[Joburg Indaba] Coming to terms with China

© Dmitry Kalinovsky – 123RF.com

How do we come to terms with a China-centric world from a commodities world perspective? Dr Martyn Davies, MD, Emerging Markets & Africa, Deloitte Frontier Advisory, posed this question to delegates at The Joburg Indaba 2015 in his keynote address on China's economic rebalancing and Africa's economic outlook.

Is the world diverging or converging?

Think emerging markets (that's us) Dr Davies told delegates. In recent years, with strong tail winds from China, commodity demand, good governance, and a vibrant private sector, the opportunity for emerging economies to catch up to developed countries in a short period of time was possible. This translates to emerging economies' populations living like Americans. That's convergence, he explains.

"For the 2009 period, the emerging economies experienced a 4.5 % higher growth than developed countries. They were catching up and the world was converging. It was the great catch-up period."

However, he says, the future is divergence. "If you strip China out of the picture, then emerging markets are showing a percentage growth rate that will take emerging economies 115 years to catch up to developed countries."

But it is actually worse than that. "The projections for this year is a difference of growth rate between emerging and developed countries of only 0.39%, which means convergence will take 300 years," he says.

The great expectations of the past decade are likely to be dashed and he adds this will be a dominant feature of the modern economic history.

Where is the South African mining industry?

Following the keynote address, Dr Davies was joined by Dion Shango, South African CEO and South African Market Area Regional Senior Partner, PricewaterhouseCoopers and Warren Beech, Director and Head of Mining, Hogan Lovells. The panel was chaired by Sandra du Toit, Head of Mining & Metals for Africa Corporate Finance, Standard Bank.

The panel agreed that the mining economy is still the heartland of the African economy, especially the South African economy. Dr Davies asked what created Johannesburg and why are there no 'Johannesburgs'... in the DRC or Zambia? Why did Kimberley not become a 'Johannesburg'?

"Johannesburg is the result of a blend of a single commodity asset, significant capital impact, vision, and an enabling government and perhaps most important, the commodity attracted great entrepreneurial mining companies."

Unfortunately, he says, we are still in that headspace and to progress as a society and make mining sustainable, we need to get over this emotion. "Why is mining such an argumentative place? Why is it so different to other industries? Mining needs to be about policy, not emotion."

SA under pressure

Shango brought the state of the industry sharply into focus with his statement that if you examine the stats then you will see that the number of people employed by the industry has not changed from 10 years ago, however the volume of production is less. "This means our productivity is lower. Lower volumes translate into lower taxes for government. Increasingly, South Africa is being put under pressure, and with government not setting the right fiscal framework in place, it is seen as a place difficult to do business in."

Beech spoke about some of the challenges the industry faces. "Apart from regulatory and safety challenges, community challenges are high. Mines are having to take the place of municipalities in providing services, while if a community does not want you to mine there, they will stop you."

However, by far the biggest challenge for him currently is the recent change in minister, after only 18 months.

Mining is a long-term industry and the ability to predict where it will change and the ability to respond to that is a challenge many clients are grappling with, says Shango. It is his wish to see all the stakeholders in one room and for them all to look each other in the eye and admit they all want the same thing. "Unions want to see employees with a higher living standard, companies want to be long-term and sustainable, and government wants to see a thriving mining industry. If this could happen, then we could all start pulling in one direction. I live in hope."

The Joburg Indaba took place 14-15 October at the Inanda Club in Johannesburg. For more info, go to www.joburgindaba.com.