THE NATIONAL ASSEMBLY
QUESTION FOR WRITTEN REPLY
Question 2145
Mr G G Hill-Lewis (DA) to ask the Minister of Trade and Industry:
Has his department undertaken any economic modelling on the effect of the
proposed policy of securing preferential local pricing of raw materials on (a)
employment in the mining sector, (b) investment in the mining sector and (c) the
balance of trade; if not, why not; if so, (i) what are the relevant details and (ii) will
this study be made available? NW2617E
Response:
Feedstock costs account for a significant proportion of input costs for the
manufacturing sector and hence constitute a key driver of the competitiveness
and future growth prospects of the downstream and upstream (mining input)
sectors.
the dti has undertaken extensive engagements with industry in each of the key
mineral value chains: iron-ore and steel (automotive and construction), polymers
(plastics industries), platinum group metals (autocatalyst and fuel cell industries)
and titanium, where pricing of minerals was identified as a critical constraint to
growth and investment.
The use of industrial policy support measures to secure lower input costs for
value-adding, labour intensive downstream manufacturing industries is widely
practiced in other economies. Preferential pricing for local beneficiation must be
based on a set of principles, including producers being fairly treated and a
reasonable return on investment.
This has been demonstrated with the Kumba-AMSA cost plus 3% iron-ore supply
arrangement (2001-2010) where during the same period Kumba increased
production, employment and investment in new mines.
Hence, with all other factors of production taken into account:
(a) Employment in the mining industry should not be impacted;
(b) Investment and competitiveness of the mining sector can improve based on
increased levels of demand as new beneficiation industries establish
manufacturing industries in SA to benefit from the local price advantage; and
(c) The balance of trade will be positively impacted by the increase in production
and export of value added products as opposed to primary minerals and
metals.
i)
Economic modeling has been carried out for the introduction of pricing
measures in the scrap metal market as well as quantitative analysis of the
impact of pricing on the iron-ore/steel, platinum group metals and polymers
value chains. Further ‘deep-dive’ quantitative work is planned in collaboration
with the Industrial Development Corporation.
ii)
Engagement with the private sector is routinely undertaken in relation to
industrial policy research and modeling. This work is treated as internal to
government, including for reason of the fact that it can provide an unfair
advantage to individual private sector companies.
The impact of not pursuing a preferential price for local beneficiation will
undermine SA’s re-industrialisation effort towards a dynamic industrial economy
which secures sustainable development, radical economic transformation and job
creation. This is taking place against the background of the fact that resources
are being depleted and the competitive advantages the country used to enjoy are
no longer available.