Fiscal policy incentives for minerals exploration : what South Africa can learn from the Canadian experience

Abstract

South Africa has a long history of mineral resource exploitation. As a result of accelerated economic growth in emerging markets in the last decade, the demand for metals and minerals has grown rapidly. Several countries have profited from this demand-supply imbalance while others have lagged behind. This research investigates the factors affecting this situation with the objective of making recommendations to improve the competitiveness of the South African minerals sector. A literature review identifies the potential reasons from a firm and state perspective for specific mineral resource influenced countries thriving. These factors were explored further through a qualitative research process which sampled perceptions of relevant companies listed on the Toronto Stock Exchange. Emerging from this study and in support of the factors identified in the literature review was the importance of fiscal incentives. A quantitative study was then conducted to develop an understanding of the relationships between fiscal incentives and value (market capitalisation). The potential for the application of these methods to South Africa was then assessed. The research identified the importance of an enabling environment to the sustained competitiveness of a minerals sector. Several key factors emerged, with specific reference to tax incentives for mineral exploration. A model of the interrelationship between entrepreneur, mineral resources and the role of the state was developed to provide guidance for policy makers. If implemented, this could catalyse the mineral exploration and subsequently the extractive industries in South Africa. Copyright