Illustrative image | Sources: President Cyril Ramaphosa. (Photo: Gallo Images / Media 24/ Deaan Vivier) | Minister Gwede Mantashe. (Photo: Gallo Images / Business Day / Freddy Mavunda) 
Minerals and Petroleum Resources Minister Gwede Mantashe has a great idea: let’s stop exporting our raw commodities and build stuff right here with the minerals.
“The time for exporting raw commodities has come to an end,” he said on Tuesday at a critical minerals conference in Sandton.
“Our iron ore must be processed here ... We are exporting wealth and we are exporting jobs.”
This echoed remarks made by President Cyril Ramaphosa at the Liberation Movements Summit on Sunday.
“Rather than export rock, sand and soil, we should be exporting finished products that the world needs,” the president said.
This is a mantra that periodically gets aired by senior ANC leaders, and it must be said that it is a noble goal.
Africa was long exploited and colonised for its resource wealth: ivory, rubber, gold, diamonds, oil, you name it. And the continent remains the world’s poorest and most underdeveloped.
Viewed through this prism, the solution is to stop exporting raw commodities and start “beneficiating” - an ugly word that my spellcheck does not recognise - the stuff into finished products like the device you are reading this on.
The economy of my homeland of Canada was also historically built on commodities, notably the three Fs - fur, fisheries and forestry. Canada now has a highly advanced economy and yet it still exports lots of minerals, oil, gas and other commodities.
The Canadian province of Nova Scotia, where I hail from, is the world’s top exporter of lobster, wild blueberries, Christmas trees and gypsum. You can fish, gather, grow trees and mine a mineral for raw export, and still have a 21st-century, middle-class lifestyle.
At the end of the day, there is nothing wrong with both exporting commodities and also using some of this natural wealth for domestic industrial consumption.
But some clarification is needed on Mantashe’s comments about the export of “raw commodities” - as well as his push for more domestic minerals processing.
South Africa’s manganese and iron ore are shipped out as raw “ore”, but much of South Africa’s resource wealth is not exported “raw” - it is “cooked” first.
Most of South Africa’s platinum group metals (PGMs) are refined domestically before export, and this is the case with gold.
The Rand Refinery’s products listing include Krugerrands, minted bars, cast bars, bars weighing 1kg, and coins and medallions. To use that mouthful, that’s beneficiation.
Mantashe also said “we can’t allow our chrome to be exported” and China could not “build a bigger chrome industry than us when we mine chrome”.
Well, it has and it can. Much of South Africa’s chrome production is a byproduct of PGM mining, and it makes no sense for that sector to invest in smelters which cannot compete with China because its production costs are much lower.
South Africa’s existing ferrochrome smelters are also fast going the way of the dodo. Merafe Resources closed two such smelters in May, while Assmang plans to shut its Cato Ridge ferrochrome operation in August.
As for iron ore, South Africa’s steel industry is in a state of collapse. You need domestic demand and lower costs to have a functioning steel sector that can use iron ore.
ArcelorMittal said in March it would defer its plans to wind down its long steel business by six months. But in a trading statement ahead of its interim results due Thursday it warned that “... limited progress has been made to date in redressing the major structural impediments” to the operation.
These pointedly include “Weak domestic demand and the lack of growth projects for steel”, poor rail service and “unaffordable and globally uncompetitive electricity tariffs”.
All of these challenges and many others need to be addressed before you can talk about processing minerals here for domestic use, and these challenges have one main cause - unfolding state failure under the ANC, which ruled the roost for 29 years before it was forced into the GNU.
Soaring power costs speak to the disaster that is Eskom and no one is going to build a new smelter with eye-popping utility bills that look set to increase forever.
Eskom has generally kept the lights on of late, but local outages remain a drain on the economy. As my colleague Ferial Haffajee recently noted, Johannesburg had almost 100,000 reported outages in the space of nine months.
Read more: Powerless in the city - how Johannesburg’s electricity crisis is breaking its people
AECI, Africa’s largest maker of explosives, reported in its interim results on Wednesday that its Modderfontein operation suffered 16 power outages in the first four months of this year.
CEO Holger Riemensperger told me that it can take 48 hours to reboot the operation after an outage, so that translates to around 30 days of lost production. The company’s surge in earnings for the period was driven by its international operations outside of South Africa.
Transnet has shown signs of stabilisation. Kumba Iron Ore CEO Mpumi Zikalala said this week while noting that a lot still needed to be done.
And related to all of this is the poor state of a barely growing economy, which might eke out growth of 1.0% or so this year. Along with solar panels installed by households and businesses, this tepid growth helps to explain Eskom’s improved performance.
Could it keep the lights on if the economy was growing 5% annually with new smelters and factories being built? That’s unlikely and no one is going to invest money to build that kind of stuff in such a dismal economic environment.
Then there is the proposed chrome export tax which the Minerals Council SA has said would just hit the sector’s profits and hasten its decline. It’s a ham-fisted attempt to deal with a problem of the government’s own making.
Against such a backdrop, minerals beneficiation remains a pipe dream - and there is some potent dagga in that pipe. DM