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Title: Briefing to the Portfolio Committee on Mineral Resources


1
Briefing to the Portfolio Committee on Mineral
Resources
17 September 2014
  • For an Equitable Sharing of National Revenue

2
Presentation Outline
  1. Introduction to the Financial and Fiscal
    Commission
  2. Evolution of mining and contribution to economy
  3. Recent developments and challenges
  4. How can minings contribution to national and
    regional development be enhanced?
  5. Small scale/illegal mining and poverty reduction
  6. Departmental analysis

3
Role and Function of the FFC
  • What?
  • Permanent statutory body established in terms of
    Section 220 of Constitution
  • Independent and subject only to Constitution and
    the law
  • Must function in terms of the FFC Act
  • Mandate of Commission
  • Makes recommendations, envisaged in Chapter 13 of
    the Constitution or in national legislation to
    Parliament, Provincial Legislatures, and any
    other organs of state determined by national
    legislation
  • Commission is concerned with intergovernmental
    fiscal relations (IGFR)
  • Legislative provisions or executive decisions
    that affect either provincial or local government
    from a financial and/or fiscal perspective
  • Includes regulations associated with legislation
    that may amend or extend such legislation
  • Commission must be consulted in terms of the FFC
    Act
  • Current research strategy focuses on
    developmental impacts of IGFR

4
  • Evolution of Mining and Contribution to The
    Economy

5
History
  • Commercial mining has its origin in the 19th
    century with opening of Kimberly Diamond Mines in
    1860s followed by Witwatersrand gold mines in the
    1880s
  • Discovery of gold and diamonds induced rapid
    structural change from predominantly agriculture
    and rural economy toward urban economy centred
    around mining and supporting industries
  • Share of agriculture in employment dropped from
    75 to 33 between 1865 and 1921
  • Exports grew rapidly with decline in agriculture
    share matched by an increase in mineral exports
  • Profits from diamond and gold became main source
    of revenue for government and source of finance
    for private investment (Nattrass, 1981)

6
SAs contribution to Worlds Mineral Supply
Production and Reserves
Sub-sector Sub-sector Production Production Reserves Reserves
Sub-sector Sub-sector SA Contribution World Ranking SA Contribution World Ranking
Primary Commodities Primary Commodities Primary Commodities Primary Commodities Primary Commodities Primary Commodities
Precious metals Gold 10.3 2 40.4 1
Precious metals PGMs 56.7 1 87.7 1
Precious metals Silver 0.35 17
Non-Ferrous Copper 0.73 17 1.4 14
Non-Ferrous Zinc 0.28 25 3.3 8
Non-Ferrous Lead 1.2 11 2.1 7
Non-Ferrous Nickel 2.6 9 8.8 5
Non-Ferrous Cobalt 0.58 0.12
Non-Ferrous Antimony 2.5 7 4.7 4
Ferrous ores Chromite 41.9 72.4 1
Ferrous ores Manganese 14.6 2 80. 0 1
Ferrous ores Iron 2.5 7 0.93 9
Minerals sands Titanium 19.5 2 16.7 2
Zirconium 32.7 2 19.4 2
Energy Coal 3.6 6 6.6 8
Uranium 1.6 11 10 .0 5
7
SAs contribution to Worlds Mineral Supply
Production and Reserves cont.
Sub-sector Sub-sector Production Production Reserves Reserves
Sub-sector Sub-sector SA Contribution World Ranking SA Contribution World Ranking
Processed Commodities Processed Commodities Processed Commodities Processed Commodities Processed Commodities Processed Commodities
Ferro-alloys Chromium 54.5 1
Ferro-alloys Manganese 6. 0 4
Ferro-alloys Silicon 2.8 7
Vanadium 39.8 1 31.6 1
Aluminium 2.4 9
8
Role of Mining in RSA
  • Enabled SA to be most industrialized African
    country
  • Large employer of semi-skilled and skilled
    workers
  • Net generator of foreign exchange
  • Significant multipliers into the rest of the
    economy (large procurement, investment and wage
    spender)
  • Large magnet for foreign investment inflows
    (which help fund current account)
  • Significant contributor to transformation in the
    economy

