PETER ATTARD MONTALTO: Cycle past the short term and take the long lens on mining

Posted in: i-Blog, Intellidex in the media on May 16, 2022


Several pieces of news in the past week jarred against one another.

On the one hand, the Mining Indaba was full of optimism for the future and SA’s opportunities were talked up. Our miner friends are so interesting precisely because they can look through several business cycles and think about the long term.

If one listened carefully, however, the message was more subtle. This positive outlook could be unlocked only if reforms and policy certainty arrived, and in the meantime about R100bn of potential investment would remain impossible.

Thinking through several business cycles maybe allows one to take such a view in a credible way, and prevents things seeming quite so at odds as at the Investment Conference — where positive views conflicted with the nature of investment commitments made (which was the whole framing of the event).

Mining volume output data for March out last week drove the point home, falling 9.3% on the year. Mining output is now about 6.5% below where it was on average between 2010 and the start of the Covid-19 crisis. This even as the Russia-Ukraine war was already under way (let’s not forget it started in the third week of February) and the commodity price moves and shifts in demand (and supply) had already started to occur in March.

Yet the output value was up 6.7% on the year — the huge jaws between value and volume growth here highlighting the effect of supportive commodities price moves. Similarly, despite weak volumes in 2021, we saw huge tax take and a supportive current account surplus develop — which has backstopped the rand and will continue to do so (somewhat — not totally, in the face of the quantitative tightening ‘reverse tsunami’ we are about to see from the US Federal Reserve).

I have asked this question before, but I will ask it again: is SA a mining country?

On some level this question is obviously absurd. But it challenges us to cut through the history to look at the facts of a declining workforce and lower output volumes and steadily falling spend in real terms on exploration and ask what is going on.

SA was able to “pay for” the SRD (social relief of distress) grant in the past two fiscal years with the proceeds of the nominal price terms of trade boon. Yet there isn’t the volumes impact that might suggest growing employment, for instance, or exploration that strengthens SA’s claim to be deeply embedded into the future technologies value chain.

Yet our mining friends are very much canaries in the coal mine (excuse the metaphor) on a range of issues. They have been the most vocal about Transnet’s problem, a narrative that otherwise is not quite sexy enough versus load-shedding for the media and the public, but where the deep logistical dysfunction from its state capture legacy and the holes seen in its current turnaround plan are being highlighted and pressure applied to address them.

Similarly, on the push for embedded and wheeled electricity generation capabilities, the miners have been ahead of the game at wanting to understand the opportunities, trying to seize them and then working to push through the blockages and for structural reform.

On both counts, SA and competitiveness more generally can benefit.

The lessons to learn may seem trite, but are nevertheless important.

Looking through multiple business cycles allows one to rise above the shorter-term noise and understand what is really important, prioritise and push for change. Similarly that you have to get stuck in there yourself and try to make change happen.

These lessons are worth bearing in mind when we think about the just energy transition. All social partners struggle to understand that the lengths of time we are talking about with the move to net zero are four or so business cycles. Your standard election cycle or business public affairs year-ahead plans or labour wage negotiation cycle-type view of dealing with such a situation simply won’t cut it. The Presidential Climate Commission is interesting and proving effective precisely because it is starting to lift the gaze above the next cycle to the path beyond.

Similarly, to deal with historic legacies that have not been effectively dealt with since 1994 — or indeed new legacies from the July 2021 unrest, Covid or now the floods in KwaZulu-Natal — will take a substantial amount of time to be sustainable and affordable in how they are solved.

A similar view of dealing with unemployment and the fourth industrial revolution might also be seen along similar lines.

This is certainly not a get-out-of-jail-free card to acting slowly or indecisively. Instead, the lesson from the miners is to get on with it now and push for change that is well thought through, deep and impactful — fully cognisant of the complexities of change and their dependencies.

A refreshed National Planning Commission could be an opportunity for this to happen. But this would have to decisively break from its recent history (where little was achieved with the exception of a series of excellent papers from Miriam Altman).

This is not to say this is easy. Certainly not. But a mixture of mindset and institutions are important given the complex intersection of “new” risks. A mix of institutions and mindset should ensure that issues and their solutions are well socialised within the government especially.

I am taken aback by the number of people who see the KwaZulu-Natal floods as a “wake-up call”. The modelling work on the effects of climate change on SA were broadly scientific consensus a decade ago. The same goes for Eskom and the shock at load-shedding still present in some circles.

The country’s problems are too complex to solve with a short- term lens — heads need to be lifted to see the risks coming, accept them and then take mitigation and adaptation actions now. 

• Attard Montalto is head of Capital Markets Research at Intellidex, an SA research-led consulting company. This article first appeared in Business Day.

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