Modern Mining October 2022

COLUMNIST

South Africa is in desperate need of minerals legislation overhaul By Ross Harvey, director of research and programmes at Good Governance Africa (GGA)

S outh Africa’s economy is not in a healthy state. Consumer price inflation (CPI) is likely to hit 8% (well above the 6% upper limit envisaged by the Reserve Bank), and economists expect pro ducer price inflation (PPI) to reach 18%. Household wealth, simultaneously, has declined from R16.98 trillion to R15.75 trillion in the second quarter. This is significant because changes in real household wealth correlate strongly with changes in real house hold consumption expenditure. Interest rate changes – to tame inflation – similarly reduce available cash flow for middle-class households, which worsens the expenditure picture. Household expenditure is important because of what economists call the ‘mul tiplier effect’ – every rand that is spent has a positive ripple effect throughout the economy. Moreover, this is wealth contraction primarily among the nar row portion of the tax base that funds government expenditure, including extensive welfare grants. Interest rates are a rather blunt instrument to tame inflation. Nonetheless, they appear to be somewhat

effective, all else being equal, thanks to a compe tent Monetary Policy Committee and an independent Reserve Bank that refuses political interference. The Reserve Bank recently hiked the repo rate to 5.5%, with commercial banks correspondingly increasing the lending rate to 9%. Despite arguments to the contrary, it seems that this is designed to attract ‘hot money’ – liquid capital seeking returns on short term Treasury bonds. This increases demand for the Rand, which in turn ameliorates import-driven infla tion but makes our exports less competitive in the process (except for raw material exports, which are priced in US dollars). However, the US Fed has also been hiking interest rates to try and tame domestic inflation post-Covid, which limits the volume of funds likely to chase Rand-based returns. It also signals the possibility of global stagflation – high inflation with no accompanying economic growth. This, of course, has been exacerbated by the negative spill-over effects of the Russia-Ukraine war and pre-war Covid related global supply chain disruptions.

Ross Harvey, director of research and programmes at GGA.

Government needs to overhaul minerals legislation to increase the investment-attractiveness of the sector.

October 2022  MODERN MINING  37