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Mining and manufacturing production contract in first quarter

DIAMONDS were the most significant positive contributor, accelerating by 44.3 percent, the highest observed since March 2021. Picture: Reuters.

DIAMONDS were the most significant positive contributor, accelerating by 44.3 percent, the highest observed since March 2021. Picture: Reuters.

Published May 13, 2022

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SOUTH Africa’s economy ended the first quarter on a sour note as the effects of rotational power cuts and geopolitical tension took a toll on manufacturing and mining activity.

Data from Statistics South Africa (Stats SA) yesterday showed that both mining and manufacturing production contracted significantly in March as the war in Ukraine constrained global supply chains.

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Stats SA said mining production contracted for the second month in a row and fell by 9.3 percent in March from a year ago following a downwardly revised 5.8 percent fall in February.

This was the steepest decline in mining activity since November 2020 when production volumes declined by 9.8 percent.

Stats SA principal survey statistician Juan-Pierre Terblanche said mining output was dragged down by lower output levels from gold, iron ore, copper, manganese ore and platinum group metals (PGMs).

“Gold production fell by 25.6 percent, while iron ore declined by 24.4 percent and manganese ore by 19.8 percent,” Terblanche said.

“South Africa also produced less copper, nickel, coal and platinum group metals.”

However, on the upside, diamonds were the most significant positive contributor, accelerating by 44.3 percent, the highest observed since March 2021.

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South Africa’s mining, agriculture and manufacturing industries recorded the highest growth rates in 2021.

Mining contributed 9 percent to the country’s gross domestic product (GDP) last year, pumping more than R400 billion into the fiscus while employing more than 450 000 workers.

Nedbank economist Liandra da Silva, however, said the mining sector performance remained constrained in the face of several domestic headwinds.

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“These include regulatory obstacles, infrastructure constraints, and more recently increased labour disputes,” Da Silva said.

“The mining sector, which is a crucial contributor to domestic GDP, will be a drag on overall economic activity in the first quarter of 2022.”

On a monthly basis, mining production accelerated by 1.7 percent compared to the contraction of 6 percent in February, but decreased by 1.5 percent on a quarterly basis in the three months to March.

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Investec economist Lara Hodes said that based on the quarter-on-quarter seasonally adjusted reading, the mining and quarrying sector would likely make another negative contribution to the first-quarter GDP result.

“While South Africa, a key commodity exporter, has seen some benefit from robust minerals and metals prices, structural constraints have limited optimal production,” she said.

“The energy intensive mining sector is particularly afflicted by electricity supply shortages, with heightened rotational load shedding a persistent feature.”

Hodes said logistical bottlenecks, due in part to ageing infrastructure and theft, exacerbated by the flooding in KwaZulu-Natal in April, continue to weigh on export potential.

Meanwhile, manufacturing production in South Africa fell less than expected by 0.8 percent year-on-year in March, reversing from an upwardly revised 0.7 percent growth in February.

Stats SA said output fell for motor vehicles, parts and accessories and other transport equipment, food and beverages.

The Don Consultancy Group (DCG) chief economist Chifi Mhango said manufacturing production reflected a turbulent environment, as a decline was registered in the latest year-on-year data.

“Historically, South African manufacturing was competitive due to low labour costs, a cheap and reliable electricity supply and government support through subsidies and tariffs. All this has slowly been eroded over the years,” Mhango said.

“The current manufacturing production landscape in South Africa is dominated by rising electricity costs and unreliable supply patterns of electricity as load shedding persists, coupled with increasing logistical costs and an unstable labour environment.”

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