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Threats to stability and growth in South African mining

Threats to stability and growth in South African mining

Thu, 07/28/2011 - 16:58

Today I have received a newsletter from the Oxford Business Group, a publishing and consultancy company based in the UK, titled South Africa: Ups and Downs in Mining

It's a quite brief but interesting description of how a country (or perhaps some sectors of society in the country) can shoot itself in the foot.

When unions demand pay increases at approximately three times the rate of inflation, and have rejected offers from the industry well in excess of the inflation rate, when certain people continue to pursue the folly of nationalisation, then you cannot help but wonder whether they have lost touch with any kind of reality.

Exploration and mining investment is a competitive business, and if one country looks less prospective (or more risky) than another, then new investment funds will start to flow elsewhere.  Maybe not immediately, but slowly and surely.

We have seen silly resource nationalism like this elsewhere, and there are not many places where the outcome has been good for anybody.

One wonders, also, how successful would union action (strikes, etc.) be if mines should be owned by the state...  Actually, I don't have to wonder, I have seen that situation in Ghana, and the outcome for the workers was not good. Important ongoing investement that is necessary to keep mines operating, dried up, production eventually suffered as new development became too expensive, as equipment started to break down, etc. Eventually, workers are begged to "bite the bullet" and to work just a bit harder for a little less money, just to turn things around.., etc.  The upshot eventually is a government that desperately asks for international companies to come and take over the ailing mines, when a lot of the value has been stripped out.  The companies can cherry-pick the best operations, negotiate good deals, and just ignore the operations that have slipped too far. In the interim the country will have lost a large amount of tax, and employment will almost certainly have decreased.  All of this is how it played out in Ghana, and in Zambia.

I hope it can be avoided in South Africa.

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