The Minerals Council said yesterday that South Africa should address energy and logistical constraints before pushing for export taxes as a way of nudging miners to undertake local mineral beneficiation, and highlighted that this approach could result in reduced productivity and investment inflows.
This comes after Minister of Mineral and Petroleum Resources, Gwede Mantashe, earlier this month proposed that the government should intervene through a range of measures to encourage value-addition or beneficiation of the country’s minerals to boost employment.
Mantashe said that such interventions could come in the form of taxes on primary mineral exports, incentive schemes in the form of tax holidays linked to the level of beneficiation, or putting in place an electricity tariff for the mining sector linked to commodity prices.
However, the Minerals Council CEO, Mzila Mthenjane, yesterday said there was a need for “careful and strategically informed consideration of an export tax or other restrictions” on primary raw mineral exports.
“Our favoured approach to encourage beneficiation would include, firstly, a coherent, efficient and stable regulatory environment that encourages investments in exploration, through transparent and expedited processes leading to the construction of new mines and expansion of existing operations for a longer life and sustainable jobs,” Mthenjane said.
The Minerals Council added that South Africa risked tipping into the unintended consequences of export restrictions such as “lower mining production as the returns on primary extraction are eroded”.
These consequences would be more pronounced if such interventions were forced through under conditions where South Africa did not have a comparative advantage to beneficiate particular minerals such as specific technical expertise in a particular field of beneficiation, abundant, cheap electricity, a modern, cost-competitive manufacturing base, or globally competitive labour.
“Local and offshore interest may be curtailed in investing in exploration and existing mining operations generally, and specifically for those minerals suitable only for the export market or where there are committed supply contracts in place,” said the Council.
“In contrast to the stated aim of increasing employment through beneficiation, these adverse impacts will negatively affect existing jobs and new employment opportunities, the fiscus through reduced taxes, and current account balances, and South Africa’s relevance in global commodities markets.”
Mantashe stressed though that introduction of an export tax on raw materials could push local miners to invest in local processing of minerals. He also said linking electricity tariffs to commodity prices could lead to manageable energy costs for the industry.
“We will need an aggressive programme to engage business and consider introducing electricity tariffs that are linked to the commodity price,” he said.
On the contrary, the Minerals Council said it believed that South Africa “urgently needs pragmatic, investor-friendly policies that will drive the re-industrialisation of our economy to attract domestic, foreign investment” and skills.
It added that constraints on the mining industry and the broader economy from the more than six-fold increase in electricity prices since 2008, as well as erratic power supply have negatively affected beneficiation, particularly in energy-intensive industries like ferro-alloy smelting, resulting in a withdrawal and the demise of many industries.
The Minerals Council emphasised that “removing the binding constraints that have curtailed mineral beneficiation since the onset of the electricity crisis more than a decade ago, while at the same time creating a more conducive policy environment for primary mineral extraction” could work well for the industry.
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