Department of Mineral Resources 2011 budget vote: Parliamentary Researcher analysis

NCOP Economic and Business Development

28 March 2011
Chairperson: Mr F Adams (ANC, Western Cape)
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Meeting Summary

The Parliamentary Researcher presented a detailed analysis of the 2011 budget of the Department of Mineral Resources, giving an indication of both national and provincial breakdowns and allocations. South Africa was a world leader in mineral resources. Precious metals contributed 65% to the country’s mineral export earnings. South Africa supplied about 80% of the world’s platinum, and the mining industry in South Africa was the biggest employer, with around 460 000 employees, whilst another 400 000 were employed by suppliers of goods and services to the industry. The mining industry aimed to have 140 000 jobs by 2010, and 200 000 by 2030, averaging about 15 500 jobs per annum. However, this was compared to jobs lost during the recession, noting that about three years was needed for recovery. There was great potential for mining to grow the economy and provide job creation. Although 70% of the mining industry’s labour force was black, less than 5% of managerial positions were held by black employees. The new Mining Charter required changes and set out targets for transfer of mining assets and control of future mining projects. The National Department of Mineral Resources (DMR) had four programmes, whose allocations were described. DMR received 0.21% of the total appropriation.

The Researcher then outlined some of the provincial allocations. However, the figures for Northern Cape and Mpumalanga were not available as their budget tablings had been delayed. In the Eastern Cape, the automotive and tertiary services sector dominated, but mining exploration did account for R1.5 billion of pipeline projects, and the job potential of those projects was estimated at around 4 500. Kalagadi was the major mining project, with smelters situated at Coega. In Free State Province, although the major contributors were from finance, real estate and business services, this province had the largest gold mining complex in the country, with gold mines supplying about 30% of South Africa’s gold, and also supplying silver and uranium. This province also had large deposits of coal and bentonite. There was a need to work more closely and decisively with the private sector in order to expand and develop production and the value chain in agriculture, mining, manufacturing, tourism, trade, and services, and to take advantage of the current favourable increase in commodity prices in the mining sector. The KwaZulu Natal provincial economy experienced severe shrinking, and massive unemployment. Mining and quarrying accounted for less than 2% of the provincial Gross Domestic Product (GDP), but the province’s mineral, sands and beneficiation plants were important. There were two aluminium smelters located in Richards Bay, three steel plants, a manganese smelter and four concrete factories. Richards Bay supplied about 25% of world demand.  North West was primarily an agricultural province, but mining was the second largest contributor to provincial Gross Domestic Product, and provided for 18% of jobs, through mining activities in platinum, granite and gold. In Limpopo, mining was the prime driver of economic activity, at 27% of provincial GDP, and performance of the mining sector was largely influenced by the demand in international markets, especially for export of iron ore, as well as platinum group metals. There had, nonetheless, been negative economic growth and loss of jobs in the mining sector. Limpopo aimed to create 160 000 jobs, including those targeted at the youth. Gauteng, although having the smallest geographical land area, was responsible for 30% of the economic growth of South Africa, but its GDP had declined to negative figures during the recession. Mining did not rank as one of the highest contributors. Western Cape also showed not much in the mining sector.

The Researcher suggested that the Committee would need to monitor progress on the development of the Beneficiation Strategy that was due to be tabled. The filling of all vacant posts at national level, and ensuring that provincial departments created jobs in sectors aligned to the NGP was also important. Parliament needed to clarify the status of the new State Owned Mining Company, and look to provincial contributions to the New Growth Path. Members questioned when the figures for the remaining provinces were to be made available and clarified the purpose of the presentation.

The Committee adopted minutes between 25 January and 8 March and postponed adoption of the draft Report on the Oversight Visit to Eastern Cape.



Meeting report

Department of Mineral Resources: Budget 2011/12: Parliamentary Research Unit analysis
Mr Lwazi Mahlangu, Committee Researcher, Parliamentary Research Unit, noted that he was unable to access the budget appropriation of the Northern Cape provincial departments to circulate, but now had a copy. He noted also that the budget analysis of Mpumalanga was not available because the presentation was postponed to last Thursday. He noted that the overview that he would give of the budget for the Department of Mineral Resources (DMR) included an examination of the contextual background, vote 32 on the National Budget, Provincial Budgets, and key issues for consideration by Parliament.

