After the Diamond Rush

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. The National Party saw the mining industry as a tool for the economic upliftment of their constituency of Afrikaans-speaking whites. Afrikaner nationalists had long resented dominance of the industry by British capital and once in government leaned on big mining firms to allow the entry of Afrikaner capital into the sector. The result was that mining conglomerate Anglo American sold a controlling share in its subsidiary General Mining to Federale Mynbou to create the first Afrikaner-controlled mining company.

The period of “high apartheid” in the 1960s coincided with the years of peak production from the mining industry. To put it simply, there was money to pay for a developmental state that provided social mobility for whites, new infrastructure of roads, dams, power stations, and social engineering projects to increase racial segregation. There were real, material benefits for the National Party’s constituents, and in 1968 Samuel Huntington termed South Africa a “satisfied society.” The country had become a tightly integrated industrial economy between large mining firms and state-owned companies. By the 1960s, Eskom’s two largest customers were Iscor and Anglo American, while Anglo American was the largest supplier of coal to both Eskom and Iscor.

Relations between government and industry were not entirely without friction. As historian Charles van Onselen put it, “The one paid, the other pronounced. It was never a marriage made in heaven.” Nevertheless, the close relationship paid dividends as a new mining boom began.

Until 1971, international gold markets had an unusual structure. The price of gold was fixed by governments who maintained convertibility between their currencies and gold and they agreed to purchase any quantity produced, so the market was limitless. By the late 1960s, this fixed price, alongside high taxes and rising operating costs, caused some anxieties in the industry. These disappeared with the onset of a spectacular mining boom in the 1970s. In 1971, the United States unpegged the US dollar from gold and upended the Bretton Woods system. Gold prices soared, almost quadrupling over the following three years. South Africa then produced almost 70 percent of the world’s gold supply. This bonanza occurred alongside a wave of industrial unrest and wages finally rose. Real wages for African mineworkers rose by over 300 percent between 1970 and 1976.

It wasn’t only gold that boomed. South Africa became a major coal exporter in the 1970s as production increased enormously with the shift from shallow underground mines to open pit operations. Over 28m tons were exported in 1980, up from 1m tons in 1969, in addition to a growing domestic market from newly built coal-fired power stations. Iron boomed too. Iscor constructed new steel plants in the 1970s and enormously expanded iron ore extraction in the Northern Cape to supply them. Steel production doubled over the decade.

The 1970s also marked the beginnings of a boom in platinum. The Bushveld Complex, which contains about 50 percent of the world’s reserves of platinum group metals, was discovered in the 1920s, though it was in the 1970s that demand really took off. The adoption of catalytic converters as a way of reducing vehicle emissions transformed platinum from a precious metal into an industrial commodity and output rose dramatically through the 1970s and 1980s.

End of the boom

By 1980, the gold industry contributed 38 percent of total government revenues, the rest of the mining industry around 7.5 percent. Never again were such riches to be had. In 1981, gold prices began falling and declining ore grades triggered a slump from which the industry has never recovered. African mineworkers, joining the newly legalized National Union of Mineworkers in increasing numbers, continued to win above-inflation pay rises, though the falling value of the rand temporarily shielded the industry from rising costs. Employment in mining reached a new peak of 756,000 in 1986. When the rand stabilized, however, the industry’s position was painfully exposed. Mining’s contribution to GDP more than halved over the decade and by 1990 the entire sector contributed only 6 percent of government revenues.

This proved to be disastrous timing for the incoming ANC government that won the first democratic elections in 1994, formally marking the end of apartheid. The ANC’s economic policy had shifted over the previous decade. The party had long advocated nationalization of the mining industry. On the day of his release from prison Nelson Mandela announced that this nationalization “is the policy of the ANC and a change or modification of our views in this regard is inconceivable.”

Much had changed during Mandela’s 27 years in prison, however. The collapse of the Soviet Union prompted a shift in thinking and one encouraged by the mining industry itself. Many leading figures in the industry who had become convinced that apartheid policies were now hampering the industry, limiting companies’ ability to train their workforces and access capital, pushed for economic and political liberalization, opening negotiations with the still-banned opposition during the 1980s. The chairman of Anglo American led a delegation of businessmen to negotiate with the ANC in exile and an executive at Consolidated Gold Fields later arranged secret talks between the apartheid government and the ANC at a country estate owned by the company in England.

Straitened economic circumstances had already prompted a change of economic thinking in the National Party leadership. The refusal of US banks to extend credit to the government in 1985 triggered a financial crisis and provoked market-orientated reforms. The government began to privatize state-owned companies, including Iscor, which was sold in 1989.

The ANC had paid relatively little attention to economic policy during the liberation struggle. Now, with doubts about the efficacy of state ownership, the party, as one account of this period puts it, fell sway to “intellectual seduction by big business” and the National Party.² By 1992, the party’s Ready to Govern policy document talked of a strategy for mining that would “where appropriate, involve public ownership and joint ventures.”

