South Africa and the internationalization of mineral extraction
Duncan Money
At the 2025 African Mining Indaba, leaders from across the Continent met representatives from multilateral lending institutions, energy companies, and US national security agencies to discuss how to “position mining as the continent’s foremost industry, driving sustainable investment and fostering economic growth.”
The conference location, in Cape Town, South Africa, is no coincidence. In 1871, news of diamond discoveries brought some 50,000 people to Kimberley, South Africa—a town built around a gaping 240m deep hole that miners dug with picks and shovels. The frenzy marked the beginning of a long series of mining booms in the region. Diamonds were followed by gold, coal, chrome, iron, manganese and platinum.
For over 150 years, mining has constituted a core feature of the South African economy. The seemingly inexhaustible bounty of the earth made the country the wealthiest in the continent and financed one of the most all-encompassing systems of racial segregation in the world. Blessed with the largest gold deposits on the planet, successive governments in the colonial and apartheid periods cultivated a tight relationship between industry and the state. Mining wealth was used on a large scale to economically uplift white residents and to finance industrialization through state-owned corporations.
The Investing in African Mining Indaba conference’s year of founding also coincides with South Africa’s first non-racial elections. In 1994, the ANC’s postapartheid government aspired to similarly channel South Africa’s legacy of mineral wealth for its ends. But as firms internationalized and easily accessible mineral deposits were exhausted, mining capital exited the country and left the government to court foreign investment flows with market-friendly reforms.
The contemporary South African economy is burdened by long-term stagnation and pervasive unemployment. In the most recent elections, voters expressed their profound disappointment with the failed promises of democratization. Behind the country’s profound promises and disenchantments lies the trajectory of an industry beholden to transformations in the global political economy. And its fate holds a cautionary tale for other African countries relying on mineral extraction for structural reforms.
Mineral rushes
The region around Kimberley was swiftly annexed by Britain, and neighbouring territories soon followed. In the early 1870s it largely remained under the control of independent African polities, and the territory under which lay vast gold deposits were independent Boer republics. Thirty years later, every one of these had been crushed and the entire region parcelled out between European colonial powers. The borders established then are still the borders of nation-states in the region today.
There was a direct link between this rapid colonization and the extraction of mineral wealth. It was control over diamonds that made Cecil Rhodes a wealthy man and financed the creation of the British South Africa Company which seized vast swathes of Southern Africa on behalf of Britain. Others too owed their fortunes to diamonds. Mining magnate Ernest Oppenheimer began his career in the diamond industry in Kimberley and subsequently established the Anglo American Corporation which dominated South Africa’s economy over the twentieth century.
The rush for diamonds was a precursor to an even greater rush for gold on the Witwatersrand in modern-day Johannesburg in 1886. The diggers camp housing 3,000 people in 1886 was a city of 100,000 in 1896 with over £215 million invested in the new gold mines. There was no place here for the prospector with a pick and shovel though. The gold outcrop visible on the surface sank sharply into the ground and formed a vast deposit that was low-grade but predictable.
By 1908, South Africa produced one-third of the world’s gold output, and by 1920, it accounted for over half, rapidly displacing diamonds as the most valuable export. In 1922, the mining magnate Lionel Phillips tried to convey the scale of operations to his company’s shareholders by inviting them to imagine that they were standing in the middle of Crown Mines, then the largest on the Rand:
If we take the position we are standing in in this room as the central level above and below which work is proceeding we should have to look 1,000 feet below our feet and 1,000 feet above our heads over a distance of three miles in length, with thousands of men distributed all over the area.1
Counterintuitively, the industry was not that profitable once the feverish speculation had subsided. Returns to investors for South African gold companies averaged only 3.1 percent per annum from the 1880s to 1969. One reason was that the industry was heavily taxed. Colonial administrators and later apartheid governments used revenues from the mines to provide subsidies for white agriculture, establish state-owned industries, and finance a wide range of “upliftment” schemes to tackle white poverty.
This form of racial Keynesianism began in earnest in the 1920s when low gold prices and explosive industrial relations prompted serious rethinking within government and a push for economic diversification away from the gold industry. This involved direct state intervention in the economy to drive secondary industrial development and broaden mining from coal.
In 1923, the Electricity Supply Commission (Eskom) was formed to “render, by the provision of power without profit, a worthy and ever-increasing contribution to the development of South Africa.” This was followed by the creation of the state-owned Iron and Steel Corporation (Iscor) in 1928 to utilize large domestic deposits of iron and coal.
Revenues from gold mining were used to pursue interlinked development objectives, namely industrialization and reducing white poverty. This involved close collaboration between new state-owned companies and private mining firms. The coal industry went from being export oriented to supplying domestic markets fostered by the state, along with Eskom’s new power station and Iscor’s furnaces.
The mining industry initially opposed the formation of a state-owned steel manufacturer. However, they soon made their peace. There was much to be gained for the mining industry through close collaboration with the state. Nowhere else in the world held anywhere near the size of South Africa’s gold deposits and the industry needed long-term political stability to extract from them.
New industries and mines provided protected employment for whites with comparatively high wages fixed by state-controlled industrial bargaining. This was the result of a state-brokered compromise after years of violent industrial upheaval by white workers that culminated in an attempted insurrection by white miners in the 1922 Rand Revolt. Only a person holding a blasting license could be employed as a miner and only a white man could hold a blasting license. The first African was not granted a blasting certificate until December 1988.
The gold industry remained profitable by ruthlessly cutting costs, and was supported in this by the government. Production costs in 1939 were lower than they had been twenty years earlier and profits higher. This was achieved by suppressing wages for the African workers who constituted almost 90 percent of the industry’s workforce and for many decades the industry survived by recruiting hundreds of thousands of migrant workers from across Southern Africa and paying them very low wages. Real wages for African mine workers actually declined between 1889 and 1969.
Paying for apartheid
Afrikaner nationalists continued these same policies after the surprise election of the National Party in 1948. Profits from the mining industry financed the increasingly complex system of racial segregation known as apartheid and the new government raised taxes on the gold industry by 5 percent not long after the election….
https://www.phenomenalworld.org/analysis/after-the-diamond-rush/
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