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Dr Gift Mugano

Last week I wrote about the recent International Monetary Fund World Economic Outlook which paint a gloomy picture for the global economy in 2016 and possibly 2017.The report clearly indicated that commodity prices are not going to pick up any time soon. The way out for developing countries is premised on value addition and beneficiation.Zimbabwe, in its Zimbabwe Agenda for Sustainable Socio Economic Transformation (Zim-Asset), clearly spelt out the value addition and beneficiation as one of the four clusters in the Zim-Asset. This week’s discussion is aimed to share notes from our neighbour, South Africa.

The South African Government adopted a developmental economic policy known as “The New Growth Path”, which seeks to place the national economy on a production-led growth trajectory in order to tackle the country’s developmental challenges of unemployment, inequality and poverty.

The New Growth Path sets a target of five million new jobs by 2020 and identifies six key sectors that must drive growth and job-creation. A particular focus is to ensure greater local processing of South Africa’s abundant natural resources.

This policy framework prioritises the mining value chain, which includes mineral beneficiation, as one of the key economic activities that present the highest value proposition towards the attainment of its objectives. South Africa is host to considerable mineral reserves of strategic significance to the global economy, with an estimated in-situ value of US$ 2,5 trillion and an economically exploitable life of mine of more than a century for non-energy mineral commodities.

In essence, South Africa can broadly be defined as an economy with low levels of mineral beneficiation, in that most of its minerals are exported as ores or semi-processed minerals rather than high value intermediate to finished products.

The beneficiation strategy is aimed at providing a strategic focus for South Africa’s minerals industry in terms of developing mineral value chains and facilitating the expansion of beneficiation initiatives in the country, up to the last stages of the value chain.

The strategy is also aligned to other broader national programmes, including, albeit not limited to the industrialisation, energy security program and the Advanced Manufacturing Technology Strategy (AMTS).

The strategy is premised on the need to unlock downstream and side-stream values and provides the initial analysis of opportunities and challenges in downstream beneficiation as well as suggesting instruments that must be investigated and implemented to enhance value addition. The total net beneficiation of minerals is maximised by a combination of downstream and side-stream linkages.

In the main, the beneficiation strategy is supported by a number provisions within existing national policy and legislation, such as the Minerals and Mining Policy for South Africa (1998), Minerals and Petroleum Resources Development Act, the Broad-Based Socio Economic Empowerment Charter, the Precious Metals Act, the Diamonds Amendment Act, energy security plan as well as compliance with environmental protocols.

Like in Zimbabwean case, South Africa is faced with cross-cutting constraints which can deter beneficiation. Despite the comparative advantage in mineral resource endowment and more than a century of mining in South Africa, the levels of mineral beneficiation have been low and mostly concentrated in the high capital sectors of the mineral value chain.

This demonstrates that having natural resource endowment does not automatically translate to downstream beneficiation, but requires dedicated interventions to address possible constraints to realise a competitive advantage for the mineral beneficiation industries. The inhibitive factors to effective implementation and development of the beneficiation programs in South Africa are diverse but include the following:

a) Limited access to raw material for local beneficiation — this constraint is resultant from the current structural arrangement of the mining industry, which remains geared towards export orientation of raw material, with the bulk of current producers bolted in long term contracts with their international clients.

Pricing mechanisms used by some raw and intermediate material producers also hamper beneficiation to the final stages of the value chain. The international price determination for raw and intermediate materials, which do not discount proximity to production further compound the requisite access to input minerals for local value addition.

An example of this is the diamonds and precious metals industries where legislation has been created specifically to ensure availability of minerals for local beneficiation.

However, the envisaged targets of downstream value addition of these minerals reached a catatonic state of development as a result of uncompetitive pricing mechanisms.

In dealing with this constrain, South African Government together with business developed a shared responsibility. In this case, Government worked on:

Leverage the state’s custodianship of the country’s minerals to facilitate downstream beneficiation;

Amended laws to strengthen beneficiation provisions;

Leverage the beneficiation offset element of the Mining Charter;

Strengthen provisions within existing pieces of legislation such as the diamond export levy to promote reliable and competitive access to raw materials;

Addressing import-parity pricing especially of steel and heavy chemicals, including if necessary through export taxes, conditionalities placed on infrastructure, and regulation

Action anticipated from the business sector include:

Taking advantage of the mineral value proposition to expand local demand for mineral ores; and

Comply with legislation.

(b) Infrastructure — shortages of critical infrastructure such as rail, water, ports and electricity supply have a material impact on sustaining current beneficiation initiatives and a major threat to future prospects of growth in mineral value addition.

 

For instance, the recent unprecedented levels of energy demand, compounded by lack of investment in energy generation as well as South Africa’s historical culture (business, public sector and individuals) of inefficient energy utilisation, resulted in deficit of energy supply in the first quarter of 2008. The bulk of early-stage beneficiation programmes require large and uninterrupted supply of energy. Distal locality of mining operations to established manufacturing hubs and lack of infrastructure capacity linking the two also discourage growth of beneficiation activities.

In response to this challenge, South African government instituted the following measures:

Identification of specific infrastructure needs over the next 10 to 20 years;

Ensuring that existing infrastructure planning mechanisms and programmes such as the critical infrastructure programme properly consider infrastructure requirements for mineral beneficiation;

Leverage on the New Growth Path, which seeks to unlock infrastructure bottlenecks through massive expansion of transport, energy, water, and communications capacity;

Utilisation of the state’s infrastructure (public good) as an effective instrument to promote local beneficiation

In complimenting Government efforts, business is anticipated to:

Aligning production plans with national programmes;

Embracing energy efficiency;

Exploring co-generation prospect

(c) Research and Development, South Africa’s limited exposure to break-through research and development programmes thwarts the prospects of innovation in creating new products for beneficiation.

In response to this challenge, South African Government started aligning beneficiation R&D requirements (both current and recurrent) to the national ten year plan for science and technology. In support to this, business is anticipated to support and develop competitive technologies

(d) Skills sought for expediting local beneficiation — while the challenge for skills is not limited to South Africa, the skills-supply pipeline for scientists and engineers requires specific attention.

In dealing with this issue, South African Government is working on:

Aligning the beneficiation skills pipeline to the National Skills Development Strategy and the Sector Skills Plans for required skills; and

Promoting skills development and partner with the relevant institutions and institutions of higher learning for training and labour development

In the same vein, business is expected to:

Investment in Human Capital Development; and

Co-operate with government to leverage and enhance the National Skills Development Strategy and the Sector Skills Plans for required skills

(e) Access to international markets for beneficiated products — the current trade barriers (both tariff and non-tariff) in some prospective recipients of South Africa’s beneficiated products limit access to these markets.

In addressing this challenge, the Government is working on:

Reviewing existing and ensure that future trade agreements adequately support the beneficiation intent (FDI and market access);

Take advantage of the Comprehensive Strategic Partnership with China to support investment in beneficiation in South Africa as well as access to markets in China.

In the same vein, business is expected to leverage on trade agreements.

Dr Mugano is an Economic Advisor, Author and Expert in Trade and Competitiveness. He is a Research Associate of Nelson Mandela Metropolitan University. Feedback: +263 772 541 209 or [email protected]