The economy: Adapt or die (III) – The long term
11 July 2019
The distinction between the medium and long term is fluid. Some of the initiatives proposed for the medium term will spill over in to the long term, and preliminary work on long term measures can be started in the medium term. The latter is true for the four initiatives proposed here.
1. Maximize the contribution of the mining sector to the economy. Development of the South African economy started with mining, considerable deposits remain for potential exploitation, and promising parts of the country have yet to be prospected adequately. Moreover, mechanized mining has the potential to extend mine life, by allowing greater access to deposits and reducing the cutoff grade (the grade below which it is not feasible to mine deposits).
The extent of mining activity depends heavily on the regulation and taxation of mines. While the final version of the current Mining Charter rectified some of the most egregious aspects of the first draft, it is far from grappling with all the issues surrounding the state off take from the mining industry. In particular, the approach to mining taxation should be considered in the light of optimal contract theory, the parties to the contract being the state and mining companies. The state’s objective is, or should be, the maximization of the net present value of social benefits from mining while the objective of mining companies is to maximize the private return of capital invested. For ...........