Chamber of Mines input on the Budget Vote of the Department of Minerals and Energy

Transcription

1 Chamber of Mines input on the Budget Vote of the Department of Minerals and Energy To the Ad Hoc Committee on Minerals and Energy Good Hope Chamber, Good Hope Building, 14 June 2004

2 The Minister of Minerals and Energy in her Foreword to the DME strategic plan states: The positive performance of the South African economy in the face of a global slowdown bears a cogent testimony to the appropriateness of our macroeconomic policy.

3 THE BENEFITS OF PRUDENT ECONOMIC MANAGMENT: Significant consolidation of government finances. Much greater fiscal sustainability (lower deficits and debts levels as % of GDP) Declining inflation and greater domestic price stability. Multi-year budgeting and planning (reducing shocks). Good financial and prudential regulation and management (thus reducing the risk of systemic banking/financial crises). Gradual improvement in South Africa s credit rating to above investment grade by the ratings agencies. Increasing the amount of resources available for social expenditure and fixed investment

4 Consumer and producer inflation rates, post the 1973 oil crisis CPI PPI % inflation rate Mar-73 Mar-75 Mar-77 Mar-79 Mar-81 Mar-83 Mar-85 Mar-87 Mar-89 Mar-91 Mar-93 Mar-95 Mar-97 Mar-99 Mar-01 Mar-03

5 South Africa's public sector debt expressed as a % of GDP Total Foreign Domestic % of GDP Mar-70 Mar-72 Mar-74 Mar-76 Mar-78 Mar-80 Mar-82 Mar-84 Mar-86 Mar-88 Mar-90 Mar-92 Mar-94 Mar-96 Mar-98 Mar-00 Mar-02

6 South Africa: Total trade value as % of GDP 60 % of GDP 's 1980's 1990's 2000's

7 A quick snap-shot of the South African mining industry

8 South Africa's role in world mineral resources and production, 2001 % Manganese Chromium PGM's Vanadium Vermiculite Go ld Zirco nium Titanium Antimony Coal Fluorspar Uranium Nickel Zinc Iro n Ore Resources Production

9 % The direct contribution of mining to GDP in South Africa Gold mining Other mining

10 MINING CONTINUES TO BE A KEY FOUNDATION INDUSTRY FOR SOUTH AFRICA Direct impact on the economy: 10.7% of all fixed investment 40% of market capitalisation of the Johannesburg Securities Exchange 8.1% of GDP 34% of exports 6.6% of non-agricultural formal employment The indirect multipliers: Significant purchases of goods and services from the domestic economy (16% of electricity, water, chemicals, machinery, clothing, etc.) Export earnings contribution rises to >50% when beneficiated minerals are included. Employment multipliers workers employed in associated industries. Downstream multipliers (90% of electricity & 30-40% of liquid fuels produced from coal) Local community multipliers (comprehensive health care infrastructure, skills development profile, contribution to local municipalities, etc. Consumption multipliers (in 2003 R30 billion paid to employees as wages)

11 THE MINERALS CLUSTER SUPPLIER INDUSTRIES Manufacturing, Chemicals Material inputs such as steel, timber, etc. Significant infrastructure demand - electricity, water, railways, ports, roads, etc. CAPITAL GOODS: Equipment and machinery THE MINING INDUSTRY DOWN STREAM INDUSTRY Electricity Chemicals/ liquid fuels Steel/alloys/industrial applications/ consumer goods, etc. OTHER KEY INDUSTRIES Financial and banking services Stock market services Auditing and consulting services Other business services SERVICES: Geological, engineering, health and safety, education, skills, universities, tecknikons, etc.

