Bruce Whitfield: A foreign mining investor on why he won’t put money in SA
- SA born investor says South Africa is “just too bloody hard” to invest in.
- Since 1870’s SA has relied on foreign capital to exploit natural resources.
- The world is a cut-throat and competitive place for capital – and SA is losing.
Following my Business Insider piece last week (What Gwede Mantashe can learn from the failing fortunes of General Electric) an old school chum sent me a response from Mexico.
We’d bumped into each other at Cape Town International Airport about three years ago and he was in South Africa exploring the prospect of setting up a new mining venture.
He’s a smart guy who has set up mining businesses around the world including, before now, South Africa. You might not like what he has to say in response to the mining charter – but he is a guy with access to investor money SA needs, and has options as to where he puts it.
This is what he had to say.
“Bruce, I read your piece on Business Insider as a foreign investor and CEO of mining companies that have invested on a few continents, and as one who retains a vague but rapidly dwindling desire to build another mine in SA. I have given up – just too bloody hard. No-one wants to invest in SA and it’s simply too tough to get anything done.
[His letter went on to elaborate why he had chosen instead to focus his energies on Mexico.]
“I am in Mexico working on some mining ventures and find it as easy to work in, as SA is hard. Many more and much better opportunities, underexploited resources, adequate infrastructure and a light government hand that avoids silly intervention and imposes little on the business of producing minerals and employing people. It has a very clear mining law that is consistently applied, no requirement for odd social engineering and a decent work force. I have worked extensively in Latin America and its better than many other jurisdictions I have worked in there.
“Undoubtedly it [the mining charter] is well intended but no matter where you are in the world, the more a government seeks to intervene in an economy, the more their policy prescriptions usually have unintended consequences and I read this with such sadness. It’s naïve, and simply unrealistic. There is embedded in the gaps of its logic, a profound misunderstanding of capital, investment and mining itself.
“We should be encouraging job creation and skills development almost to the exclusion of anything else – but good jobs that are fairly remunerated and have decent pensions and health care benefits. I know the context in which ownership of resources in SA is a vexed and sensitive issue but bear in mind that probably well above 99% of ‘non-BEE ownership’ is from pension funds foreign and domestic, not fat cat whiteys. The ‘Hoggenheimer’ bogeyman used by Afrikaner Nationalists in the 1930’s seemed recycled to new ends, and simply isn’t valid.
“The vast majority of people in SA who own anything do so indirectly via exposure to pension funds and this should be our model. Jobs with worth, and pension schemes. The obsession with ownership has quite the reverse impact: it deters investment and job creation and makes ownership of anything a damn sight more difficult.
“Moreover, foreign investors just can’t be bothered. There are roughly 208 countries around the world, many of which have mineral endowments of some kind. Most minerals have substitutes and put simply there is nothing SA offers that is unique or irreplaceable. SA has very little indigenous capital for mining investment and retail and institutional investors have little – and diminishing - appetite for investment in domestic mining.
“It’s an oddity in SA that ever since the advent of formal mining in the 1870’s under the ‘Randlords’, SA has overwhelmingly depended on foreign investment in mining as the capital pool and culture of risk investment in mining venture capital has never developed locally.
“I simply believe government’s task is to make possible the opening or continued operation of as many marginal mines as can be done, with encouragements for job creation and skills development – not create a sprawling ‘wish list’ of expensive, investor-sapping rules which simply detract further from what are generally not attractive investment propositions to start with.
“Bruce, as dearly as I personally want to see the SA industry succeed, I sit as a foreign investor/CEO of non-SA capital and I couldn’t contemplate suggesting investment in SA – and would get resoundingly criticised for doing so. Few projects in SA are worth investing in any longer to start with and when you contemplate the economic implications of having to free carry 30% shareholdings, pay additional levies, have large administration and compliance costs and tasks around the social and other issues that sap management time and focus on the business of trying to build a mine and make money out of it and moreover pay what are very high royalties in any event that everyone seems to overlook, it’s just not a competitive place to do business. It’s why foreign investment has dried up and larger companies are trying to extricate themselves with elegance and haste.
“The world is a competitive place with cut throat competition for capital. We aren’t instruments of social engineering and while the Mining Industry is generally not bad at local social “licence to operate” issues, none can willingly stay in, or go to a country where complex, expensive and distracting social and financial obligations overwhelm the business of delivering a return on capital.”
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