Mr Mahlangu put the budget analysis in context, saying that South Africa was a world leader that boasted an abundance of mineral resources, producing and owning a significant proportion of the world’s minerals. The State was the custodian of minerals, and ownership, access and opportunity to the country’s minerals resources were regulated by the Mineral and Petroleum Resources Development Act of 2002. 90% of the minerals in South Africa were platinum metals on Earth, of which 80% were manganese, 73% chrome, 45% vanadium, and 41% gold. Precious metals contributed 65% to the country’s mineral export earnings. South Africa supplied about 80% of the world’s platinum, and the mining industry in South Africa was the biggest employer, with around 460 000 employees whilst another 400 000 were employed by suppliers of goods and services to the industry.

The New Growth Path (NGP) set a target of 5 million jobs by year 2020. The mining sector projected having 140 000 jobs by 2020 and 200 000 by 2030, averaging an increase of 15 556 jobs per annum until 2020. However, that was less than the 40 000 jobs lost during the economic crisis. It would therefore take between three and four years to regain that lost ground.

Mr Mahlangu noted that South Africa’s share of world reserves was about 90%. Its production of group metals was at 60%. It was lowest in zirconium, because production exceeded the reserves. He tabled a graph showing that South Africa ranked the first and second in the mineral resources comparisons. If this resource was used efficiently it could enable growth in the economy and provide for job creation, which was crucial to the NGP.

Mr Mahlangu set out the figures for employment and transformation. 70% of the mining industry’s labour force was black, while less than 5% of managerial positions were held by black employees. Future targets in the mining industry required that there be transfer of 26% of mining assets to black owned enterprises, and control of 51% of future mining projects by black owned companies. This was set out in the new Mining Charter. Key role players in the mining industry included BHP Billiton, Anglo American PLC (and its subsidiaries including Anglo Platinum, Anglo Coal, Impala Platinum, and Kumba Iron Ore), De Beers, Rio Tinto, and Tata Steel, which produced carbon ferrochrome.
Mr Mahlangu summarised the national budget for 2011/12. The Department of Mineral Resources (DMR) had four programmes. The Administration programme was allocated R247.9 million, Promotion of Mine Safety and Health programme received R147.5 million, Mineral Regulation received R160.4 million, and Mineral Policy and Promotion received R480.4 million. The total allocation was thus R1.036 billion, or which the largest portion went to Mineral Policy and Promotion. In comparison with other departments, DMR was voted 0.21% of the total appropriation. He outlined the allocation for line item expenditure, noting that 56.7% was allocated for current payments, which included the compensation of employees and goods and services. 42.3% was allocated to transfers and subsidies, which related to entities of the Department, and 1% was allocated to capital expenditure (Capex) for capital losses.

Mr Mahlangu then outlined the provincial allocations, setting out the figures for each province and looking at how budgets were aligned to the NGP, and also looking at how departmental allocations attempted to support the President’s declaration that 2011 should be the year of job creation. The Eastern Cape provincial economy was dominated by the export-led automotive sector manufacturing and the tertiary sector, which included insurance services, banking services and similar services. That made the economy vulnerable to international market fluctuations, especially in view of how exports were affected by the global crisis. During the 2010/11 financial year, Coega appointed 82 interns, supported 53 intern placements with consultants, and trained a total of 6 826 people. About R34.9 million was allocated to Local Economic Development (LED) projects, which were directed towards the establishment of sustainable industries and settlements in the under-developed rural parts of the province. Unfortunately, due to non-compliance on the part of local municipalities, much of that money had not been disbursed, including King Dalindyebo Municipality, where funding had not been used. Loan funding was extended by the Eastern Cape Development Corporation (ECDC), which secured a further 1 700 jobs, primarily in the OR Tambo Region. The bulk of the jobs were in the services and manufacturing sectors, with 704 and 385 jobs respectively. This was part of the response to trying to revive the economy of the Eastern Cape. The ECDC was also proposing certain High Impact Priority Projects, piloting R113 million worth of projects, scooping another R362 million worth of projects, and implementing R2.03 billion worth of projects. Mining exploration accounted for a further R1.5 billion of pipeline projects, and the job potential of those projects was estimated at around 4 500. That was allied to the NGP’s goals of job creation.

