South Africa’s profitable mining sector is still troubled and uncompetitive compared to global peers, according to research analysts and an industry survey.
Speaking at a Johannesburg mining conference, researcher Fred McMahon with Canada's Fraser Institute think tank told audiences on Tuesday that South Africa ranked in the bottom third of about 97 jurisdictions for global mining competitiveness, in an industry survey from earlier this year.
The yearly report ranks the attractiveness of a country or state to major international mining companies. It considers factors like regulatory uncertainty, corporate tax rates and labor unrest, and stems from a survey of over 700 mining companies.
South Africa has consistently scored low in past years, especially after a serious debate about nationalizing mines in the country, McMahon told IBTimes.
But this year, after apparent gains last year, the country has once again become difficult to do business in, he said.
Labor unrest this summer and the Marikana platinum massacre last year, where dozens of miners were shot dead by South African police in the worst mining violence in decades, are key factors, he said.
“It has gotten worse,” said McMahon, referring to the impact of labor unrest on business sentiment. “Those pictures from that massacre are astonishing.”
“The regulatory climate is uncertain,” he added, citing disputes between South African local authorities about jurisdictions over mining sites.
Countries which fared better as hotspots for mining companies include the United States, Canada and Chile. Within Africa, Botswana emerged as a top country attractive to the industry.
“It’s become massively uncompetitive,” Capital Economics Africa economist Shilan Shah said to IBTimes, referring to South Africa’s mining sector.
Producing gold, for instance, has become more costly, as mines in a century-old sector reach the end of their life spans, he said.
“In addition to that, with the latest wage negotiations, the unions are just demanding pay increases that are completely unviable, really,” he said.
“Not only is profitability falling, the squeeze on profitability is actually being exacerbated by the high wage demand,” he said.
The main South African mining union has demanded a 60 percent pay rise for miners at four major gold companies, threatening an industry strike if an agreement isn’t reached before Friday, reported Reuters.
South Africa’s quarterly gross domestic product growth came to 3 percent, according to official figures from Tuesday. Gold, platinum and diamond output fell in the latest quarter, with the mining sector contracting instead of growing, according to a Tuesday research note from South Africa’s Standard Bank.
“Gold and platinum miners are under particular strain, facing significant cost and demand pressure on the back of softer prices, potentially crippling wage demands and greater electricity supply uncertainty,” wrote Standard Bank analysts.
Gold companies worldwide will likely cut back on capital spending and exploration budgets in coming years and have already started doing so as gold and other commodity markets stay volatile.
Weak mining data in the second quarter also contributed to subdued South African economic growth.
With lower mining tax rates and a relatively young mining industry, places like Botswana have become more attractive centers for mining investment, said Shah.
“Miners are not seeking, in South Africa, weak wages or lower tax bills,” said McMahon. “What they’re really seeking is more certain regulations, and more certain taxes.”
South African mining minister Susan Shabangu has also warned investors to be more wary of expecting returns without also investing in social responsibility, reports ABC Radio, as she spoke at a mining industry event in Australia on Wednesday.