Vedanta subsidiary VZI’s Gamsberg zinc project will start production amidst positive political developments in South Africa. Newly-elected President Cyril Ramaphosa seems willing to attract foreign mining investment, but must also address economic stagnation and corruption, which may slow reform.
- The Gamsberg project, operated by Vedanta Zinc International (VZI), is set to start production against the backdrop of positive political developments in South Africa following the departure of President Jacob Zuma. Cyril Ramaphosa, the country’s new president, is widely regarded as business-friendly and willing to implement pro-investment reforms, including in the mining sector. Since he took power on 15 February, investor confidence has increased and analysts are more positive about the country’s economic growth prospects. However, Ramaphosa will have to simultaneously address several structural issues, including high rates of inequality and unemployment, especially among the youth, and widespread corruption that has eroded people’s trust in institutions.
- Located in the Northern Cape, one of the country’s most sparsely populated and least-developed provinces, Gamsberg holds the promise of providing jobs and much-needed local development opportunities. Despite past opposition by environmental groups, VZI’s proactive approach to stakeholder engagement, drawing on efforts by former owner Anglo American, appears to have secured the support of key environmental NGOs and the local community for the time being. Nevertheless, the project will result in the loss of unique biodiversity in the surrounding mountainous landscape so it may be difficult to strike a balance between potential employment benefits and the negative impact on the region’s environment.
- The Gamsberg project is anticipated to be one of the largest mining projects in South Africa once it starts production later in 2018. Discovered 40 years ago, it had largely lain dormant after the 2008 financial crisis until Vedanta took it over from Anglo American in 2011. VZI has since demonstrated a proactive approach to stakeholder engagement, particularly around conservation, which is important due to the project’s location in the Succulent Karoo biome’s biodiversity hotspot. Building on previous efforts by Anglo American, VZI has entered into a biodiversity offset agreement with the Northern Cape Department of Environment to preserve and rehabilitate native plant species. The International Union for Conservation of Nature will independently monitor VZI’s compliance with the agreement and provide advice on sustainable biodiversity management.
- Despite these efforts, it is likely that some habitats in the project area will be permanently lost. VZI will have to carefully balance the project’s negative environmental impact with its positive economic benefits for the region. VZI has already attempted to secure buy-in from the local communities by providing employment and procuring from firms in the Northern Cape. This is in marked contrast to Vedanta Resources’ previous performance in Zambia and India, where it faced mass community protests due to concerns about workers’ safety, indigenous people’s rights and water pollution.
- The Gamsberg project is starting production in South Africa under favourable political conditions. After protracted negotiations within the African National Congress (ANC), Cyril Ramaphosa has recently replaced former President Jacob Zuma, who faces charges of corruption and is held responsible for the country’s economic slump. In contrast, Ramaphosa, a former anti-apartheid mineworkers’ union leader turned successful businessman, is generally seen as the leader of the ANC’s moderate, pro-market faction.
- Cyril Ramaphosa is likely to be good news for South Africa’s battered mining sector. In one of his first moves as president, he vowed to reform the country’s mining laws and solve the impasse over the 2017 Mining Charter, which has been contested by both the mining industry and local communities. Introduced in June 2017 by mines minister and Zuma ally Mosebenzi Zwane, the Mining Charter increased the requirements for black ownership and levies on companies. Companies rejected it on the grounds that they were not consulted on the proposed amendments, which they saw as increasing regulatory uncertainty, costs and ministerial discretion (and, therefore, potential for corruption). Ramaphosa has already held talks with the Chamber of Mines and succeeded in postponing the Chamber’s legal challenge to allow for further negotiations between the parties. He has also replaced Zwane with one of his allies, Gwede Mantashe – a move that has been welcomed by the South African mining industry, with which Mantashe has previously interacted as General Secretary of the National Union of Mineworkers.
- Ramaphosa is expected to take bold steps to revitalise the country’s business environment and restore trust in the ruling ANC. In the hope of purging South Africa’s highest ranks from corruption, Ramaphosa has removed most of Zuma’s allies from key portfolios in a recent cabinet reshuffle. However, some of them, such as David Mabuza, now Deputy President, remain in power. Mabuza is said to be responsible for widespread corruption in his home province and could hamper Ramaphosa’s reform efforts. Ramaphosa also faces the daunting tasks of reinvigorating South Africa’s stagnant economy; tackling high unemployment, currently at around 30%; addressing inequalities inherited from the apartheid years, for example in terms of access to land; and restoring faith in South Africa’s institutions and services.
- As the nature and pace of reforms in South Africa, including in the mining sector, remain uncertain, VZI will need to continuously engage with a wide range of national stakeholders and be prepared to comply with new regulatory requirements, as well as demonstrate how Gamsberg’s socioeconomic benefits will outweigh its negative environmental impacts.
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