Every Friday morning, SAfm’s AMLive’s radio anchor Xolani Gwala speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly. Reported here is this Friday’s At the Coalface transcript:
Gwala: South Africa is being urged to deploy its strong private sector to rid the country of the ‘evil triplets’ of poverty, unemployment and inequality.
Creamer: The firm Eunomix is on the cusp of publishing a very big study on Africa. They have been going through Africa and they have been looking at 40 years of data. When it came down to the South African issues they said: “do you know that you are sitting on a fantastic resource, the private sector? Do you know that all the other countries in Africa are trying to build their private sectors? Do you know that the World Bank and the International Finance Corporation are spending a lot of money just to create frameworks so that they can develop nothing close to what you’ve got in South Africa.”
They know that they can leverage off that. Acknowledging that we have these evil triplets of poverty, unemployment and inequality, they say give the private sector a little bit more encouragement. Don’t clamp down on them, because they are the ones that can really get rid of the country poverty, unemployment and inequality.
These are consequences. Poverty, unemployment and inequality are the consequence of low economic growth, low investment and low trust. They are saying that this is the thing at the moment that there is low trust. The private sector is not wanting to invest in South Africa, because so much red tape befalls them when they actually expand and do anything more.
They are saying that: “why doesn’t South Africa realise that they have got a fantastic resource in their private sector?” They call it an incredible private sector. They are saying that it is better than the private sectors of some of the Latin American countries and Asian country economies. We don’t realise what a national asset we’ve got in our private sector.
Why go for a developmental State when it is just going to put you into such debt. The State just hasn’t got a fiscal base to really uplift its community by doing its own projects, ports, rail and all the other activities. Rather let the State stick to the socio-economics like the schools and hospitals, but get that tax from the private sector, because they say that is what Africa is aspiring to at the moment.
South Africa has already got it. All we have got to do is tweak it and get it encouraged and then we can get rid of these evil triplets. In the meantime, the real evil triplets are low growth, low investment and low trust.
Gwala: New investment in South Africa by junior miners is continuing to take place in sharp contrast to the strong capital cutbacks by big mining companies.
Creamer: The big mining companies are running for cover. They are looking to bolster their balance sheets, they have got credit rating agencies on their backs. We saw Gold Fields, which is a very substantial company in South Africa, their credit ratings is down to junk.
Other companies are saying don’t let that happen to us, so they are pleading with these credit rating agencies that they are cutting back on all their investments and they are going to have a strong balance sheet. Yet, you get little junior miners showing incredible resilience in the face of South Africa becoming a no-go investment area for mining particularly, as a result of all the troubles we’ve had. You get these juniors showing an appetite.
You’ve got Diamcor, which is listed on the Toronto Stock Exchange Venture Capital market. A tiny company, but its got a diamond mine in Limpopo, next to De Beers big Venetia Diamond Mine, so its got a very good address. Then you’ve got Diamond Corp listing on the AIM in London and again in the Free State, next to it De Beers diamond mine. Both of them are succeeding at raising capital. Alright, it is not a huge amount of capital, but it is like nearly R100-million.
Both of them are getting it from a very unlikely source, Tiffany and Company of New York. So it shows you that they can pursue these very big companies that South Africa’s got these diamonds that are really worth a lot and these people are prepared to bankroll them at this very though time, where you probably wouldn’t raise money on the Toronto Stock Exchange to come into South Africa at the moment.
They get round these things and you can see these two small companies Diamcor and Diamond Corp doing things that actually help our gross domestic fixed investment, albeit in a very small way. We should be having a lot of gross domestic fixed investment into our mining sector. Citibank has told us about our minerals being worth $2,3-trillion, which we should now be preparing for the next upturn. We are not, we are hanging back.
You can say that there are trillions in the ground but they are worth nothing unless you can get them out. It is these juniors who are able to get them out and turn them to account and they are very important to an economy.
Gwala: The government is taking firm steps to establish promising new industrial hub in Saldanha Bay.
Creamer: This is at last coming about, the Saldanha Bay Industrial Development Zone. The Trade and Industry Minister Dr Rob Davies has now opened a 60-day public consultation period for the designation of Saldanha Bay as an Industrial Development Zone. We know that nearby in South Africa there is a lot of oil and gas activity.
They need to repair their rigs and marine equipment and the best place to bring it is to Saldanha Bay. I was down there last year in April, the Western Cape Finance and Economic Development Minister Alan Winde pointed to an oil rig which he happened to have in the harbour and he said that the rig is worth R1-billion to our region, we want to get a lot more of these. Now Rob Davies is moving formally to create an Industrial Development Zone in Saldanha Bay.
One of the targets is this oil and gas business and the repair of these big rigs and they are now creating space for about 11 rig repairs a year. They are talking about billions of rands worth of revenue potential and a minimum, at worse case scenario, of more then 4 000 direct jobs and about 11 000 indirect jobs. So that is nothing to sneeze at.
The business is there and they have been talking about it since 1988; it just shows you how slowly South Africa works. It is nearly a quarter of a century later. Now this consultation period is coming through and is due to end in mid-January next year. They are saying that they want to speed it up.
They need to, because these people can go and find other markets for their rigs. It is better to get the close by market which they favour and all you have to do is to create the environment which will involve a customs-free area. We know that the biggest mining company in the world, when it was headed by the American Chip Goodyear, BHP Billiton, he was the CEO and he come to the South African government and said that he wanted to explore for oil and gas off our own West Coast, never mind the West Coast of Africa.
For some reason or other the Treasury could not reach any agreement on its fiscal regime. It has done that now, so one would hope that the Treasury could go back to BHP Billiton and say don't you guys want to drill there. It is so expensive, it is deep-water drilling, let the private sector risk all that money, but the rewards can be huge and they are not going to do that for nothing. They think there is oil and gas there, particularly gas, and that could be fantastic.
They would have repair facilities close by, which is an even better outlook for them. So this IDZ Saldanha Bay by the end of January we should know whether the consultation process is over and hopefully sometime in 2013 this would be declared an IDZ at last after more then 24 years.
Gwala: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.