CAPE TOWN (Business Day) -- When Minerals and Energy Minister Buyelwa Sonjica stands up at in Cape Town and announces that legislation will be amended in a bid to remove obstacles to mining investment, it's important, less because of the amendments themselves than because of the message it sends. Essentially, Sonjica is telling local and foreign mining industry investors that her department is willing to listen to, and take account of, their concerns.
That's important, and welcome, and it will give confidence to investors. For despite the global commodities boom of recent years, investment in South Africa's mining industry has been tragically lacking. Things have improved, as the minister noted: though fixed investment in mining declined by about 4.2% a quarter between 2002 and 2004, the trend has reversed since the beginning of 2005, with quarterly growth of about 1.4%.
But that's way behind the rate at which private sector investment in other sectors has been growing. And it's very far behind the investment growth seen in other commodity-producing countries such as Australia in recent years. And the problem is that without investment, the mining industry's capacity to raise output to take advantage of high commodity prices remains limited.
The question though is whether it's the legislation that's been the cause. Most experts agree that South Africa's five-year-old Mineral and Petroleum Resources Development Act was not particularly well drafted. There are plenty of technical changes that would be helpful. Any industry diehards hoping for changes to fundamental principles, such as black empowerment, will be disappointed. Minerals and energy officials made it clear the changes dealt with technical, beneficiation and environmental issues, though no one at this stage is disclosing any of the specifics. Without that, it's hard to assess what the effect might be on investment rates.
Those were hit in earlier years by the strong rand and by inadequate transport and logistics infrastructure. But trouble with mining rights and other licences was a key constraint, one that led the Chamber of Mines last year to estimate that up to R10 billion ($1.39 billion) of fixed investment was being forfeited annually. But the legislation itself does not seem to have been the culprit. Rather, it's the bureaucracy that's snarled things up. There have, however, been significant improvements in the past few months, particularly since Sonjica took over last year. The licensing process has been fast-tracked and many more companies have gained new mining rights or converted their old rights to new order rights. That's helped to kick-start investment and make companies more comfortable with the new mining dispensation.
After all, South Africa is not unique. Miners in many developing countries are required to sell stakes to local or government partners. And with the global requirement for sustainable development, companies in many countries are now deeply involved in community development. The crucial ingredient is certainty. So while improvements to South Africa's legislation would be good, big changes now would not.
Equally important though is the attitude of government and its officials to the industry and the flexibility and pragmatism with which they apply the rules. One fears that many in the department of mineral and energy affairs believe their sole mandate is to transform the mining industry. But a transformed industry that is dying is no good to anyone. Those in charge need to be clear that it's their duty too to ensure that mining can thrive and grow in years to come.
