Finance minister Enoch Godongwana is correct to reject the call by MK party MP Mzwanele Manyi for SA to increase its mineral and petroleum royalty rates.
As the minister noted, these compare favourably with regimes in other countries and an increase in royalty rates could hit investment in the mining sector, negatively affecting royalty revenue.
SA’s mineral and petroleum resource royalty regime should, and largely does, strike a balance between encouraging investment in mining and ensuring adequate compensation for the country for the resources that are extracted.
Companies extracting minerals should pay a larger share of their profits to the government during commodity booms, when profits are at their highest, and less when prices are lower and profits are squeezed.
And that is how things have generally played out in recent years — SA Revenue Service tax statistics show that mineral royalties doubled from R14.2bn to R28.5bn between 2020/21 and 2021/22 because of the commodity boom, and dropped to less than R16bn in 2023/24 when commodity prices dropped along with profits.
Meanwhile, increased royalties due to the recent platinum price rally are expected to ease the pressure on SA’s fragile coalition government ahead of the medium-term budget policy statement in October.
Even so, Stats SA’s first-quarter 2025 GDP data reflected an ongoing collapse in investment in SA as a global exploration destination. Real capital formation in mineral exploration amounted to just R780m last year, the lowest figure in more than three decades and less than half the figure in 2018, when Gwede Mantashe took over the mineral resources portfolio.
Therein lies the rub. While increasing royalty rates would clearly be counterproductive for all the reasons Godongwana articulated, there is more to it than that. Investors value certainty, and on Mantashe’s watch they have experienced the opposite.
Trust in the department and the exploration licensing system it administers is nonexistent.
SA’s real mining exploration crisis is political and administrative, and royalty revenue will amount to an ever-smaller slice of a diminishing pie until that changes.
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