12 12 Mining as percentage of total GDP and of total GFCF % of total GFCF Mining as % of total GFCF Mining as % of GDP

13 Mining's contribution to the market capitalisation of the JSE (average total market cap was R1,2 trillion for 2003) Mining 40% Other sectors 60%

14 The contribution of gold and total primary minerals to South Africa's merchandise exports % of total export earnings Gold Total primary mineral exports

15 Employment in the South African mining industry

16 Employment on SA Mines by Commodity Coal 12% Other 10% Diamonds 4% Gold 50% PGM's 24% Gold PGM's Diamonds Coal Other

17 THE ECONOMIC CHALLENGES FOR THE SOUTH AFRICAN MINING INDUSTRY INCLUDE: Complying with the MPRDA and Charter and converting to the new system. Continued focus on improving the mine health and safety performance of the industry. Despite higher US dollar commodity prices, the stronger rand has led to rand revenues falling substantially. Containing the inflation in input costs and improving the productivity of inputs (capital, labour, technology, management).

18 In 2003 the Rand was the strongest performing emerging market currency against the US$.

19 Percentage change in the price of gold expressed in US $, Chilean Pesos, Australian $, Canadian $ and Rand, average for 2003 vs 2002 Rand Australian$ -1.8 Canadian $ 4.7 US$ price Chilean Peso

20 The forces of change in South Africa in the new democratic era In 1994 the new government took on the mammoth task of rewriting virtually the entire statute book. Indeed it was understandable that as South Africa moved away from the apartheid state, change was necessary. Given the importance of the mining sector in the economy, it was obvious that government would focus on mining policy reform as part of the entire change process.

21 Chronology of the Minerals Policy reform process 1955 : ANC Freedom Charter - minerals must benefit all peoples : COM & ANC (with MEPC & NUM), discussions on a new minerals policy. Nov : ANC released its own draft minerals policy paper. Mar : Green Paper on Minerals policy released. Oct : White Paper on Minerals policy released. 18 Dec : DME released Mineral Development Draft Bill in the Gov. Gazette. Sept : DME & COM gave presentations to PC on Minerals on transformation. 19 April 2002: DME releases 2nd draft of Minerals Bill Early 2002 : COM developed its own transformation Charter. 26 Jul : Government proposed rough draft Charter is leaked to press. 11 Oct : Finalised BBSEEC was publicly released. 19 Feb : Scorecard released at Mining Indaba in Cape Town. 20 Mar : Draft Mineral and Petroleum Bill released. 1 May 2004: MPRDA placed into effect and regulations published. May 2004 draft Precious Metals and Diamond General Amendment Bill published.

22 DME s Strategy: Informed by Government s adopted integrated approach that entails, inter alia infrastructure investment in key input sectors, increased attention to cross-cutting issues constituting the pillars of the strategy, human resource development, access to finance, technology, research and development. The strategy has the following performance areas: Economic growth Black Economic Empowerment Competitiveness Employment creation Promotion of SMME s Human Resources Development

23 DME s Mandate, Aim, Vision and Mission: The DME s mandate is The provision of services for effectual transformation and governance of the minerals and energy sectors for sustainable development, thereby improving the quality of life of all South Africans. DME s Aim is to formulate and implement an overall minerals and energy policy to ensure the optimum utilisation of minerals and energy resources. The DME s Vision is Sustainable development through minerals and energy resources for the benefit of all South Africans. The DME s Mission is To ensure responsible exploration, development, processing, utilisation and management of minerals and energy resources.

24 DME s Objectives: Objective To formulate and implement minerals and energy policies that ensure transformation of the sectors, and optimum utilisation of minerals and energy resources To govern these sectors to be secure, safe,healthy and environmentally friendly To position the minerals and energy sectors for global competitiveness. To redress past imbalances in order to achieve equity throughout the value chain in the minerals and energy sectors

25 DME s Programmes: Programme 1: Administration Programme 2: Promotion of Mine Health and Safety Programme 3: Mineral Development Programme 4: Energy Management Programme 5: Associated services

26 Detailed look at the DME s expenditure patterns: Overall growth in expenditure is slightly slower than the overall National Budget trend. The fall-off in expenditure in 2006/07 is due to a transfer of responsibility for electrification to Local Government. Annual growth rates in expenditure for 2004/05 to 2006/07 show healthy increases in energy management (27.6%), mineral development (19.7%) and mine health and safety (10%). The latter increases reflect the DME s mandate to cope with the needs of energy planning (especially the ESI/EDI restructuring), the application of the MPRDA and Charter and the continued focus on improving mine health and safety.

