Sound Economic Reasons Why Ibutho Coal’s Fuleni Mine Cannot Be Profitable


Cartoon by Chris Moon


The following entertaining article comes from respected Economy Professor Patrick Bond of the Centre for Civil Society at UKZN in Durban, after he was asked to give a simple explanation of natural capital to non-economists involved in opposing the Fuleni open cast coal mine on the boundary of the iMfolozi Wilderness Area:

“Economists who calculate GDP (Gross Domestic Product) only think the extraction of Fuleni coal is a ‘positive’ and they make it a ‘credit’ to the GDP; but to nature and to the national citizenry of a country, it is a negative because not only does it result in immediate pollution and social destruction, the digging up of non-renewable resources should also be considered a ‘debit’ given that these national treasures are removed forever.

The economists who calculate GDP only care about the credit, and ignore the debit, which is a critical flaw in their reasoning.

Regarding resource extraction in Africa, it resembles a problem I hope I never have:

A drunk nephew finds the key to the cupboard containing the family jewels, and he takes them all away, then finds a sleazy foreign buyer on the street corner who pays him a small portion of the value of the jewels, at which point the nephew goes to the bottle store and gets the most vile booze available, swigs it down and comes home to the same house, and vomits it all up, passing out and leaving the auntie to clean up the mess

That’s Resource-Cursed Africa. The largest nephew on the continent is the Nigerian who finds the Delta oil jewels, and delivers them to Shell. The second largest is the South African who finds the platinum jewels and delivers them – massacre included, courtesy of the SAPS – to Lonmin. (That particular drunken South African nephew is none other than Cyril Ramaphosa, our Deputy President!)”

For those wishing to further their understanding of “natural capital”, Professor Bond goes on to explain that the calculation of the ‘natural capital’ that is lost (depleted) when non-renewable coal is factored into GDP corrections, is vast: 6.4% of South Africa’s Gross National Income (according to the World Bank’s latest available data).

According to the Gaborone Declaration of May 2012, signed by Minister Edna Molewa, the Department of Environmental Affairs is meant to ‘incorporate the value of natural capital into national accounting and corporate planning.’ If that exercise is done, the case in favour of exploiting the Fuleni coal fields is that much weaker, because this would incorporate the natural capital depleted in the process of Ibutho making profits (and South Africa raising its GDP).

Until this depletion of a non-renewable resource is accounted for, so that a ‘full-cost accounting’ of Ibutho’s potential operations is made, then South Africa is in violation of the Gaborone Accord, which Molewa herself committed to.

And, if natural capital accounting is taken into account, then the net economic benefit claimed by Ibutho Coal simply cannot be justified. Inevitably the mine will end up being a loss to the country.

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