The rot in South Africa has now reached the hard core: the mining sector that lays the golden eggs and pays for the World Cup and much else. Terrible trouble has been going on for some months now at the Grootvlei mine, the owner of which, Aurora, gets special treatment because its board members include a Zuma nephew and a Mandela grandson. The miners have not been paid for months and are on strike. The mines are flooded and highly toxic wastes are threatening to contaminate the water supply of the whole central Rand. Over at Sishen in the Northern Cape, meanwhile, the government has granted a prospecting licence for an iron-ore mine to a consortium of ANC cronies, even though the mine is already being exploited by another firm.Mining magnates might want to contemplate regime stability in the failing state immediately to our north. There is something to be said for good governance.
Cases like these are causing investors, foreign and domestic, to flee, thus contributing to South Africa’s ever-growing unemployment and the clear risk of a huge social explosion once the World Cup is over. Anyone who lives here and understands what is happening is bound to have an almost schizoid approach to the majesty of Brazil, Argentina and Germany. So lovely to watch, but one cannot but fear what comes afterwards.
The new E&Y annual Business Risks facing mining & metalsreport [PDF] inconveniently notes that Canada, South Africa and other jurisdictions have increased royalty rates. Current concerns among the big miners are supposedly -
1. Capital allocation (17 in 2009)E&Y suggests that miners should respond to 'resource nationalism' by -
2. Skills shortage (6)
3. Cost management (1)
4. Resource nationalism (9)
5. Maintaining a social license to operate (4)
6. Infrastructure access (7)
7. Access to secure energy (8)
8. Access to capital (3)
9. Price and currency volatility (11)
10. Climate change concerns (5)
+ Investing in transparent relationships with host governments to foster a greater understanding of the value of the project to the hostI confess to some difficulty in regarding the larger (or more obstreperous) miners as "prominent victims" and wonder about the 'transparency' in some of the recent advocacy.
+ Aligning with the host government’s long-term economic and political incentives and thereby becoming an invaluable part of the infrastructure in the host country
+ Focusing on generating direct and sustainable benefits for the host community through pro-active and well organized social and community development programs
+ Aligning with multi-lateral agencies, such as the World Bank, to achieve a prominent victim status in the face of mounting resources nationalism
+ Encouraging direct government participation in the project to better align outcomes.
On the subject of tax see Trevor Boucher's new 436 page Blatant, artificial and contrived: Tax schemes of the 70s and 80s [PDF], published by the Australian Taxation Office. Martin Daunton it's not, but readable.