9
Mining Contribution
  • Country abundantly endowed with mineral resources
    and a key global player
  • 90 of platinum metals
  • 80 of manganese
  • 73 of chrome
  • 45 of vanadium and 41 of gold on earth
  • Mining sector accounts for 8.6 of GDP directly
    on a nominal basis
  • Investment
  • A third of the market value of the JSE
  • Energy
  • Mining is responsible for 93 of electricity
    generation via coal power plants
  • A third of liquid fuels supply via Sasols use of
    coal
  • Complementary role in deep rural areas
  • Remittances
  • Clinics, schools, community centres
  • Jobs etc.

10
Key Policy/Strategic Thrusts
  • Broad Based Socioeconomic Charter for SA Mining
    Industry also known as Mining Charter
  • To redress historic inequalities, government
    enacted Mineral and Petroleum Resources
    Development Act (MPRDA) (Act 28 0f 2002)
  • Section 100(2)(a) of MPRDA makes provision for
    the development of a mining charter as an
    instrument to effect transformation with the
    setting of specific targets
  • Mining Charter aims to bring about redress with
    respect to ownership, procurement,
    beneficiation, employment equity, mine community
    development, housing and living conditions and
    sustainable development and growth in the mining
    industry
  • Every mining company must report its compliance
    with the Mining Charter annually

11
Key Policy/Strategic Thrustscont.
  • Beneficiation Policy and BEE
  • National Development Plan
  • SA has failed to match the global growth trend in
    mineral exports due to
  • poor infrastructure
  • regulatory and policy frameworks that hinder
    investment
  • uncertainty as regards property rights
  • Beneficiation not a fix-all solution to growth
    and employment problems
  • Activities are energy intensive and capital
    intensive
  • Measured approach targeting capital equipment,
    chemicals and engineering services
  • .

12
  • Recent Sectoral Developments and Challenges

13
Total Mining Production Growth
14
Mining Production Sales
15
Production Gold and Non Gold Minerals
16
Production Gold, Platinum and Diamonds
17
Volume of Mining Production
18
Key Points
  • Year on year growth in overall mining production
    fell further in July, to -7.7, from -5.4 in
    June and an average of -2.7 for the first seven
    months of the year
  • There was a minimal recovery in production of
    platinum group metals (PGMs) despite the ending
    of the strike
  • The softness of mining production is also
    reflected in the plunge in the growth in the
    value of mineral sales to -12.0 in June, from
    0.9 in May and an average of 2.6 in the first
    half of the year
  • Sadly, the cornerstone mining sector upon which
    the South African economy was built continues to
    languish as the weakest segment of the economy,
    with average annual growth of -0.8 between 2008
    and 2014, way less than the overall growth of the
    economy over this period, of 1.3 per annum

19
Key Sector Challenges
  • Global economic outlook
  • Public expenditure growth cutbacks
  • Implementing change/transformation and gaining
    consensus on right economic and ownership
    strategy for mining
  • Ownership
  • Beneficiation
  • State Mining Company
  • Other pressing issues
  • Impact of the mining strikes on growth, inflation
    and investment
  • Lingering uncertainty around nationalization and
  • Issues about confusion between municipalities and
    traditional leaders  and impact on mining
    investment

20
  • How Can Minings Contribution To National And
    Regional Development Be Enhanced?

21
Improving Mining Contribution to Development
National and Local
  • Most of the big financial benefits of mining
    (FDI, exports, government revenue etc) accrue
    nationally
  • but the physical and human impacts are mostly at
    the community level
  • It follows that
  • Minings contribution greatly depends on how
    these large central government revenues are used
  • Minings (small) employment contribution is
    mainly at local level, and displacement of local
    labour (e.g. artisanal miners) can result in a
    significant negative effect on livelihoods
    locally
  • Local procurement can have significant additional
    indirect effects on total employment and incomes.
    But the opportunity for these effects to be
    realized is often overlooked, both by governments
    and by investors. In weakly developed economies
    they must be actively fostered

22
Improving Mining Contribution to Development
National and Local cont.
  • At the national level, through fiscal links
  • Transparency and accountability for revenues
  • Fiscal policy targets to be met over entire
    business cycle
  • At the local/regional level
  • Visibility of mining revenue
  • Improving local capacity
  • Transparent revenue sharing mechanisms.