Mr Mahlangu outlined the mining in Eastern Cape, noting that the Industrial Development Corporation (IDC) had a 10% stake in Kalagadi Manganese and had committed R3.5 billion towards the implementation of the Kalagadi Mining Project, being run by a black economic empowerment (BEE) company. Kalagadi Manganese was in the process of an integrated operation encompassing mining, ore processing, as well as smelting. The total capital outlay to implement the project was expected to be R11 billion. The mining and ore processing were located in the Northern Cape Province, while the smelter operation would be located at the Coega Industrial Development Zone (IDZ) in the Eastern Cape. The first sinter production was expected to start in July 2012. The project shareholders had committed to funding R4.5 billion, and a further R6.5 billion would be raised from various Development Finance Institutions (DFIs), such as IDC, Khula and SAMAF, and commercial banks. In addition, a 320 000 tonne-per-annum ferromanganese alloy production facility was to be constructed at Coega in the Eastern Cape. Ferromanganese was an essential ingredient in the production of steel, a commodity that was expected to show growth in the next decade. Both the mineral resource focus and car exports were intended to assist economic recovery.

Mr Mahlangu noted that the budget allocation of the Eastern Cape had three programmes. Programme 1 was Administration. Programme 2 had five sub-programmes, including Economic Development, Eastern Cape (EC) Development Corporation, EC Gambling and Betting Board, EC Liquor Board, and East London Industrial Development Zone. Programme 3 was divided into three sub-programmes, which included Environmental Affairs, EC Parks and Tourism Agency, and Transfers to Municipalities. The total budget allocation to the programmes was R884.24 million for the 2011/12 financial year.

Mr Mahlangu then outlined the figures for the Free State Province, whose economy was performing below the national average. Growth in 2010 in the provincial economy was 1.9%, and was projected at 2.4% in 2011. The province’s major contributions to the provincial economy came from finance, real estate and other business services. The provincial economy boasted the largest gold mining complex which included the Free State Consolidated Goldfields, with a mining area of 32 918 hectares. About 82% of the province’s mineral production was derived from gold mining, with gold mines also supplying silver and considerable concentration of uranium. There were twelve gold mines operating from the towns of Welkom, Virginia and Odendaalrus and roughly 30% of South African gold was obtained from that region, which was ranked fifth in the world in gold production.

This province had seen an increase in unemployment, from 21.9% in the fourth quarter of 2008 to 24% of the same quarter of 2010. There was a need to work more closely and decisively with the private sector in order to expand and develop production and the value chain in agriculture, mining, manufacturing, tourism, trade, and services. The province needed to take advantage, in the mining sector, of the current favourable increase in commodity prices. Large deposits of coal and the country’s largest deposits of bentonite were also found in the Fezile Dabi district. Bituminous coal was used for petrochemicals at Sasolburg.

The budget allocation in the Free State province was divided into three categories. The Provincial Equitable Share allocation amounted to R17.50 million, Conditional Grants amounted to R5 million, and Own Revenue amounted to R0.72 million. The total budget allocation for the province was R23.22 million for the 2011/12 financial year. Allocations to departments were made from the Office of the Premier, but the Departments of Police, Roads and Transport, then Human Settlements and then Social Development received the three largest portions, with the total allocation to all departments at R23.2 million.

