South Africa transport minerals by rail is expensive and inefficient

South Africa was a key mining jurisdiction on the continent for many years. However, mounting institutional weaknesses have created several constraints in the mining sector and have contributed to the country losing its position as a global mining player.

Poor development and maintenance of rail infrastructure have made it expensive and inefficient to transport minerals by rail. South Africa’s rail lines are either not functional or have load capacity limitations. As a result, mining companies rely heavily on roads to transport cargo, which is expensive, involves more delays than rail and presents load restrictions.

Sustainable energy supply is another operational obstacle. South Africa has an energy crisis, with ailing infrastructure and poor maintenance of its coal-fired plants. The mining sector is largely powered by coal-fired electricity. The sustained increase in electricity prices has also negatively affected the mining industry.

These inefficiencies and the significant dependence on electricity has resulted in many mining companies investing in their own energy generation and backup power and changing their work schedules to accommodate power cuts and remain operational.

The beneficiation industry has struggled to operate under these costly energy constraints and has experienced output and revenue losses. The quality, cost and maintenance of labour supply in South Africa also presents a challenge. Labour costs in South Africa are higher than in peer countries and are linked to low levels of productivity and skills, with a pattern of labour unrest during wage negotiations.

Globally competitive market conditions, weak local infrastructure, exorbitant administrative costs and policy uncertainty have all contributed to South Africa continually ranking poorly on the Fraser Institute Annual Survey of Mining Companies.

The survey tracks investment potential, mineral potential and government policies in global mining countries. The weaknesses discussed above have all contributed to South Africa experiencing a notable decline in its rating in the survey. South Africa has ranked among the 10 least attractive mining destinations for two consecutive years.