23
Mining And Regional Development
  • What happened with mining 100 years ago in the
    places that are now developed in South Africa?
  • Mining led to metals production, manufactured
    goods exports
  • Employment generation, skills accumulation good
    jobs and lots of them
  • Supporting industries established, based on
    innovation mining equipment, service providers
  • What happens in the country today?
  • Few linkages to other sectors, mine workers
    wages are the main stimulus to local economies -
    but they can be important, 8-10 new jobs per mine
    worker is common in Africa
  • Little innovation
  • Widening income differences
  • Crowding out of other sectors
  • Social friction and conflict

24
Why Is it So Difficult to Build Diversified Local
Economies Around Mining Now?
  • With todays metals prices, the money is there,
    but
  • Globalization means that
  • Inputs can be imported because transport costs
    and tariffs are lower, therefore difficult to
    build backward links
  • Processed products are exposed to international
    competition, therefore no forward links
  • Processes are standardized and mechanized there
    is little room for using the advantage of low
    local labour costs
  • Skills do not have to be developed locally,
    experts can easily be brought in, therefore fewer
    high quality jobs are filled by locals
  • Easy access to state of the art technology
    reduces need for local innovation
  • Widespread poverty and overpopulation mean that
  • There will always be unmet demands for jobs
  • Many have an incentive to act outside the law

25
Solutions
  • Nurturing of clusters through partnerships
    between government and companies
  • In Mozambique, the establishment of the Mosal
    aluminium smelter led to local job creation along
    a corridor stretching from the border with South
    Africa to Maputo
  • Can this be replicated here?
  • Pro-active procurement policy of companies,
    combined with training and technical assistance
  • Can this be upscaled and work here?

26
Solutions cont.
  • Empowering communities?
  • In Papua New Guinea, local development committees
    have the final word on all development projects,
    including those connected with mining
  • Regional development planning
  • Local governments usually do not have the
    capacity to plan for long term development, and
    the capacity has to be built
  • Development planning has to be inclusive and
    participatory nobody can be left out and
    decision making has to be for real
  • The process and its results have to be visible
    and the actors have to be accountable

27
What Portfolio Committee Should Ask For?
  • A strong technology drive,
  • An innovative approach,
  • Long term development plan and capacity, and
  • An understanding of social dimension

28
  • Small Scale Mining, Illegal Mining And Poverty
    Reduction?

29
Small Scale Mining A Neglected Poverty Problem
  • Small-scale mining can be big business
  • Environmental damage deforestation, erosion,
    destruction of water courses, mercury
  • Safety hazards accidents, disease, mercury
  • Social problems crime, drugs, prostitution
  • Costs to economy loss of agricultural labour,
    lack of investment, low productivity, no
    processing, inequitable allocation of revenues
    along supply chain

30
Solutions
  • Raise productivity training, improved equipment
  • Eliminate mercury as hazard to health and
    environment better equipment, alternative
    technologies
  • Legalize and integrate titles to mining claims,
    preference for local people
  • Change the distribution of revenues
    organizational support, licensing of dealers
  • Processing training, capacity building, fair
    trade schemes
  • Communities and small-scale mining, workshops,
    grants, training, networking

31
  • Departmental Analysis

32
Budget and Programmes of Mineral Resources
Programme (Rmillion) 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Real Annual Average Growth 2010/11-2013/14 Real Annual Average Growth 2014/15-2016/17
Administration 226.7 257.6 295.3 300.4 284.2 296.8 314.5 3.9 0.2
Promotion of Mining Safety and Health 137.1 141.3 140.7 161.1 168.0 177.7 188.9 -0.1 1.0
Mineral Regulation 188.6 184.4 191.4 199.6 231.4 245.2 260 -3.6 1.0
Mineral Policy and Promotion 442.3 446.2 546.3 708.2 787.8 879.5 900.6 10.7 1.8
Total 994.7 1 029.5 1 173.7 1 369.3 1 471.4 1 599.2 1 664.0 5.3 1.3
  • Departmental budget for 2014/15 R1.4 billion
  • This represents an ? of R102 million between
    2013/14 and 2014/15
  • This translates to 7 nominal (and 2 real)
    growth rate from the 2013/14 budget