Turning to KwaZulu Natal (KZN), Mr Mahlangu noted that its provincial economy shrank by 2.24% in 2009, with devastating effects on employment. The number of discouraged work-seekers increased from 183 000 in the first quarter of 2008, to 495 000 in the third quarter of 2009, a 170% increase. The MTEF estimated the provincial economic growth at 3% to 3.5%, as compared to the required national 7% per annum over a prolonged period. The mining and the quarrying sector accounted for less than 2% of the provincial Gross Domestic Product (GDP), but the province’s mineral, sands and beneficiation plants were important to the nation’s mineral sector. The province had two aluminium smelters located in Richards Bay, three steel plants, a manganese smelter and four concrete factories. Richards Bay supplied about 25% of world demand. It also had extensive ore holdings along the coast and was the largest titanium slag producer in the world. KZN Sands operated in the UThungulu district, and this focused on smelting ilemnite to produce titanium slag. The Northern KZN coalfields were being revived.

Mr Mahlangu outlined the job creation initiatives in the province. He noted that one of the key components of human resource training and development was through bursaries, and approximately R72 million had been committed on external bursaries and R19 million on internal bursaries for the current financial year. Those under learnerships and internships constituted 5% of the total staff establishment of the provincial department. Further Education and Training (FET) Colleges continued to offer both the National Certificate and National Education programmes. The Public Service Academy would receive R50 million from the National Skills Fund (NSF) over the next three years for learnerships, apprenticeships and skills programmes in construction, manufacturing and engineering, which would benefit public servants and the unemployed. These provincial initiatives were aligned to the NGP.

Mr Mahlangu noted that the budget allocation for the province was over a seven year period. The largest budgetary allocations went to provincial departments of Education, Health and Transport for infrastructure development.

In the North West Province, the main contributor to the provincial economy was agriculture, which contributed 13% of the provincial GDP. Mining was the second largest contributing sector to the provincial GDP, and it provided jobs for 18% of the labour force in the province. The province was also the fourth largest provincial contributor to GDP, at 5.7%, after Gauteng, KZN and Western Cape. The province produced 84% of platinum, 46% of granite and 25% of gold in the country. Its provincial budget allocation was divided into three categories. The Provincial Equitable Share amounted to R19.27 million, Conditional Grants amounted to R4.51 million, and Own Revenue amounted to R0.66 million. The total budget allocation for the 2011/12 financial year was R24.44 million, and the largest portion was allocated to the provincial department of Education, emphasising the need for more skilled people in order to grow the economy.

Mr Mahlangu noted that the Limpopo province depended largely on mineral resources, which were the primary drivers of the economic activity, after government services. Mining constituted 27% of the Limpopo GDP. The performance of the mining sector was largely influenced by the demand in international markets, especially China and India. The province exported iron ore, which constituted 16% of Limpopo’s provincial exports. Other minerals reserves included platinum group minerals like chrome, vanadium, nickel, and titanium; metals; diamonds, coal, and copper. Electricity generation such as Matimba Power Station in Lepalale was another major economic activity in the province. Agriculture contributed 13% to the provincial GDP. The economic crisis resulted in minus-1.8% economic growth in Limpopo. Jobs were lost in a number of mining sectors, partly because of the decline in demand for minerals resources in the world market.

Limpopo was expected to create more than 400 000 jobs in the next nine years, as part of contributing to the national target of 5 million jobs by 2020. The 2011/12 budget allocation was aimed at warding off the negative effects of the crisis on the poor. The total budget allocation amounted to R43.84 million for 2011/12 financial year. The provincial DMR activities would directly create more than 160 000 jobs in the 2011/12 financial year, and 40% of those would be targeted at the youth. The total allocation to all the provincial departments was R140.37 million, and these allocated aimed to address the knock on effects of the economic crisis and align to the NGP.

Mr Mahlangu noted that the Gauteng province had the smallest geographical land area, but was responsible for 30% of the economic growth of South Africa. The GDP per region declined by R11.3 billion in 2009 and the growth rate by minus-1.8% as the economy entered recession. The main contributors of GDP per region were finance and business services sub-sectors, at over 25%. Most of the financial and manufacturing headquarters were in Gauteng. The second contributors were the government, personal and social services sub-sector. Manufacturing was the third largest contributor to GDP per region.