27 DME total expenditure trends 2004/05 to 2006/07 base indexed to 2004/05=100 versus overall national budget expenditure trend /05= DME total expenditure trend OVERALL NATIONAL BUDGET / / / /07

28 DME expenditure trends 2004/05 to 2006/07 base indexed to 2004/05= /05= Administration Promotion of Mine Safety and Health Mineral Development Energy Management Associated Services 100 DME total expenditure trend / / / /07

29 DME expenditure patterns average annual growth rate for 2004/05 to 2006/07 TOTALS 2.9 Associated Services -0.2 Energy Management 27.6 Mineral Development 19.7 Promotion of Mine Safety and Health 10.0 Administration

30 DME Employee numbers per programme 2000/01= Administration Promotion of Mine Safety and Health Mineral Development Energy Management TOTAL / / / / /05

31 Training expenditure per employee Rand per year / / /05 0 Administration Promotion of Mine Safety and Health Mineral Development Energy Management TOTAL

32 Detailed look at the DME s programmes: On the mine health and safety side significant progress has been made in improving MH&S performance over the past decade. The Mine Health and Safety Council has done much towards this end, including meeting the objectives of the PFMA. Given the need to follow through on the improvements in the next decade, the activities of the Council remain very important. On this basis the Chamber is concerned that not enough resourcing is going to the Mine Health and Safety Council (R3.8 million in 2004/05). The focus on improving the capacity of the inspectorate to ensure effective enforcement is welcomed (although training dips in 2004). The DME will need to assist in improving the team-work between the social partners and by working through the tripartite structures.

33 Detailed look at the DME s programmes: Mine health and safety continued. The Chamber is concerned that the DME milestones and targets are slightly incorrectly stated in the DME strategic plan. Whilst the ultimate target for mine fatalities and injuries is zero, the 10-year milestone is to achieve global best practice levels by On the silicosis side the target is zero silicosis cases, but the 2013 milestone is to have no new cases of silicosis.

34 Detailed look at the DME s programmes: On the energy management side the DME is ratcheting up expenditures by 27.6% per year over the 3 year MTEF period and training expenditures per employee remain at high levels. This is a crucial area given the mining industry s reliance on a quality source of reliable and low cost power for health and safety and competitiveness reasons. The Chamber remains concerned that there needs to be certainty on the policy front regarding the ESI/EDI restructuring and the need for new large scale base load capacity in the not too distant future. Even if the reconditioned units, plus pump storage schemes go ahead - a new major six pack station will need to be built within the next decade. Small scale power plants will not be able to handle the base load required (especially with higher growth rates).

35 Detailed look at the DME s programmes: Energy management continued. The Chamber is concerned that many foreign consultants are creating an obsession with South Africa having energy intensive industries - yet it is appropriate for our stage of economic development and will evolve over time as the whole economy develops. In terms of the provision of base load electricity, according to the Shell Scenario s fossil fuels will continue to play a major role over the next 50-years. In terms of the new Energy Regulator the need for capacity development is recognised in the DME budget and funding.

36 Conclusion: The time is fast approaching where the suite of mining policy reforms will be complete and the practical application of the new laws and regulations will start to take effect. The DME s Strategic plan lists key areas of focus around strategic leadership, mine health and safety, mineral development (including applying the new MPRDA), transformation (the Charter), energy management and associated services (including R&D) which are in synchronisation with key issues driving the minerals and energy sectors. The DME budget points in the right direction to help achieve these key area objectives. For its part, the Chamber of Mines continues to be a key conduit through which the industry engages with government and the other social partners to ensure that the suite of mining policy reforms will not only work, but also enhance South Africa s international competitiveness for the benefit of all South Africans.