33
Budget Composition Across Programmes 2014/15
  • Largest programme Mineral Policy and Promotion
    Programme
  • Spear-heading rehabilitation of 150
    derelict/ownerless mines
  • Focus of Administration programme is
    attracting/retaining skilled workers
  • ? over MTEF driven by training and staff
    development, generally improvement to conditions
    of service efforts to attract/retain staff
    resulted in vacancy rate declining from 19 to
    15 between 2012/13 and 2013/14
  • Promotion of Mine Health and Safety receives
    smallest portion of budget allocation ? by 1
    in real terms between 2013 and 2014
  • Safety track record in mining industry remains a
    challenge

34
Spending Economic Classification
Item (R'million) 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Real Annual Average Growth 2010/11-2013/14 Real Annual Average Growth 2014/15-2016/17
Compensation of Employees 326.5 364.6 395.9 442.0 476.8 505.7 539 4.7 1.3
Goods and Services 206.5 222.6 227.9 249.2 265.6 278.8 356.5 0.8 10.3
Transfers and Subsidies 438.1 420.8 525.1 660.2 717.9 803.3 756.4 8.5 -2.2
Payments for Capital Assets 23.6 18.6 24.5 18.0 11.0 11.5 12.1 -13.5 -0.1
  • To give effect to baseline reductions, transfers
    and subsidies (to the Council for Geoscience and
    Council for Mineral Technology) were ? by R40
    million over MTEF hence slow down in growth
    over 2014 MTEF
  • Significant growth projected for goods and
    services over 2014 MTEF period is the result of
    the rehabilitation of derelict/ownerless mines
    project ? spending mainly on contractors

35
In-Year Expenditure 2013/14
  • It appears that the Department is able to
    maintain relatively stable cash
    flow/disbursements
  • Generally July, September, November and January
    high spending months

36
Departmental Entities
  • Five entities fall under the Department of
    Minerals
  • Mine Health and Safety Council
  • Research and advisory function to the Minister in
    terms of mine health and safety
  • Council for Mineral Technology Research
  • Provides research, development and technology to
    foster the development of business in the mineral
    industry
  • Council for Geoscience
  • Development and maintenance of national
    geosciences knowledge infrastructure for
    onshore/off-shore environment of South Africa
  • South African Diamond and Precious Metals
    Regulator
  • Regulation of diamond, platinum and gold sectors
  • State Diamond Trader
  • Promote equitable access to and beneficiation of
    diamond resources, correct historical market
    failures and grow South Africas diamond cutting
    and polishing industries

37
Financial Performance of Public Corporations and
Entities
Name of Entity Amount Transferred 2013/14 R000 Amount Spent 2013/14 R000 Audit Outcome 2013/14
Mine Health and Safety Council 5 035 5 035 Unqualified
Council for Geoscience 271 232 271 232 Unqualified
Mintek 364 709 364 709 Unqualified
SA Diamond and Precious Metals Regulator 44 824 44 824 Unqualified
State Diamond Trader 0  0  Unqualified
  • The five entities falling under DMR all obtained
    unqualified audits in 2011/12, 2012/13 and
    2013/14
  • Department playing an effective monitoring role
    over entities and agencies

38
Departmental Challenges
  • Attraction and retention of key staff
  • Especially with respect to inspectors and mineral
    economists
  • High levels of staff being poached by private
    sector at salary levels that government cannot
    compete with
  • Maintaining mine health and safety remains a
    challenge

39
  • Thank You.

Financial and Fiscal Commission Montrose Place
(2nd Floor), Bekker Street, Waterfall Park, Vorna
Valley, Midrand, Private Bag X69, Halfway House
1685 www.ffc.co.za Tel 27 11 207 2300 Fax 27
86 589 1038
40
FFCs Website www.ffc.co.za
Introduction to the Financial and Fiscal
Commission 2014
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