Integrate mining with development

Rather than doing the work of municipalities, mines must build human capital in their areas

The Harvard Growth Lab’s 2023 study of the South African economy states the following in its executive summary: “[Since 1994], the national economy has experienced slow, slowing and highly vulnerable growth. Inequality is the highest in the world, and structures of exclusions remain embedded in South African society both within and across racial groups and geographies. 

“Black South Africans continue to face poverty and joblessness at very high rates, and overall wealth, although more racially balanced, remains as concentrated in a narrow few as it was at the end of apartheid.” 

It goes on to list a litany of depressing statistics and serious inhibitors to sustained, labour-absorptive growth. 

The country’s failure to capitalise on the sustained commodity boom(s) since the early 2000s has largely driven the economic failure, though this has not happened in a vacuum. 

Admittedly, Eskom and Transnet failures have had relatively little to do with mining per se. 

Nonetheless: “The weakening of mining began before 2008 — despite global commodity prices remaining strong for several years after — while the fall in utilities and manufacturing occurred over the last 15 years.” 

While this rapid deindustrialisation, which my Good Governance Africa colleagues and I have studied with keen statistical interest, has been driven by deteriorating electricity affordability and reliability (among other things), the decline in mining has also partly driven de-industrialisation — a rapid loss of value addition and employment share in manufacturing. 

Net fixed capital formation in the mining industry has been close to zero for well over a decade. Exploration investment has dried up and mining sector stakeholders are almost unanimous in their expression that the industry is in crisis —essentially on care and maintenance. 

The bigger players desperately hold on to their resources but the dynamism that should animate the sector — exploration and junior activity — is largely lacking. 

This is a tragedy because mining carries the potential to drive industrialisation. But, combined with other factors, manufacturing, which used to be orientated towards serving a growing mining industry, has all but collapsed because of plummeting mining investment. 

It was therefore refreshing to see the Harvard report suggest that there is room for targeted industrial policy to take advantage of global demand areas in which South Africa can build comparative advantage.

“Make the support actions for pioneers in emerging green supply chains and policies to transition the automotive industry towards electric vehicles.” This is exactly right.  

One cannot overstate the importance of the connection between mining and green industrialisation. Mining will become increasingly mechanised and digitalised, which means that it will provide increasingly fewer direct jobs. 

In our context of high, sustained structural unemployment (“unemployment at over 33% is the world’s highest, and youth unemployment exceeds 60%”), this is critical for policymakers to understand. Mining accounts for more than 400 000 direct jobs (with an average dependency ratio of approximately 10:1). 

If the industry grows, this direct employment figure is likely to rise only slightly. 

Potential job growth lies in the manufacturing sector, although the workforce will have to be rapidly skilled up to take advantage thereof. 

If mining remains on life support, unconnected to manufacturing potential, these startling figures are only likely to worsen. 

Another aspect of South Africa’s economic deterioration that the Harvard review highlights is municipal performance. At Good Governance Africa, we concur. 

We recently released our 2024 Governance Performance Index, which ranks government effectiveness at municipal level. Many local municipalities are failing to deliver on their core mandates (utility service delivery such as water, electricity, refuse removal, etc). 

Those that struggle most are those with former homelands within their bounds. The Harvard study shows that “nearly all the rural municipalities in the lower employment group are within former homelands and almost all the rural municipalities that have higher employment are not within the former homelands”. 

Employment in non-former homelands is nearly double that in former homeland areas. It is immediately obvious from the graph in the Harvard study that most mining areas in South Africa overlap with municipalities that contain former homelands within their boundaries. This brings us to an important point. 

Municipalities in remote areas tend to struggle. This would be true whether mining was present or not. Where mining is present, employment levels are slightly higher, on average. However, one would intuitively expect mining presence to improve municipal performance.

This is not happening, in part because municipalities have become dependent on mining companies to become de facto substitute service providers. Mining companies simply cannot afford this. Attaining a social licence to operate is one thing; substituting for government where service delivery is absent is another. 

So, not only does the government have to do more to encourage investment into the mining industry, it also has to connect mining to green industrialisation. 

At the same time, the mining industry itself must engage differently at the local municipal and national policy levels.

By way of example, at an Anglo-American sustainable development goals conference in late 2022, participants unanimously indicated that the Social and Labour Plans prescribed in national mining law were overly formulaic and restrictive. 

Expectations of mining companies were essentially that they would provide services that the local municipality should be providing. This deters investors because it is unsustainable. 

Far more optimal would be to invest in building greater institutional capacity in those municipalities and, at the very least, develop better integrated development plans (IDPs). IDPs are often drawn up by consultants with no skin in the game and monitoring and evaluation of efficacy is absent.

Mining companies need to desist from substituting municipal functions and instead build the human capital in those municipalities that will sustain the area long beyond the life of the mine. Supporting well-crafted, practicable IDPs will go a long way to building labour-absorbing economic dynamism.  

While the Harvard review is sobering, the country has an opportunity to grow out of the current sclerosis: “Employment patterns underscore that it is possible to generate economic opportunity in rural South Africa”. 

Many of the pathways they suggest are sensible. To my mind, connecting mining to green industrialisation, as well as building local municipal performance capacity, will prove instrumental in realising this opportunity. 

Of course, this needs to happen alongside fixing the energy crisis, resolving the logistics bottlenecks, and eliminating crime. 

We have our work cut out for us.  

Dr Ross Harvey is the director of research and programmes at Good Governance Africa.