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Rex Column                                                                               13 February 2017

A regulatory recession    

by Cees Bruggemans          words 520

I am not a mining analyst, but I picked up enough on the fringes of the Mining Indaba to make me feel highly uncomfortable. As a general rule, demand and supply decide overall activity conditions. And with commodity prices having recovered last year, steeply in cases such as iron ore, one would have expected a more healthy condition and sentiment to have been prevailing on entering 2017.

But that wasn't the predominant SA vibe. The iron ore companies certainly have done well of late, spectacularly in places, but the precious metal ones seem to be struggling to overcome more than just modest demand and steep input cost increases. For them, the growing regulatory burden alone appears to be a big enough deadweight to keep them down.

 

So much so as to fuel talk of mining really being in recession in this country, even if not many people talk about it or even recognise it. There is a deadening hand which keeps interfering, holding production down and preventing costs from being covered adequately.

This feeds a deep uncertainty and gives the SA mining industry a poor image, sufficiently so to keep potential foreign investors on the sidelines, while local companies keep trying to increase their global footprints in order to achieve a more stable mix of activities.

It leaves the impression of mining companies and regulators being at cross purposes, rather than together fostering the confidence necessary to unlock the industry’s growth potential.

This has been going on for some years and seems to be getting worse.

When extending from the specific to the general, the main shortcoming at present in the SA economy is the lack of private business confidence that can drive fixed investment. Government does not seem to be bothered by this state of affairs, being fixated on different agendas entirely, namely the steady replacement of existing private activity driving the economy.

This is a long-term process, not a short-term one. A corrosive one, and not one of driving expansion, creating jobs, and fueling a sense of prosperity.

Its origins are historic and ideological, and seem prepared to take the long view, however long it takes. With the apparent conviction that eventually it will start to work out, if only one keeps pushing long and hard enough.

As a consequence there prevails a general moroseness in main sectors, reflected in poor real income growth, soft demand, struggling operations across many sectors, specific sectors reinforcing the general condition.

There seems little on the horizon that will lift these suppressants shortly.

There are no obvious global windfalls in our future, while shifting politics have injected much global uncertainty about what is still to come. Domestically, a better realignment of policy intentions and private initiative is required but is apparently precluded by political priorities of existing leadership. Changing it, if at all possible, will likely be a long hard grind.

In the meantime most of us struggle on as best we can, relatively safe when in protected employment or governed by political largesse, but much less so when fully exposed to the cruelty of underperformance.

 

Cees Bruggemans

Bruggemans & Associates, Consulting Economists

 

Website  www.bruggemans.co.za

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Twitter  @ceesbruggemans

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