South Africa has long held grand ambitions to transform its vast mineral resources into higher-value products before shipping them abroad. For the most part, those plans have not materialised, for various reasons. However, we believe the time is right to revive them and devise a comprehensive beneficiation strategy for the nation.
Value addition has been punted as an economic priority for decades. Former president Thabo Mbeki spoke of the need to build “strong” domestic beneficiation capacity; his successor Jacob Zuma cited it as one of the nine pillars of his economic growth agenda; and Cyril Ramaphosa has said local processing could boost Africa’s economy by 12% by 2050.
Yet those hopes have been undermined by South Africa’s persistent energy and logistics crises, an unattractive cost environment including high electricity prices, a lack of clear direction from policymakers as well as a flawed assumption that mineral producers will of necessity or voluntarily be interested in beneficiation.
Nevertheless, now is an opportune time to craft a national vision for beneficiation, alongside an implementation strategy that ensures accountability and provides investors with the certainty they need. This strategy should include the necessary policy levers and linkages to mineral licensing and have flexibility for different investors in the value chain.
There are a number of external and internal factors that may create new opportunities for the beneficiation efforts to have better results. The first and most important is a general notion that has nothing to do with beneficiation: failure provides very useful lessons, and there are many successful business stories written that started from failure.
The others are the emergence of new needs for minerals for the decarbonisation and digitalisation trends, where South Africa can position itself for the minerals it is seeking to discover in efforts led by the Council for Geoscience, as well as connect to the value chains of minerals from its neighbours in collaborative efforts. And there is an emerging openness by policymakers to review the tools and incentives as well as forms of partnerships that may make beneficiation possible, as well as progressive efforts to deal with the energy and logistics crises.
First, policymakers are showing an intent to craft a new industrial policy framework that may seek more creative and partnership-driven approaches to the issue of beneficiation. The chance to capitalise on this improved sentiment and improve execution based on lessons from past failures will be fleeting unless the state uses the moment to reignite the economy and exploit new opportunities.
Second, the substantial improvement in energy security over the past year will make investors more comfortable with backing new processing facilities. Even if rolling blackouts return at moderate levels in the years ahead, regulatory amendments now allow companies to invest in their own power-generating capacity, meaning their fortunes are no longer as closely tied to Eskom’s. However, this also requires that the electricity is priced appropriately to incentivise investment for beneficiation as well as ensure completeness, which is also tied to the logistics issue we raise below.
South Africa has excellent reserves of some of the critical new energy minerals and should leverage this to become a source of more sophisticated value-added components
Third, there is at least some evidence that the logistics crisis is being gradually resolved. The private sector has been collaborating with Transnet in its turnaround, and new rules allowing third-party access to the freight rail network will help to restore capacity along important transport routes. It will be critical to ensure investment and modernisation of the logistics infrastructure and services, including the efficiency of the ports.
Lastly, the transition to more sustainable energy sources means demand for critical minerals is set to surge in the years and decades ahead. South Africa has excellent reserves of some of the critical new energy minerals and should leverage this to become a source of more sophisticated value-added components of global value chains, of which beneficiation is an important part.
With this in mind, we believe beneficiation should be on the agenda as South Africa’s new government launches a series of national dialogues to build a common vision for the road ahead.
Building blocks
A comprehensive beneficiation strategy would require a number of interventions to remove obstacles to investment. For example, key supporting institutions such as Mintek — the country’s national mineral research organisation — and the South African Bureau of Standards, among others, will need to be recapacitated to enable them to be effective in this process.
Policymakers will also need to invest in enabling infrastructure — such as port terminals and new logistics corridors — as well as capital equipment and research & development. A solid scientific base is a prerequisite to beneficiation, meaning the strategy would need buy-in from the research, education, and engineering sectors.
A financing framework would also be crucial. Here, South Africa could consider taking a leaf out of the US playbook and offer tax incentives to companies that invest in processing facilities. This could also be linked to the country’s evolving industrial strategy.
At the same time, South Africa could use this as an opportunity to advance economic integration with its neighbours and accelerate the implementation of the African Continental Free Trade Area.
Southern Africa as a whole has an abundance of critical minerals. Zambia, for instance, has immense copper reserves, the Democratic Republic of Congo is a cobalt powerhouse, Zimbabwe has plenty of lithium, and South Africa has the largest manganese reserves in the world, in addition to sizeable nickel deposits.
The region could draw up a common just transition strategy by positioning itself as a battery supplier to the world.
Presenting a united front will be beneficial at a time when the US, Saudi Arabia, and China are competing for Africa’s attention as they seek to secure access to critical minerals. This gives us an opportunity to negotiate better terms with those countries and to make the case for local beneficiation to ensure the global energy transition is indeed just and equitable.
Meanwhile, South Africa will also need to improve governance in the extraction sector, where policy uncertainty remains a major challenge and investment is being deterred by the weak efficiency of the process, which is why there is also a focus on the cadastral system as part of the improvements that are necessary.
A lot needs to happen to resuscitate the beneficiation dream, but if South Africa gets it right, we will reap substantial rewards long into the future.
• Sithebe is an economist with over 25 years of experience in both the public and private sectors. He is a staff member at Nelson Mandela University and chairs the Financial Sector Transformation Council.
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