The Gauteng Employment Development Strategy sought to align with the NGP, under five key pillars of Public Infrastructure Investment, Industrial Policy, Green Economy, Inclusive Economy Initiatives, and Social Impact. R66 million was set aside to support labour absorption sectors, with backward and forward linkages. Community Works Programmes would generate at least 6 000 jobs and R98 million was set aside to fund those job creation opportunities. The budget allocation for the province totalled R68 billion for the 2011/12 financial year.

Mr Mahlangu then turned to the Western Cape, noting that these figures were complex and did not show quite the same correlation. He could only give an overview. R400 million was set aside over the next three years for Inner City regeneration projects, which would attract major investments. R300 million had been set aside for new roads. R204 million was also set aside in the two outer years of the Medium Term Expenditure Framework (MTEF) for new economic development and job creation projects. The total budget for the province stood at R44 billion. There was some confusion around provincial departmental allocations, because the figures did not correlate to the overall budget of the province. The provincial departmental allocations amounted to R38.8 billion, of which the largest slices were put to provincial departments of Health and Education.

Mr Mahlangu explained that the tabling of the Mpumalanga Provincial Budget for 2011/12, and the hosting of the Post Budget Stakeholder briefing, had been postponed to 24 and 25 March 2011. The total budget allocation of the province amounted to R29 million. There was also a need to develop road infrastructure, since damage had been caused by mining trucks, and this would lead to job creation and alignment of objectives to the NGP.  Mr Mahlangu apologised that he could not access the information needed for a full analysis on time, but he noted that there was a need to address the province’s infrastructure problems and link the economic activities of the province to the broader economy of the country, particularly the creation of jobs that would contribute to the economic growth of South Africa.

The key considerations for Parliament included the need to monitor progress on the development of the Beneficiation Strategy that was due to be tabled. The filling of all vacant posts at national level, and ensuring that provincial departments created jobs in sectors aligned to the NGP was also important. Parliament should clarify the new State Owned Mining Company, and whether this was likely to fall under the Department of Mining, or would be a State Owned Enterprise. There was also a need to look at NGP indicators at provincial level in terms of the GDP, absorption rate, education, and poverty, and to consider what needed to be done in order to reach those targets.
Discussion
Mr K Sinclair (COPE, Northern Cape) said that it was useful for Members to obtain a provincial perspective, but he had struggled with contextualising the presentation and failed to see how provincial budgets could have the mining clout that would be linked to the mineral resources. There was something that was missing between the DMR budget and the Provincial Budgets. He asked what exactly was the purpose of the presentation. He also questioned why the information on Mpumalanga and Northern Cape was not available.

The Chairperson responded that the Committee had agreed that the Parliamentary Research Unit would present a budget analysis to the Committee, as part of the budget briefing procedures. The Committee had also agreed to take budget votes of the three departments over whom this Committee exercised oversight, and before the strategic plans were presented, the budget analysis would be given. Mr Mahlangu had therefore been requested to undertake an in depth analysis, but some provinces were still in the process of preparing their budget votes. Mr Mahlangu’s presentation answered what the Committee had asked him to do.

Mr Mahlangu added that the presentation structure was focused on mineral resources at national level and provincial level, and that he had attempted to set out alignment to the NGP, since 2011 was declared as the year of job creation. He noted that the tabling of the budget for Mpumalanga was postponed to 24 and 25 of March 2011, and so time constraints had prevented him from dealing with all the issues here fully. The same applied to the Northern Cape, where he had been unable to access the information in time, but he would present relevant provincial information when the Committee looked at the energy issues.

Committee’s Draft Report on Oversight Visit to the Eastern Cape
The report was not adopted by the Committee because Mr Sinclair and Ms E Lingen (Eastern Cape, DA) indicated that they wished to submit some further recommendations and findings for addition to the draft report.

The Chairperson asked that the relevant information be submitted by the end of the week, to allow the revised draft to be circulated to Members before the next meeting.

Committee Minutes: Adoption
The minutes of 25 January 2011 were tabled and adopted, with no amendments.

The minutes of 8 February 2011 were tabled and adopted, with no amendments.

The minutes of 8 March 2011 were tabled and adopted, with no amendments.

The meeting was adjourned.


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