South Africa is home to some of the world’s largest gold, platinum and diamond deposits. Yet production in the country’s mining sector is in decline, hampered by depleting reserves, falling precious metal prices, rising costs, trade union unrest, legislative confusion and a lack of foreign investment that have resulted in financial loss and mine closures.
With the election of former Lonmin non-executive director and general secretary of the National Union of Mineworkers, Cyril Ramaphosa, to government in May, hope has been reignited in the sector.
Ramaphosa, who has led the country since he became head of the ruling ANC party after his controversial predecessor Jacob Zuma resigned in February 2018, has been well received by the industry. Industry stakeholders are encouraged by his promises to ‘revitalise’ the sector, stamp out government corruption and attract $100bn in foreign investment to the country over the next five years, but also because of his experience with trade unions.
Better investor sentiment
So-far, Ramaphosa’s first year in office has seen some positivity return to the sector. Roger Baxter, CEO of the Minerals Council South Africa, says Ramaphosa has begun re-establishing trust with investors and the global mining community, which had been ‘seriously damaged by his predecessor’. Among other things, corruption in the mining permitting system and turnaround times for processing licensing applications has been improved, he says.
This is evidenced in South Africa’s ranking by the 2018 Fraser Institute’s critical Policy Perception Index (PPI), which measures overall policy attractiveness. Last year, the country ranked 56 out of 83 jurisdictions, compared with coming 81st out of 91 the previous year.
“We hope these efforts continue; in our view, the country needs to aim for a top quartile ranking as soon as possible,” says Baxter.
New leader but old challenges
At the end of May, Ramaphosa faced his first test in office as he chose his new cabinet; figures that will be instrumental in overcoming the many challenges hindering the mining sector.
The Minerals Council South Africa welcomed Ramaphosa’s decision to reinstate Gwede Mantashe as Minister of Mineral Resources, saying it provided necessary ‘consistency’. However, despite Ramaphosa promises to stamp out government corruption ‘riskier figures’ still reside at the top of government and temper investment sentiment, says Indigo Ellis, a research analyst at Verisk Maplecroft.
These figures include deputy president, David Mabuza, who was investigated and cleared by the government corruption commission just before being added to the cabinet, and Zuma’s ex-wife, Nkosazana Clarice Dlamini-Zuma, has been heavily implicated in state capture in the past.
“While Ramaphosa is considered a very positive person to have atop the ANC generally, these and other figures within the cabinet will likely continue to temper pro investor policy making because of their exposure to state capture and potential for infighting which may slow policy making,” says Ellis.