Once in government after 1994, plans for state ownership morphed further into advocating a strategic alliance between the state and big business with “private capital as a social partner for development and social progress.” The state and business would collaborate to redress racial economic disparities. The mining industry would help pay for this through empowerment initiatives for the African majority, job creation, and financing a shift from mining to labour-intensive manufacturing.

The main legislative tool for economic transformation has been Black Economic Empowerment, which focused initially on boosting Black ownership of big business by mandating mining companies to achieve a minimum of 15 percent Black shareholding by 2009. This began with a series of voluntary deals in the mining sector, notably the decision of Anglo American to sell its subsidiary Johannesburg Consolidated Investments to a Black empowerment consortium. This sale was consciously modelled on Anglo American’s sale of its subsidiary General Mining three decades earlier. Further deals followed in a similar manner, including the sale of Iscor’s iron and coal assets to a Black-owned consortium.

Criticism of these deals has usually focused on the way that politically connected insiders became wealthy through these deals, among them South Africa’s current president Cyril Ramaphosa. There was a broader problem though: the mining industry slumped in the 1990s and some parts never recovered. Resources from the sector have dwindled: taxes from mining represented 3 percent of GDP in 1980 and 0.6 percent of GDP in 2010. The gold industry disintegrated during the 1990s in the face of rising production costs and low prices. Even worse, output and employment continued to slide during the huge boom in gold prices in the 2000s. South Africa lost its place as the largest gold producer in 2007, when it was overtaken by China, and has since slumped to eighth. In 2020, annual production dipped below 100 tons for the first time since 1901. Job losses continued too. Gold mining employment fell from over 500,000 in 1985 to 380,000 in 1995 and 160,000 by 2005.

The mining sector had a hardy self-image. General Mining’s corporate history was called Through Fortress and Rock, while Western Deep Ltd titled the account of their biggest mine Down Where No Lion Walked. Neither of these companies exists today. General Mining’s much reduced successor company moved out of their grand offices in central Johannesburg —which had a helipad on the roof—partly because they no longer needed so much space. Most existing gold companies, some over a century old, along with a host of platinum and coal firms disappeared during the 1990s and 2000s.

The gold is still there. The issue is that remaining deposits are located too deep underground to profitably extract. The deepest mines go down to a depth of 4000 metres and extraction is so expensive that even with gold prices at record highs they struggle to make money. In 1996, Anglo American announced plans to sink new shafts on the edge of the Rand down to 5,000 metres before abandoning the plan. One contemporary estimate suggested that extraction could only begin 13 years after such a project commenced, a poor rate of return on investment. Instead, Anglo American spun off its gold mines into a new company AngloGold and by 2020 it had sold off or closed down all their South Africa operations before exiting the country entirely in 2023.

This decision became an increasingly common one. In 1995, the ANC lifted capital controls that had been in place since 1960 as the party assumed there would be a wave of foreign investment after the dropping of apartheid-era economic sanctions. The opposite occurred. There was substantial capital flight in the 1990s and 2000s, especially from the mining industry. Anglo American represented perhaps 45 percent of the value of the Johannesburg Stock Exchange in 1990 (the company claimed at the time this was exaggerated, and that it was “only” 30 percent). In 1999, the company moved its headquarters to London and shifted its primary listing to the London Stock Exchange as part of a strategy of divestment from South Africa. This has continued steadily. The company’s latest plans involve selling off almost all their remaining mines in South Africa.

Most of what were once firmly national companies with their listing and almost all their operations within South Africa became international, or were bought up by other international mining firms. Newly internationalized firms had much less reason to maintain close links with the South African state and when rapid economic growth in China stimulated a huge commodity boom in the 2000s they turned their attention elsewhere.

The global mining boom was apparent almost everywhere except South Africa. Investors who grumbled about regulatory uncertainty and logistical problems in South Africa poured money into mines in Burkina Faso, Democratic Republic of Congo, and Mali.

After the rush

The ANC has retained faith in mining as the inexhaustible provider of wealth and jobs and its policy documents have consistently emphasized the need to expand the sector “for the current and future growth of our economy and job creation.” The government sought to use the industry to provide jobs for its constituents by imposing a tax on the recruitment of mineworkers from neighbouring states who the industry had long relied upon. While most of the people who work in the industry today are South African nationals, unemployment remains one of the most serious and persistent economic challenges in South Africa.

It is true that mining remains a large-scale industry in the country, even if a diminished one. Thousands upon thousands of tons of metals and coal are extracted and exported each year. Yet the mining industry has stagnated and has not revived even as gold prices reached record highs in 2024. For other countries on the continent, the South African mining industry represents the dangers of a commodity-boom driven developmental agenda.

The ANC’s efforts to leverage this exploitative industry into a broader economic transformation faltered  when the industry dramatically shrunk. Hundreds of thousands of jobs disappeared and in many ex-mining towns nothing has replaced them. The party could not deliver jobs to their supporters who consequently have abandoned it in droves.

At the same time, the close alliance between industry and state that the ANC thought would characterize a new nation-building project dissolved as mining companies exited South Africa.  The industry internationalized and mining companies found they did not require a close relationship with governments. Mining companies had other options, the country they left did not.