Gordhan Needed Bolder South Africa Budget, Sibanye CEO Says

  • Largest gold producer in country seeks Eskom privatization
  • Poor labor relations, legal uncertainty undermines mining

South African Finance Minister Pravin Gordhan wasted an opportunity to improve the health of the economy by not announcing significant sales of state assets and steeper tax increases when he delivered the annual budget on Wednesday, the leader of the biggest producer of gold from mines in the country said.

While Gordhan undertook to cut the civil service and sell a minority stake in the state-owned airline, he should have proposed the privatization of state power utility Eskom Holdings SOC Ltd., Neal Froneman, the chief executive officer of Sibanye Gold Ltd., said in an interview at Bloomberg’s offices in Johannesburg on Thursday. Froneman said South Africans were prepared for Gordhan to announce bigger tax increases.

“Pravin did present a reasonable budget, but I think he could’ve done a lot more,” Froneman said. “He had a once-off opportunity where he’s got a lot of power to implement some of the right things that are necessary for the country to change, especially if growth is the key issue.”

Budget Criticism

Froneman’s criticism of Gordhan’s budget echoes those of some investors who were expecting more significant tax increases and state asset sales to boost revenue. The finance minister was seeking to restore policy credibility in an economy hit by falling commodity prices, the worst drought in more than a century and sliding investor confidence in President Jacob Zuma’s administration.

The rand fell as much as 3.5 percent against the dollar on Wednesday after the release of the budget. The currency pared some of its decline Thursday and strengthened 0.1 percent to 15.5837 at 12:15 p.m. Friday.

To attract foreign capital to mining, Froneman said the government needs to clarify black economic empowerment laws requiring mines to cede 26 percent stakes to people disadvantaged under apartheid. Companies and the government are debating how the laws apply once a black investor has sold, with the industry arguing they shouldn’t have to sell an additional stake.

“You can’t retrospectively change the rules,” Froneman said. The government should also require secret ballots for union members before they go on strike, he said.

Power Rising

Electricity expenses have increased from 7 percent to 22 percent as a proportion of costs at some of the mines Sibanye operates over the past 10 years, Froneman said. Private owners would probably run the utility more efficiently, which would lower the operating costs of energy-intensive users such as mines, he said. While an 18 percent rally in the rand gold price since the beginning of the year boosted Sibanye’s profit margins, Eskom’s request for a 16.6 percent tariff hike could’ve rendered five shafts unprofitable, affecting 15,000 jobs, or a third of Sibanye’s work force, he said.

The country’s mining sector continues to struggle because of uncertainty over legislation and poor labor relations, Froneman said, referring to mining laws that have been under review since 2010 and frequent strikes.

“The budget and the country’s finances perhaps are in check, but there are many other things that are required for South Africa,” Froneman said. “We’ve only heard things. We need to see action. The fundamental issues have not changed.”

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