Modern Mining June 2024

COLUMNIST

other factors that the economic literature suggests could also play a role in mediating the relationship. After controlling for institutional quality – typically the strongest explanatory factor in ascertaining why resource endowments often cause underdevelop ment – we found that the effects still held. What we think is going on here is that South Africa’s mineral rents (despite a paralysed mining industry increasingly in crisis) have played a partial role in undermining the country’s institutional quality. This, in turn, has had a negative effect on manufacturing competitiveness through undermining the country’s overall investment-attractiveness. Another possibility is that the electricity crisis, starting in 2008 and climaxing in 2023 (or may still yet peak after the May 29 elections) may be the primary factor explaining manufacturing decline. However, when we controlled for electricity consumption in the sample, the overall efficacy of the model dete riorated, probably because the variable’s effect was already being picked up in other factors we had con trolled for. Another option is simply that globalisation has undermined South African manufacturing attrac tiveness – labour is cheaper elsewhere, and skills and electricity availability are stronger. We haven’t controlled for that in the modelling, so of course it remains an option. But all countries in the sample would have been affected by that, so we still can’t override what we’re seeing – mineral rents seem to be driving down manufacturing output in South Africa specifically. So, what can we do about it? Two simple things (and two more difficult prerequisites). First, we need an industrialisation strategy that begins – perhaps ironically – with strengthening the investment attractiveness of the mining industry. We need more money to flow into exploration and production expansion. Second, we need to ensure that a grow ing mining industry is integrally connected to green industrialisation that will generate broad-based development. This must serve as the foundation for a much more diversified economy. But, for any of this to happen, we need two other pre-requisites to be in place: 1) Improved political governance – we need elec toral system reform, alongside parliamentary rule reform, to ensure greater accountability for our errant politicians and government officials. Moreover, we need radical strengthening of key institutions such as the Hawks and the National Prosecuting Authority to deepen deterrence effects to prevent corruption. 2) Improved fiscal transparency. South Africa needs to join the Extractive Industries Transparency Initiative, and it must expedite getting off the Financial Action Task Force’s grey list. The longer we stay on that list, the more expensive it is for us to service our debt and the less likely we are to attract investment. 

In other words, that effect could be explained either by other variables in the model or variables outside the model. Critics of models like the ones we’ve run typically suggest that it’s impossible to isolate and specify the impact of a country’s mineral rents and assert that they are primarily responsible for weak manufactur ing performance. However, this is why we control for

Mineral rents seem to be driving down manufacturing output in South Africa specifically.

The sale of a raw commodity increases the demand for that country’s currency, which then appreciates as a result.

38  MODERN MINING  June 2024