BUSINESS MAVERICK

The lost platinum sector jobs are not coming back

By Gracelin Baskaran 24 October 2019
Caption
The government must play a more active role in protecting people, rather than placing the burden of job protection on the private sector, says the writer. (Photo: Adobestock)

Should companies bear the burden of protecting unprofitable jobs, or should the government bear the burden of protecting the people? This question is now palpable in the platinum sector. It’s a hard question because it’s unlikely that jobs in the sector will return. Ultimately, the government should shoulder the burden on re-skilling because training is demand-driven, not supply-driven.

As I drive through Rusteburg’s Waterval East neighbourhood, there’s an eerie feeling. This area was once the heart of the platinum boom – buildings of flats and blocks of houses were rapidly erected to meet the growing demand for labour. Today, those houses and flats largely lie empty and local unemployment has skyrocketed.

It’s a challenging time for South Africa’s platinum sector, and a series of difficult announcements have exacerbated an already-low morale: 36,000 mining jobs were lost in Q2 of 2019 alone; Minerals Council SA recently estimated that 90,000 of 168,000 jobs – or 54% of the platinum’s sector’s employment is at risk; and Sibanye-Stillwater announced plans to cut 5,270 jobs from the mines it acquired from Lonmin.

In light of the negative news and the catastrophic impact retrenchments can have on livelihoods, eyes turned towards the state. Mineral Resources and Energy Minister Gwede Mantashe issued a scathing criticism of the mining sector’s plan to make large-scale retrenchments amid a struggling economy. But one question remains – should companies bear the burden of protecting unprofitable jobs, or should the government bear the burden of protecting the people?

Within the last decade, platinum was the apple of the economy’s eye. In the years leading to 2011, platinum was trading around $1,800 per ounce. The sector absorbed a substantial amount of labour and wages were relatively high when factoring in bonuses.

However, a storm was brewing – in the coming years, prices fell by more than half, volatile industrial relations translated to strikes that brought production to a grinding halt for prolonged periods, and demand came crumbling as recycled platinum entered the market from Asia. Today, platinum sits at $930 per ounce, but the costs of extraction can often exceed this. According to S&P Market Intelligence, labour costs alone averaged $735 per ounce at Impala’s conventional mines. Compare that to $70 per ounce at Anglo Platinum’s open-pit mechanised Mogalakwena operation.

Companies have cited lack of profitability as a driving force behind retrenchments. However, despite the closing of many conventional mines, due to declining demand and pricing, mechanised mines are still opening and/or expanding. Take Impala Platinum – despite announcing the closure of five shafts and 13,000 retrenchments last year, amounting to one-third of its total workforce, citing cash negative operations, the mining giant has invested in the ongoing construction of the Waterberg Project, a fully mechanised mine in Limpopo that will use 400 trackless machines to carry out operations.

In addition to drastically reducing operating costs, the productivity increase is substantial. At Anglo Platinum’s Amandelbult Mine, the operation employs just over 14,000 workers and averages an output of 50 ounces per person, per annum. Comparatively, at the firm’s mechanised Mogalakwena operation, it employs just 1,800 workers and averages an output 600 ounces per person, per annum. The mechanised operation requires just one-eighth of the workforce, while production has gone up more than eleven-fold per worker employed.

Labour hasn’t just proved to be costly, but its lack of consistency, even for justified reasons, has severely affected both the industry and the larger macroeconomic stability of the country. The 152 strike days in 2014 had a significant impact on revenues. Based on S&P Market Intelligence, between 2013 and 2014, the stoppages caused a revenue decline of 48% for Lonmin’s Marikana Operation, 46% for Amplats’ Rustenburg Operation 42% for Amplat’s Amandelbult operation and a hard-hitting 64% for Impala’s operations.

From a macro-economic stability perspective, a presentation by Chris Loeweld at the Monetary Policy Forum at the South African Reserve Bank earlier this month identified the platinum mining strike and load shedding as the key drivers of the GDP decline from 4% y/y in 2010 to just under 1.5% y/y in 2014.

There is an illusion that mining’s share of employment will rebound when the next commodity boom commences. However, after spending years studying the platinum sector, both underground and above ground, one thing is clear: the pre-mechanisation employment share will never return. Sure, maybe Anglo Platinum’s Twickenham Mine may return from being on care and maintenance – but it will probably require less than a thousand workers, rather than 15,000, and will be powered by machines run by a small number of engineers, rather than blasters.

Shifting the burden of protecting people to the private sector is unlikely to attract investment. Every year, the Fraser Institute carries out a survey of mining firms in mining jurisdictions worldwide. In 2011, in South Africa, 2.94% of firms surveyed said they would not pursue investment due to labour regulations/employment agreements and labour militancy/work disruptions. By 2015, 26% of firms surveyed said they would not pursue investment due to these factors – the highest level of deterrence on the survey scale.

Rather than guilt-tripping firms to subsidise social protection, the government needs to play a key role in transforming the human capital landscape. There are two tangible efforts that can be supported – improving educational outcomes for communities around the mine and strengthening the workforce that will be retrenched due to low profitability and increased mechanisation.

When I first moved to Rustenburg in 2014 during the mining strikes, I visited schools around the mines and asked secondary students what they wanted to do, the common response was that they wanted to work in the mines. Why? Because their parents and grandparents worked in the mines. Little did they realise that in coming years, the area would be devastated by a drastic reduction in mining employment.

When I visited mines in Limpopo, I was advised that the maths pass rate was just under 5% last year. While local mining companies have used corporate social responsibility funding and other programmes to boost educational attainment, these remain limited, as they often run for a few years before being cut off due to budget constraints. Education is a social good – and the government has a responsibility to step up the provision of high-quality education in rural areas. A strong foundation of maths and sciences is key to ensuring that these students will be able to survive in a technology-intensive world, whether in mining or elsewhere.

The second area for human capital improvement is re-designing the provision of skills for workers facing retrenchment. Currently, as part of the retrenchment process, firms must provide a minimum amount of training to workers who will lose their jobs. However, after going from mining firm to a mining firm to assess the effectiveness of these programmes, there is a heavy consensus that they simply do not work. The process of re-skilling workers is not demand-driven, it’s supply-driven. Workers are essentially asked to pick a skill or skill set they would like to receive training for – plumbing, sewing, carpentry, gardening and so on. But how many gardeners or plumbers does the small area around a closing mine need?

Turning the re-skilling and human capital development efforts into a demand-driven process requires working with other industries – can we provide a tax incentive to another industry to re-train workers and hire them afterwards? A cross-sectoral effort is the only way to ensure that workers are retrained for non-mining industries that remain labour-intensive, and not perpetuate the growing skills mismatch, where skills are developed in areas where demand is low.

Ultimately, the government must play a more active role in protecting people, rather than placing the burden of job protection on the private sector. It is virtually impossible to create an attractive investment destination without getting this right. BM

Gracelin Baskaran is a development economics PhD candidate at the University of Cambridge.

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