Donald MacKay.
By Donald MacKay
The government’s focus on beneficiation needs to shift. It’s not working, and nor will it work until we focus obsessively on competitiveness.
In 2007, with the publication of the first industrial policy action plan (Ipap), beneficiation made a generous appearance, covering everything from minerals to rooibos tea.
In 2011, the Department of Mineral Resources published “A Beneficiation Strategy for the Minerals Industry of South Africa”, which reminded us of the 2010 “New Growth Path” (NGP). This was the first “master plan” published by the Department of Economic Development, of which beneficiation is an important part.
The NGP aimed to reduce unemployment from 25% to 15% by focusing government’s attention on industries with high growth and high labour absorption potential, of which beneficiation was believed to be a part.
The beneficiation magic will apparently happen by stopping import parity pricing of raw materials (it’s never made clear how this will happen when import duties on these materials often keep the prices high), and by imposing export duties on iron ore, chrome, manganese, nickel and vanadium.
In the ANC’s 2024 election manifesto, they drop iron ore, nickel and vanadium, and add cobalt, lithium, graphite, chromite and platinum to the list of items set to attract export duties.
The NGP states: “The beneficiation strategy provides a framework that seeks to translate the country’s sheer comparative advantage inherited from mineral resources endowment to a national competitive advantage. The strategy is aligned to a national industrialisation programme, which seeks to enhance the quantity and quality of exports (and) promote creation of decent employment and diversification of the economy, including promotion of the green economy.”
In the Department of Trade, Industry & Competition’s annual performance plan for last year and this year, beneficiation makes an appearance again.
“We also need practical steps to promote, where sustainable, a greater level of beneficiation of our natural resources here in South Africa. Beneficiation has been identified as a means to build a higher employment (and GDP) boost. It will require refocusing the beneficiation strategy to support fabrication rather than only smelting and refining, which are both capital- and energy-intensive. Further thought needs to be given to measures to address uncompetitive pricing of locally produced raw materials and intermediate inputs. Competitiveness and industrial agility are critical to longer-run localisation efforts.”
This last sentence is important because beneficiation doesn’t create competitive industries. It forces upstream firms to forgo income to support the beneficiary firms. It is the antithesis to agility, locking in state intervention to keep these businesses afloat.
Why, if this will deliver such large economic gains, has this not happened in the 17 years since Ipap was published?
The logical flaw is in thinking about beneficiation as being something different from manufacturing. The mining has to happen where the minerals are, but everything beyond that point is determined by how economical the production is relative to the competition.
Having a large mineral endowment is valuable only insomuch as it can overcome the transport cost to move the minerals to a more efficient production destination.
Ironically, our broken ports serve as an export duty on everything we trade globally and are unlikely to drive investment. Manufacturing is very important, but in a globalised world our competition is everyone else who can make the same thing – and very often that someone is China.
In 2010, South Africa signed the “Beijing Declaration on the Establishment of a Comprehensive Strategic Partnership between the Republic of South Africa and the People’s Republic of China”, which strives to “improve, through a concerted effort, the current structure of trade between the two countries, in particular by working towards a more balanced trade profile and encouraging trade in manufactured value-added products”.
Some 4% of our exports to China is finished goods (up from 1% in 2010, so perhaps a victory to be celebrated there?), while 65% is minerals and precious metals.
By every measure, South Africa is not only not beneficiating its minerals but also rapidly de- industrialising.
Imports of intermediate goods (raw materials) have fallen to their lowest level since 2010, from 50% of imports to 44% in 2022, while imports of finished goods have risen from 32% to 42% over the same period.
Our export basket fares no better, with half of our exports being minerals and precious metals.
In 2010, our exports of minerals and precious metals contributed 9% to our GDP. The mined goods being exported now account for 18% of our GDP.
The government has to stop trying to compensate for being uncompetitive through duties and subsidies, and instead focus on actually being competitive.
There is simply no way to tax and subsidise our way to a competitive manufacturing sector. For as long as this remains the focal point, we will regress to a point where our export basket looks like most other African states.
It’s a case of rocks on ships because the basics have never been addressed.
Donald MacKay is the founder and CEO of XA Global Trade Advisors. He has been advising both local and foreign companies on global trade issues for over two decades. X handle: XA_advisors; email: donald@xagta.com; website: xagta.com
BUSINESS REPORT