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Zimbabwean coffee

February 5, 2013 in Uncategorized

As previously alluded to, resource industries like mining and farming, industries that are tied to the land, are quite different from other industries.

First, they are not mobile. A manufacturer that is unhappy with labour rates or the tax regimen could possibly set up his factories in a neighboring country. Not possible for farmers or miners, they are chained to the land. This makes them the slowest running antelope in the herd, easy prey to unreasonable leftist policies, like resource taxes or land grabs. That is why, for instance, mines are taxed additionally by some other resource countries, not because the citizens deserve the “fruit of the soil”, but because these industries can’t run with their feet glued to the ground.

Second, they have strategic value, because a country that cannot provide the basic resources for itself is highly vulnerable to sanctions and other variations of economic warfare. Is the competition for these very resources not the main cause of war? Is the competition for scarce resources not the core of all economics? Resource industries like mining and farming bring scarce resources into practical application. They’re strategic industries, they’re essential industries. That is why, for instance, farming is subsidized in some countries. A strong case could be made for regulating strikes in resource industries for strategic reasons, similar to us attempting to disallow teachers, doctors and other essential services from striking. It wouldn’t fly in SA, but the point remains valid.

Third, they are disproportionately valuable to the country as wealth-and-job creators. Since they bring new value out of the ground/soil, they create the entry point for a procurement and value-added chain much greater than themselves. Many industries are linked to them, either serving them or utilizing their products as a major input. This creates far more jobs and far more prosperity than the mere industries of mining and farming itself. One could argue that you can import the raw produce/minerals and continue the value-added chain from there. This is true in principle but not in practice. The sheer scope of these industries and their place in SA as creators of forex means that if we imported the bulk of our mining and farming goods, it would savage the current account and send the rand into freefall, unless we had a massively powerful manufacturing export base to counter this, which we do not.

And the reason we don’t have a powerful manufacturing export base is exactly this, the manufacturers are mobile. They’ve already shifted operations towards more business-friendly shores, by avoiding new investment in manufacturing in SA. That fact is already baked into the unemployment pie.

A large part of what we have left are the industries that aren’t mobile (because they’re tied to the land) and the industries that feed off them through the value-added and procurement chain.

So, mess with mining and farming at your peril. These industries are vital.

They are also the last to go. By the time these industries start collapsing, it is too late to wake up and smell the Zimbabwean coffee. One would think that with such a stark example of ruin as our Northern neighbour, so recent and so close to home, our leaders would resist all currents dragging us in that direction.

Minimum wages for farming have just been increased massively, despite the inevitability that labour will simply use this higher minimum as a floor for their next wage demand. In the process, the Marikana lesson, that violence pays, may well have been (inadvertently) reiterated, setting the stage for more violence in farming strikes. Amplats mining licence was threatened when they attempted to trim losses by closing shafts and cutting staff. This is a shot across the bow to other miners contemplating retrenchments and cause for investors to take a long, hard look at their future rights as business owners in SA.

Considering the above, why would sensible, return-seeking businessmen actively put new money into these industries in SA? Without new money, serious re-investment into these essential industries, the writing is on the wall for them. And without these invaluable resource industries, the writing is on the same wall for SA. It may not be Zimbabwean coffee just yet, but it sure smells like somebody’s brewing it.

 

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