The state of mining according to Iraj Abedian
After sitting through hours of presentations and lectures about the future of this country's mining industry, J BROOKS SPECTOR talks to one of the country's leading economists to try to make sense of all this knowledge - and to learn more about what must be done to secure the benefits of mining for the nation's future.
Dr Iraj Abedian, one of South Africa's leading development economists, recently spoke at one of the “Mining for Change” seminars hosted by some large mining houses. These seminars were designed to get the sector's message out into the public, especially given the new ANC discussion document on “State Intervention in Mineral Sector Project”. The document has already been a major item of discussion at the recent policy conference in Midrand and is likely to be part of the party's ongoing debate about nationalisation leading up to the Mangaung conference in December.
Abedian argued that South Africans continue to debate the merits of beneficiation from mining in too limited a sense, and at their peril. The clock continues to tick away as others try to steal this country's lunch. Instead, if a country is as richly endowed as South Africa is with its mineral resources, it should be consciously directing at least part of its economic growth into downstream industrialisation, based on these natural resources. The Daily Maverick earlier reported on several of these meetings.
After the series, Abedian went to Botswana and Ghana to check on how those nations were coping with the changed economic landscape following the financial crisis. After his trip, I spoke to him about the new state intervention proposal - a topic that bodes likely to be a significant element in future discussions about the country’s mining sector.
Over coffee, Abedian explained that the proposal, as it stands now, remains too focused on mining in a narrow sense of what the nation can or cannot do. Mining, like any other asset, must be contextualised to extract development - rather than simply taxes - from it. Places like Mauritius and Kenya, for example, have used tourism as their bases for growth. South Africa has its mineral wealth, but this must be used for more than simply mineral extraction and tax maximisation. It should also be used for “development maximisation.” The strategic circumstances of mining should not simply be about state intervention to control an asset or about how to tax it.
When asked if the proposals reach back to an earlier kind of tension between mining houses and government, he said all government policies end up being influenced by their historical DNA. The problem, for example, is that the Australians tried to capture the growth in mining revenues during the commodity boom with the super-profits tax, but mining has always been a captive of the boom-and-bust cycle. Mining houses generally don’t put aside enough for that inevitable rainy day, which eventually comes along.
A country, however, has to think carefully about the distinction between trying to make the most money out of a mining sector when times are good versus generating the most development out of it for more than just the mining sector, or what he terms “integrated beneficiation”. Historically, at least, SA’s history successfully managed such a process, diversifying its economy on the back of the original opening up of large-scale mining.
When asked why the government seemed reluctant to follow such a successful path, Abedian argued the problem was less reluctance than capability. South Africa “needs a capable state that can plan in an integrated manner across state institutions as well as parastatals.” For example, there is a need for a fairly co-ordinated approach on water and energy to have enough of both for the long haul. Eskom is a key player but there clearly will need to be more energy generators to produce a more secure, stable supply. “But the state, now, doesn’t have that capability. It is not a capable state.”
Capability means the ability to bring the right players together in a reasonable time to make decisions, to yield a plan, and to then roll it out. At the best of times, of course, governments drag their feet but “we are (still) far from having a capable state that can grasp complexity and yield a strategic plan.”
In offering this, Abedian pointed especially to the success of a nation like South Korea (rather than the more usual nod towards China) as a good model, especially since they made their economic transition a success despite having little in the way of resources. Instead, they mobilised well-educated human capital together with financial capital – in effect, converting the money into human capital. All economic activity, he said, depends on land (resources), labour and capital, but the new joker in the pack is technology. And that, in turn, offers new ways forward.
During the discussion, Abedian took some issue with the circumstances of Botswana as an unparalleled success story. Yes, he noted, they have managed to use diamond mining well, but there has been much less progress with regard to other mineral resources like coal. And Ghana is learning how to use its newfound oil and gas wealth, but those resources are not long cycle resources of 80 years or so as with South Africa’s chrome, manganese and platinum reserves. The question remains how to gear up from such resources for that broad-based, intensive beneficiation that is Abedian's point.
And if South Africa doesn’t seize this challenge? Abedian says: “We could end up in a version of the colonial past. We’ll dig, then battle over taxation, and have energy shortages. In short, it will be the opposite of leveraging upward” and a variety of what the economists call the resource curse. That will lead to the dispute of whether to provide energy to mines or hospitals, cities or mining companies. It will, in an extreme case, create colonial-style enclaves in a surrounding sea of poverty.
He said it must be appreciated that if resources are not leveraged in a timely and integrated matter, the sliding slope of that alternative, dystopic version leads to using resources for false dichotomies of political, social and developmental nature. State mining enterprises lend themselves to being a source of corruption. Regardless of founding principles, sooner rather than later they become political footballs as awards to special interests and friends.
Abedian notes, however, that he believes key ruling party thinkers are aware of these concerns. He predicts that this new approach will not be adopted easily, although he does add that, in tough times, easy-to-sell solutions become increasingly tempting. We’re seeing the same thing happening in places like Greece and Spain right now as well in their own individually straitened economic circumstances, he points out.
Ultimately, as both analyst and advocate, he says he tries to meet all the players to spread this gospel. He speaks with business, government, the ruling and opposition parties, the technocrats, and the public about the need for more understanding of what must be done to gain maximum advantage from the country's rich natural mineral endowment.
It is a learning issue for many, but he trusts the public to understand the questions and solutions, if things are explained carefully. He says that the basic principles are both pragmatic in their construction and aspirational in their objectives. But there's no time to waste. DM