In a country where coal is king, no one likes to hear that the green transition must be the essential backcloth on which the social, economic, and technological aspects of mining reform ought to be considered. But it is no less true for it.
Yes, some coal mines in South Africa still have a life of more than 200 years. And yes, the success of both Medupi and Kusile — two of the biggest coal-fired power stations in the world and huge contributors to the country’s energy needs — is fully dependent on coal.
None of that changes the fact that coal is the most polluting way to produce electricity. While coal for making steel will remain a viable commodity for SA for some time, even here the environmental costs related to “steel coal” production are significant.
Strategic and transition minerals
Whilst the industry continues on an unsustainable path, global demand for strategic and transition minerals is booming. OEMs (original equipment manufacturers) from China to Germany to Italy to Japan to South Korea to Sweden, Taiwan and the US are scrambling to secure long-term sources of everything from chromium to copper to lithium to manganese, titanium, vanadium, zinc, and dozens of minerals and rare earths.
Some of these are in South Africa. And in vast quantities, too. Some are mined, but not at the scale and cost-efficiency needed by either the market or the economy.
In addition to skyrocketing foreign demand for critical minerals — for example, the $2-trillion (yes, that’s correct) programme to build 3,000 F-35 joint strike fighter aircraft for militaries around the world needs plenty of them — is the urgency of the national energy transition.
Much to the chagrin of South Africa’s thermal coal champions, who are seemingly prepared to sacrifice the health of future generations on the altar of short-term profits, it is a commodity of the past. It is no longer cheaper than renewables; and its impact on our air, water and land is frightful. This is true globally.
To be sure, green-energy-progressive Germany seems to have “rediscovered” coal. And China remains a coal-electricity behemoth. But both cases need to be seen in context. Germany made a strategic error in allowing itself to become dependent on Russia for gas and abandoning nuclear power prematurely. Russia’s invasion of Ukraine sent Berlin scurrying for short-term solutions for its unexpected energy crunch.
As for China, its massive coal electricity generation should not obscure the fact that renewables now account for 50% of installed capacity (1,500GW) — installed being the figure most reflective of capital investment and thus commitment — over coal’s 40%. Staggeringly, in 2023 China accounted for 63% of global net additions in total renewable capacity. Between 2008 and 2030, China will have expanded its renewable energy capacity by a factor of 26, or 2,600%.
From that same starting point (2008) to the present in South Africa, electricity prices have shot up seven times while Eskom, the country’s beleaguered 100-year state monopoly, has only managed to grow its installed capacity from 43 to 52GW; a rather meagre 20% (in total, not per annum). At 10GW, renewables account for only 20% of installed capacity.
This does not include embedded (distributed) generation, which exploded by 300% in 2022-2023 alone to now sit somewhere between 3GW and 5GW but is showing signs of slowdown as Eskom stabilises and the government pursues the inane goal of developing a domestic solar industry through the imposition of duties on imports, which hurt everyone but especially mining and other large-scale energy consumers. (With solar panel prices collapsing worldwide, and countries like Germany and Switzerland unable to compete with China or the US, would anyone seriously try to open a production plant in South Africa?)
While SA investment in green energy has increased, the government has continued to walk this obvious path at a snail’s pace, barnacled to a coal mining industry that erroneously proclaims to be in the vanguard of industrialisation.
Recommendations that bear repeating
In mapping a new way forward for mining in South Africa, one need not reinvent the wheel. The industry’s problems are not inimitable. Examples of global competitors who helped accelerate wider economic growth and sustainable development in their own countries through modernisation and innovation abound.
It is time to learn and borrow. Here are a few suggestions, many of which the Minerals Council South Africa has been advocating in one form or another for years:
- Move on from the endless arguments over whether the intricate requirements of black economic empowerment are satisfied and instead focus relentlessly on productivity, outcomes and wellbeing. This may involve the removal of BEE requirements from, for instance, exploration and junior mining ventures.
- Privatise the provision of a cadastral through a management contract, and do the same for licensing, which in the hands of the government is creaking under the weight of thousands of pending applications.
- End union practices that are patently “anti-productivity”. For instance, union-imposed restrictions on multiskilling — eg, a rock drill operator can only drill rocks — are presented as serving the interests of workers but in practice not only reduce workers’ ability to develop different skills but also diminish the overall effectiveness of operations (comparisons between Implats’ operations in South Africa and Zimplats’ in Zimbabwe suggest that the same production is achieved with far fewer people in Zimbabwe than in South Africa, in part because such restrictions do not exist in the former).
- In addition to removing all limitations to embedded power generation and creating a spot market for electricity into which domestic and commercial producers can sell their surplus electricity, ensure that the balancing of VRE (variable renewable energy, eg, wind and solar) is done cost-effectively ie, more pumped storage hydropower. If enabled to do so, the mining industry could own and develop new pump storage capacity.
- Decisively reduce organised crime in mining and logistics.
- Fast-track the commercialisation of Transnet’s freight rail and port terminals.
- Consolidate the relationship with the European Union and fix the one with the US.
Why? Case in point: there can be no more effective way of raising the vast amounts of capital currently made available by (mainly) Western governments to turn its vast titanium reserves from low-value titanium dioxide slag and upgraded rutile to high-value titanium metal and alloys. The same goes with neodymium, of which SA has the world’s highest-grade deposit in vast quantities. There are more.
Crucially, neither China nor Russia has any interest in supporting a potential competitor in the strategic minerals and rare earth beneficiation business. The European Union and the US are, in contrast, desperate to find reliable sources of both unprocessed and fully beneficiated products.
Start talking
The future of South African mining turns on whether the government and industry can finally have an honest conversation, anchored in some elemental questions: What does a mining sector that serves both the national interest and future generations look like? What are the best ideas from home or abroad that can deliver that vision? What is required to turn those ideas into action?
South Africa’s post-apartheid governments, in their notion of a developmental state, have viewed the state as the active promoter of economic growth and development. Yet it’s clear that, especially during the past decade and a half, strong state intervention in the South African economy has failed to achieve the desired results more often than not.
The country’s new Government of National Unity can reverse this trend by emphasising pragmatism and outcomes over ideology. Mining would be a great place to start. DM
Claude de Baissac is the founder and CEO of Eunomix, an advisory firm focused on investment climate, strategy, risk management and development. Dr Terence McNamee is a non-resident Global Fellow of the Wilson Center, based in Washington, DC.