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SA’s cost-of-doing-business ranking badly down – Chamber

JOHANNESBURG (miningweekly.com) –South Africa has plummeted to an abysmally low level in the World Bank’s 160-country cost-of-doing-business rankings.

On the bank’s Doing Business scale, which measures the fitness of a country’s economy to grow and compete, South Africa has tumbled 15 notches since 2007, from position number 58, to position number 73.

Revealing this at a pre-Joburg Indaba breakfast session on Tuesday, Chamber of Mines of South Africa CEO Roger Baxter also drew attention to the Fraser Institute placing South Africa eighty-first out of 109 countries on current mineral policy potential.

Sixty-seven percent of 1 600 respondents gave South Africa the thumbs down as a mining investment destination.

Currently dogged by policy risk issues, legislation and regulatory issues, operational cost factors, labour and community risks and all-inclusive cost jumps, South Africa is seen as being in increasing danger of not delivering on its huge resources promise.

Speaking at the function to highlight this year’s Joburg Indaba on October 5 and 6, Baxter said what needs to be brought to the table is clear thinking on all the challenges faced.

The World Bank publication’s ranking focuses on the real underlying ability of a country to be able to grow economically through attracting investment and business start-ups.

In essence, it is an assessment of the underlying health of a country’s regulatory environment, bureaucracy and business governance, which all impact on economic growth potential.

The application of the measure to South Africa’s mining industry is exacerbated by mining’s own unique set of investment characteristics, which include being a high-risk industry with very long lead times to production.

In addition, mining is extremely capital intensive, with much of the capital having to be spent well ahead of any return.

On top of that, mining is generally a price taker rather than a price maker and is geologically captured.

“As they say, if you want to get into mining, you’ve got to have deep pockets and lots of faith,” Baxter said at the function attended by Creamer Media’s Mining Weekly Online.

Using Impala Platinum’s 16 Shaft project to illustrate the point, Baxter recalled that the idea started in 1993 and commenced in 2003, with the feasibility studies and investment approval taking ten years and the digging of the hole another ten years. On top of all that, another four years were devoted to cold commissioning to ramp up production to a point where the R7-billion capital cost could sustain the employment of 7 600 people over 25 years, by producing platinum at a rate of 180 000 oz of platinum a year.

Taking that investment decision when commodity prices are down is bad enough without policies being changed.

Still awaited is the finalisation of the Minerals and Petroleum Resources Development Act Amendment Bill, which was first published on December 27, 2012, and also hovering over mining’s head are the Mining Charter Three proposals, the Davis Tax Committee proposals, carbon tax proposals and labour law amendments aimed at ending the propensity for long-term violent strikes.

WORLD BANK RANKING

When it comes to starting a business, the World Bank publication currently ranks South Africa 61 notches down from its position nine years ago, at a lowly 120th.

On construction permits, South Africa has fallen 44 places to 90th and on registering a property the fall is to 101 from 69.

Fortunately, when it comes to investor protection, South Africa has managed to limit its slide to 14th from 9th in 2007 as well as improve its trading across borders ranking to 130th from 150th.

Cost pressures continue to hurt. For example, in the last five years, electricity prices have gone up by an average of just under 20% a year, diesel prices by 13%, reinforcing steel by 11%, wages by just under 11%, structural steel by 8.4% and the overall Producer Price Index inflation rate by 6%-plus.

Mining’s inflation basket has been going up at a considerably quicker pace than in most other mining jurisdictions.

In gold mining, there has been a 170% increase in real cost of labour per unit of output in the last five years and the country is back where it was in 1994 from an output per worker point of view.

The metrics in platinum mining are similar.

The only commodity that has escaped that level of cost pressure is coal, where the real labour costs are still at the same level as they were in 1994 because of the introduction of mechanisation in the 1990s.

The country is in absolute need of a regulatory environment that is stable, predictable and competitive so that the long-term cost of capital can be managed and a far more effective problem-solving partnership between government, business and labour is essential.

Access to cost-effective infrastructure and modernisation are a potential game changer.

“We’re all in the same canoe. We’re in the rapids. We’ve got a little bit of a hole in the canoe. That hole is policy uncertainty. And there’s a little waterfall down the way called the ratings downgrade.

“We need all the people to be paddling in the right direction and obviously fixing the hole because if the canoe sinks, we all sink. In some of the conversations I’ve been in more recently, we’ve started to make progress,” Baxter confided.

 

Source – Engineering News