I i .,' | 1.' "j,, - £I II ..,.iIIV A.,I .,ILY I i .,' | 1.' "j,, - £I II ..,.iIIV A.,I .,ILY NOTES I OUMENTS* NIY\( . 2 1983 Aficana February 1983 TMIE ILICATIMNS OF SANCTIONS AGAINST SOLYI AFRICA FOR THE MINING AND RELATED INDUSTRIES IN BRIMN by Steven Bundred /Rote: This paper, published at the request of the Special Oummittee against Apar id, was prepared by Mr. Steven Bundred, Peseardi Officer, Naticnal Union of Minewcrkers. The paper was submitted to the United Nations Synposium on the Role of Transnaticnal Corporations in South Africa and Namibia, held in Sheffield, United Kingdom, fram 1 to 2 November 1982. 7he views expressed are those of the author.! 83-oh3h5 No. 7/83 * All material in these notes and documents may be freely reprinted. Acknowledgement, together with a copy of the publication containing the reprint, would be appreciated. The purpose of this presentation is to examine and comment on the trading links between the South African coal industry and companies in the United Kingdom. These links include direct trade in coal, trade in mining equirment and investment by United Kingdcm-based conpanies in South African coal production. The mining industry in South Africa is heavily dependent on the United Kingdom and other EEC countries, and the apartheid r~gime in Pretoria is heavily dependent upon the South African coal industry. For the South Africans, therefore, the implications of trade sanctions would be severe. For the United Kinadom it is probable that" any adverse economic effects of such sanctions would be offset by corresponding benefits. This statement cannot, however, be made without qualifications. On the coal production side the links between United Kingdom and South Africanbased companies are ccmplex and extensive. And efforts to untangle them quickly reveal that this investment exists in both directions. A substantial amount of South African coal production is undertaken by subsidiaries or associated companies of United Kingdom multinationals, and such companies have other interests in South African coal, gold and diamond reserves or in engineering companies. But the larqest South African coal producers also have substantial interests in United Kingom-based companies, and there is an intricate web of common directorships. Sae of the major United Kingdombased corporations with active involvement in South Africa are not, therefore, unambiguously British. To sever the links between the financial and irnOitrial establishments of these two countries would certainly weaken the r~qire in Pretoria. But it would not be an easy task. And unless it was accomplished in the context of riblic ownership of former South African assets in this country, its ultimate effects would be difficult to predict. What can be said with certainty is that the South African coal industry is expanding fast. As this e sion proceeds, coal becomes increasingly imortant to the South African r~qgime. The rapid growth of coal exports is being made to South African coal producers, and in turn South Africa is looking largely to the EEC for a market in which to sell these exorts. At present it does not hold a commanrdinq Dosition in that market, but without urgent action it will very quickly acquire one. 1. The trade in South African coal South Africa does not provide a market for coal sales to any European country, but exports of coal to Europe are extremely important to the South African coal industry. iioreover, althouqh South African coal reserves amount to less than 1 percent of the world total, it has now beccm the world's fourth largest coal trading country, and the success of its coal industry plays a key part in maintaining the apartheid r~aime in Pretoria. Since South Africa is almost totally dependent on overseas suppliers for its crude oil requirements, it has always depended on coal for ruch of its own energy needs. Thus the industry is of considerable strategic and economic ini0ortance. -2- The coal deposits in South Africa are located in Transvaal, Orange Free State and northern Natal; 94 percent of the total output is produced by eight mining groups, with the largest two producing two-thirds of the total output. By international standards, this coal is extrewly cheap to produce, and there is no doubt that reserves are sufficient to sustain the industry and its export trade for many years. But the extent of South African coal reserves needs to be seen in a proper context. South Africa is not capable of exercising the same power through its coal industry as is provided by its gold mines. Parts of Europe have