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 âdeep-diveâ 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 SAâs 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.