Mining retains iron grip on SA economy

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AngloPlatStrike Reuters.

Nyandeni - Mining accounts for a fraction of South Africa's gross domestic product but still hits well above its weight and is pushing the continent's most advanced economy towards recession.

South Africa's economy shrank 0.6 percent in the first quarter of this year, data showed this week, the first quarterly contraction since a recession in 2009 as mining output plummeted amid a protracted strike in the platinum sector.

A recession, defined as two consecutive quarterly declines in GDP, seems certain as the strike by members of the Association of Mineworkers and Construction Union (Acmu) against producers Anglo American Platinum, Impala Platinum and Lonmin has continued in the second quarter.

Mining has been in a state of long-term decline here and the fact that it still packs such a punch highlights a number of structural problems in the economy.

These include a failure to diversify the export base, which leaves the trade balance, current account and rand currency dangerously exposed to an overreliance on commodities, and an inability to generate jobs from other sectors.

“Because our economy is diversified we often forget how dependent we still are on mining commodities. It still represents more than half of export revenues, which is shocking,” said Christie Viljoen of NKC Independent Economists.

“The government's big focus is on manufacturing, that's where it sees the jobs and the exports. But if you look at how important mining exports still are it raises big questions about their success in diversifying exports,” he said.

According to customs' data, mining commodities last year accounted for around 57 percent of the 925 billion rand worth of commodities that South Africa exported.

In this regard, South Africa's economy, for all its sophistication and market liquidity, is very much typical of the continent, with a heavy exposure to resources.

Natural resources still account for around three-quarters of sub-Saharan Africa's exports, according to World Bank data.

The strike, which began in late January, has cost the industry more than 20 billion rand in lost revenues so far.

As that would have been almost exclusively counted as exports, it will pressure a current account deficit which is already equal to 5.1 percent of GDP.

This in turn will make the rand currency vulnerable.

 

RIPPLE EFFECTS

South Africa's export profile may reflect the region's but its slow growth pace is very “un-African” at a time when many of the continent's economies are expanding at super-charged rates.

International Monetary Fund managing director Christine Lagarde told a conference in the Mozambican capital Maputo that Sub-Saharan Africa was expected to grow 5.5 percent this year, well above the global average, with some of its poorest countries expanding by closer to 7 percent.

South Africa's growth is so feeble that even one relatively small sector of the economy can tip the whole thing into recession - which is exactly what is happening now.

Mining only accounts for 5.1 percent of GDP, according to Statistics South Africa data, down from a peak of almost 20 percent in 1980, when the country was the world's top gold producer and bullion's price was sky-rocketing.

But because the overall economy has been expanding so sluggishly, mining's almost 25 percent plunge in output in the first quarter on an annualised basis - its steepest contraction in almost half a century - is pulling the rest down with it.

The industry is entrenched in the South African economy in other ways as well that add to its ripple effects.

Its continuing reliance on a migrant labour system, drawn from poor rural areas in regions such as the Eastern Cape province far from the shafts, means the impact of lost wages for example spreads through the country.

Standing outside his cinder block general store in the rural Eastern Cape backwater of Nyandeni, Douglas Vava said his business was down because the flow of money into the area had reversed as the men on the mines had no money to send home.

“Women take the social grants they get for their children and they are subsidising their husbands with the money. So our spending capital here has shrunk,” he said.

The typical miner has eight dependants and the 70,000 or so striking workers have now lost at least a third of their annual wages, compounding the knock-on effects of the stoppage. - Reuters



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