INVESTMENT in the South African mining industry was not taking place because the returns were too low and it was more profitable and safer for investors to leave their money in the bank.
That’s according to economist, Mike Schussler, who told delegates at the Joburg Indaba mining conference being held today in Johannesburg that the rate of return on mining investment was currently some 2.5% and, therefore, well below South Africa’s inflation rate. “So you can put your money in the bank and not worry about strikes; not have a worry in the world, and that’s what investment managers are doing,” said Schussler.
“The investment that is taking place into mining is aimed at saving costs because that’s where the mining industry is. Given the long-term state of the commodity market I think we are looking at another seven odd years of this if we don’t do something radical.”
He attributed much of the blame for this situation on the surge in ‘administered costs’ – such as electricity and water – in South Africa along with the rise in labour costs all of which had been running for an extended period at rates well above South Africa’s domestic inflation. “The electricity cost has gone up from 4% of the turnover of the mining industry to 9% of the turnover according to Eskom’s figures.
“Water has been going up at double digit rates for the past eight to ten years. If you go back to 2012 – from then until now – water has beaten electricity increases.
“Administered prices have to be brought under control. Since 1998, administered prices have risen at a rate four times faster than the country’s inflation rate. Since 1995/96 labour costs have risen on average by two per cent annually above the ruling inflation rate.
“You cannot go on with these kind of increases if you want to survive because this is a low commodity price environment that we are in,” he said.
