'Lonmin, cooling China threaten SA'

TWO DEVELOPMENTS, one in China and one at Lonmin’s Marikana platinum mine near Rustenburg, are the latest threats to domestic growth, according to Standard Bank chief economist Goolam Ballim.

At a presentation in Johannesburg yesterday, Ballim said slower growth in China would spell lower prices for commodities, which make up about two thirds of local exports.

A vendor sells produce in downtown Changsha, China. Standard Bank chief economist Goolam Ballim says China's slowing growth is a threat to domestic exports because prices of commodity exports are dependent on Chinese demand. Photo: Bloomberg. Credit: Bloomberg

He made the connection between falling commodity prices and the ability of mining companies to satisfy worker wage demands. Ballim said the clashes at Lonmin’s operations this month, where 44 people were killed in a labour-related dispute, are a symptom of a broader problem with long-term implications for South Africa’s fortunes.

Due to the apartheid legacy, he said, a large section of the population “does not have the capacity to participate in a modern technology-centric economy and will forever be marginalised”. He further described the country as “rudderless”, lacking a platform for agreement between business, labour and the government.

“We are increasingly talking about a greater role for the state. Yet municipalities, which are at the heart of public sector delivery, do not have even sustainable financial management,” Ballim noted.

The government is not the only weak link.

The private sector, he said, “does not speak with one voice”, while there were serious divisions within the labour movement. “The mass of labour would probably suggest that union leadership has become too ensconced with [the] government and there is a growing crevice between workers and union leadership.”

Ballim pointed out that, in recent months, the rand had not strengthened in line with an improved global risk appetite, as measured by the Chicago Board of Trade volatility index, a proxy for risk.

“This probably signals that internal matters seem to be influencing the rand. And internal factors seem to be more negative than constructive.”

Ballim said four years after the collapse of US investment bank Lehman Brothers in September 2008, the world had not recovered from the financial crisis of 2007/08 and the global recession of 2008/09.

Instead events seemed to be “morphing from one instalment to the other” as the focus moved from the “financial meltdown” in the US, to Europe, which “had fallen into an incredibly weak spot” and, “more latterly, to China”.

He said China was now “more a risk to global macro-economic conditions than a scaffolding for the global economy”. Since 2010, double-digit growth in China had driven the global economy but the country was now “facing headwinds”. China’s problems have a multiple impact on South Africa.

After strong growth in recent years, exports to China represented 12.4 percent of total exports last year, Ballim noted. Now growth in this export market is under threat.

If that country’s gross domestic product (GDP) grew only 6 percent “the momentum loss would encourage a recession in the commodities market”, Ballim added, citing copper, iron ore and platinum prices as examples.

Lower commodity prices would translate into a weaker rand. This in turn would boost inflation, eroding purchasing power and reducing the contribution of consumption to overall GDP. At the same time there was limited investment potential, with private firms hesitant to make new plans when consumer demand was likely to be weak, Ballim explained.