grown increasingly reliant on coal shiments from Richards Bay and from Durban, but in the long-tenn, coal consumption in the rest of the world does not depend on South Africa at all: Table 1 Economically recoverable hard coal reserves (mtce) USSR 104,000 China 99,000 SJA 107,183 Australia 25,400 Canada 1,607 Poland 27,000 Fed.Rep. of Germany 23,991 United :ingdom 45,000 S. Africa 25,290 Total coal resources (all ranks) (mtce) 5,926,000 1,465,000 3,599,657 779,900 474,412 184,000 285,300 149,500 92,511 Total resou!rces as percent of word resources percent 1980 hard coal production (mtce) Ratio of reserves to current output (a " d) years 43.5 10.8 26.4 5.7 3.5 1.4 Source: World Coal Nov/Dec 1981 Column (e) shows that at present rates of production the United Kingdom coal industry has economically recoverable coal reserves sufficient to last over 300 years. Australia and the Federal -Repblic of Germany are in similar positions and other producers are also assured of a long existence. Scuth African coal production in 1980 accounted for around 4 percent of the world total. Since the South African economy is so heavily reliant on coal for dcmestic energy needs, production prior to 1973 was largely determined by the level of demand. However, with the growth of world coal consumption that followed the Middle East oil crisis of that year, production in South Africa was stepped up to meet the needs of a rapidly growing export market. ) ) 3 ) T -3- Table 2 South African coal balance (mtce) 1970 1975 1977 1979 Production 54.6 69.2 83.3 95.4 Demand 53.1 66.5 72.6 73.0 Exports 1.5 2.7 10.7 22.4 Source: Coal Trade Statistics (W.H. Fischer) Table 2 shows that coal output in South Africa rose by 85 percent in the decade of the 1970s in order to permit a fifteen-fold increase in exports. A further increase to 44m tonnes by 1985 and 80m tonnes by 1995 is already planned. By 1980 South African exports had risen to over 28m tonnes and accounted for more than 11 percent of the world trade in coal. This figure, however, should be treated with caution. out of a total ouput of 2,760m tonnes of coal in the world that year, only 252m tonnes or 9 percent was traded across international frontiers. Nevertheless, if we look at the destination of South African exports, it can be seen that in the European context these are very significant indeed. Some coking coal is exported to Japan and the Republic of Korea, and there are other shipnents of South African coal to these countries and to Taiwan; but over 73 percent of South African coal exports are destined for EEC countries: Table 3 Destination of South African coal exports (mtce) 1979 1980 France 8.3 8.9 Italy 2.3 3.4 Denmark 2.3 3.4 Belgium 1.9 2.1 Federal Republic 1.1 0.9 of Germany Netherlands 0.6 2.0 Taiwan 0.7 1.6 Republic of 0.6 0.9 Korea Japan 2.4 3.4 Others 2.2 1.9 22.4 28.5 Sources: Coal Trade Statistics-W.H. Fischer World Coal Nov/Dec 1981 -4- It should be noted that France which is South Africa's largest export market, is also the NCB's largest exrt market, and there can be little doubt that if South African imports to the EEC were stopped, much of these would be replaced by United Kingdmn coal. It should also be noted that exports to EEC countries are growing rapidly. In 1980 South African coal shipments to the EBC increased by 19.5 percent on the preceding year. But although the EEC is by far the most important market for South African coal exports, EEC countries are not at present dependent on South Africa for their coal supplies, thugh there are indications especially from Belgium and Italy, that long-term contracts are currently being negotiated which will rapidly lead to this: Table 4 Coal imports from South Africa as a percentage of total coal inyorts: 1980 1981 France 31 29 Italy 21 18 Dermark 32 29 Belgium 20 27 Federal Republic 15 17 of Germany Netherlands 3 1 Total EEC 21 21 Source: European Commission What emerges from this analysis is that an embargo on South African coal inorts, if it were implemented quickly, would damage South Africa but would not have a lasting effect on world coal consum:tion. Instead, it would lead to an increased demand for coal from EEC countries which could easily be met by those countries which have substantial coal reserves and are already supplying the EEC market, such as the United Kingdom, the Federal Republic of Germany, the USA, Australia and Poland. For the United Kingdom coal industry specifically, the effect of economic sanctions would be to increase sales to existing export markets and secure enployment in the British mining industry.