The South African mining industry is huge and contributes immensely to the balance of payments through exports, but it could never have got off the ground without foreign investment.

Even when South Africa’s savings were considerably higher than they are now and even before banks stepped back from providing debt funding for mining, the magnitude of South Africa’s mining opportunity could not do without foreign investment.

Equity finance has been the main funding going back 100 years, but, for some reason, South Africa’s National Treasury does not appear to like incentive-receiving investors owning public market shares.

While Canada’s flow-through share scheme has been integral to the Toronto Stock Exchange having more listed mining companies than any other stock exchange in the world, South Africa’s tax incentives do not have the secondary objective of developing this country’s public markets.

The latest 12J venture capital regime introduced by the National Treasury is viewed as being akin to the UK’s venture capital trust regime and fundamentally different to Canada’s flow-through share scheme, which relies on publicly listed junior companies attracting investors, who can then write their investment off against their tax.

The National Treasury is also avoiding any public equity involvement in its tax-incentivised savings plans. It made a public promise to introduce a flow-through-type scheme to incentivise mining, but then backed off from that promise, much as it set out many years back to provide a framework for risky deep-sea hydrocarbons exploration but took so long that the generous mood of the global mining giant keen on investing off South Africa’s West Coast found it could not afford to stall its drilling rigs any further and sent them elsewhere.

So, the upshot is that the National Treasury has been remiss in incentivising minerals exploration and, on top of that, there are new concerns around safeguards provided to foreign investors.

By bringing the Protection of Investment Act into law on July 13, the same date as the publication of the Regulations on Mediation Rules, Herbert Smith Freehills partner and Africa Group cochairperson Peter Leon has let it be known that the protection afforded to foreign investors is being “significantly diluted” at a time of anaemic economic growth, high unemployment and increased concern about the protection of property rights highlighted by the ongoing debate about the expropriation of land without compensation

Leon predicts that foreign direct investment into South Africa will continue to decline, or remain static, unless government implements measures to appropriately protect foreign investors.

This limits foreign investment into exploration still further and, without foreign investment, exploration is not going to be what is needed in a country that still hosts $2.5-trillion worth of metals and minerals.

Mineral Resources Minister Gwede Mantashe has expressed alarm at mining companies placing shafts on care and maintenance, but Minerals Council South Africa has pointed out to him that what he should be more concerned about is the very limited exploration that is taking place, despite the thousands of exploration permits that have been granted.