In this paper Professor Ben Turok (director) examines the constraints on beneficiation in South Africa. He calls for a negotiated compromise on domestic prices, perhaps for a fixed period, with suitable provisions for improved infrastructure services, and step-by-step measures to enhance local value addition and beneficiation by local manufacturers and suppliers
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South Africa has the profile of a modern economy with well-developed financial, commercial and industrial sectors, yet mining remains an important base of the economy. Mining is dependent on physical infrastructure, such as rail, energy and water, that is provided by the state. Ideally, this is where the idea of a “joined-up economy” functions optimally, since it includes all the relevant state institutions and the private sector. It must also be sensitive to the interests of labour and the views of civil society.
However, the mining companies assert that administrative prices set by state entities and the uncertainties of supply have a heavy impact on their pricing. While they cannot influence prices in the global markets, they can do so in the domestic market, due to their monopoly power. Hence they choose to sell to local customers at international prices, to raise their profit margins. This has a serious impact on the viability of downstream manufacturing industry.
If South Africa is to industrialise further, this impasse has to be resolved. It requires a negotiated compromise on domestic prices, perhaps for a fixed period, with suitable provisions for improved infrastructure services, and step-by-step measures to enhance local value addition and beneficiation by local manufacturers and suppliers. This stimulus to industrialisation will also open up opportunities to enhance capabilities throughout the economy and build the much stronger institutional framework needed in a modern, developed economy.
If a compromise on prices cannot be achieved, an alternative is for government to ensure the supply of affordable industrial inputs by establishing parallel competitive enterprises, resorting to export taxes and similar interventions used in many countries to defend domestic industries.