It’s a tough ask. The ‘why’ of local mining targets.

Can South African mining rights holders meet the Mining Charter III’s local content targets in 2023? These targets ramp to 35 percent in 2021. It’s a tough ask. The significance of the mining sector to South Africa in terms of jobs and GDP contribution also makes it an important one to meet.

This blog is part of a series of posts on the challenges, opportunities and best practices that will assist local mines to meet the Mining Charter III’s local content targets. In this post, I look at the context—why these regulations have been put in place and what value they represent to the sector and they economy.

Charting the way

The South African economy has faced a number of challenges over the past decade, with industry growth, in most cases, remaining stagnant. The mining sector in South Africa is a valuable contributor to the economy, adding 8.2 percent 1  to the country’s GDP (~R361 billion in 2020) 2  and providing over 450,000 jobs in South Africa. The sectors spend on goods and services is also significant (R245 billion in addition to its R291 billion direct contribution to GDP in 2016[1]). 3  Protecting this strategic industry and stimulating growth and broader economic participation within it are fundamental goals of the Mining Charter of the South African Department of Mineral Resources and Energy (DMRE).

Globally, governments have found nontariff barriers (e.g., quotas, embargoes, levies) useful to protect local industries and stimulate local economies. Among these, local content requirements have been used in the US and by all major emerging (BRICS) economies 4 as a tool to gain market independence and mitigate risks related to the global economy. The third iteration of South Africa’s Mining Charter, published in 2018, sets high local content procurement targets.

It gives mining rights holders five years to transition to 70 percent local content spend on mining goods procurement, with additional targets and deadlines set for local sourcing and procurement of mining services, and local spend on research and development, and sample analysis. For the purposes of this paper, our focus is on mining goods procurement targets.

The Charter is the primary instrument of the Minerals and Petroleum Resources Development Act (MPRDA) for driving transformation in the industry. By encouraging mining rights holders to source and procure goods and services from local suppliers, it aims to address imbalances in the social and economic landscape of South Africa, improving economic growth, creating employment opportunities, developing local skills, growing manufacturing activity, and reducing inequality. It also aims to but bolster industrialisation activity within the sector—i.e., increasing the manufacturing capability of the country to produce mining goods ordinarily imported by the mining sector.

What is the value to the sector?

To illustrate the potential value of this strategy, consider the following: a baseline study 5 done by Accenture for a local coal miner showed a local content level of 28 percent for mining goods procured, suggesting that 72 percent of the miner’s goods spend left the South African economy through imports. If these percentages are applied to the mining industry’s collective annual procurement/purchase spend, currently at R291,91 billion,6 that’s R210,18 billion leaving our shores. If the Mining Charter’s target is met and a minimum of 70 percent of total mining goods procurement spend is on locally manufactured goods, only R87.5 billion of this spend will leave the economy via imports.

While these numbers are merely illustrative, the impact of an additional approximately R200 billion on the local economy can be significant. For example, Eskom’s Kusile power plant, the fourth-largest coal-fired power station in the world, has a R118 billion7 price tag; and the KwaZulu-Natal government’s 2018, R200 billion investment in projects targeting economic hubs across the province aims to create 400,000 jobs.8

While the local content procurement reporting requirements are complex, getting this right is vital for mining rights holders—the stakes are high.

Failure to meet these targets has a negative impact from a compliance, operational and sustainability perspective, while meeting them presents a number of benefits, including improved long-term competitiveness.

Tools to help you meet targets

To address the key challenges and support our mining clients on their local content journey, Accenture has developed a Local Content Framework. It is built on five core elements—creating a supplier baseline, doing a local content assessment, reporting, building an intelligent data hub to optimise outcomes, and creating a localisation strategy.

Join me in my next post in this series where I take a closer look at local content targets and the challenges associated with meeting them.

In the meantime, for more on Accenture’s mining capabilities and offerings, click through to Leading with digital in South Africa Mining, our Applied Intelligence Studio in South Africa for Mining and our Metals & Mining newsroom for the latest releases.

Until next time,

Christopher Mulindi
Manager, Strategy & Consulting, Accenture South Africa, Resources and Energy
christopher.mulindi@accenture.com

References

  1. Minerals Council, Facts and Figures Pocketbook 2020, https://www.mineralscouncil.org.za/industry-news/publications/facts-and-figures
  2. Mining Review Africa, Mining sector remains resilient in turbulent times, February 2021, Accessed online. https://www.miningreview.com/industry-insight/minerals-council-south-african-mining-sector/
  3. RR policy bulletin, no1/2017, issue 30; https://cisp.cachefly.net/assets/articles/attachments/67160_liberty_-_issue_30_-_diamonds_and_all_that.pdf
  4. ECIPE, The Economic Impact of Local Content Requirements, January 2018, accessed online June 2021; https://ecipe.org/publications/the-economic-impact-of-local-content-requirements
  5. Accenture Local Content Study report for a coal mining client, June 2020
  6. Minerals Council Facts and Figures-2018; September 2019, page 11
  7. Eskom, Kusile Power Station Project, Accessed online, June 2021, https://www.eskom.co.za/Whatweredoing/NewBuild/Pages/Kusile_Power_Station.aspx
  8. Engineering News, article, 2018, accessed online June 2021; https://www.engineeringnews.co.za/article/kzn-mec-unveils-25-planned-projects-to-attract-r200bn-investment-2018-10-12