South African mining industry in trouble – minister

Thousands of jobs are at risk of being lost as the once-thriving mining industry in South Africa enters a crisis period [Xinhua]

South Africa’s mining sector is in “trouble” due to job losses caused by lower commodity prices and rising input costs, Minister of Economic Development Ebrahim Patel said on Wednesday.

Economist Elna Moolman of Macquari Securities agrees with Patel’s assessment that the mining sector is in a very difficult space.

“This increases the urgency to implement the growth-supportive aspects of the National Development Plan. How policymakers respond to the mining crisis will be very important,” Moolman told The BRICS Post.

In the meantime, closures and job loss risks are rife in the mining industry.

ArcelorMittal SA has put its Vereeniging long steel works plant on care and maintenance, placing 1,200 jobs at risk, while Witbank-based Evraz Highveld Steel and Vanadium went into business rescue in April with 1,200 jobs at risk there.

Kumba Iron Ore has decided to close its Thabazimbi mine in Limpopo.

The closure will impact about 800 employees and 360 contractors.

Platinum miner Lonmin has started with a voluntary separation and early retirement process that puts some 6,000 jobs at risk, while Amplats’ rationalisation of its Rustenburg operations also puts 6,000 jobs at risk.

Diversify, diversify

During his interview with private station Talk Radio 702, Patel also said that South Africa needs to boost the agriculture, tourism and manufacturing sectors to diversify the national economy away from a reliance on mining.

But effective diversification has already occurred to an extent that might well be regarded as too much, too soon, and thus needs no further push, says Charl Kocks, principal officer at Ratings Afrika.

“Boosting a sector in any event takes place when opportunities create significant interest for entrepreneurs, and sadly none of the sectors of agriculture, tourism and manufacturing seem to be providing such opportunities, in large measure because of recent governmental actions or its lack of interest in increasing labour flexibility,” said Kocks.

In the meantime, the agriculture sector is in crisis due to the drought in the first half of 2015 with the prospect of further dry conditions persisting due to a developing El Nino weather condition.

The maize harvest this season is 30 per cent less than 2014, while the sugar cane harvest has also been severely affected as water restrictions have been imposed in the KwaZulu-Natal province.

Black spot fungus outbreaks are threatening South African citrus exports to the European Union (EU). Organic lemon exports to the EU have already been suspended following the discovery of citrus black spot in three consignments. Black spot causes blemishes on a fruit’s peel, but is otherwise not a health risk.

Multiple sectors struggling

The tourism industry is also in crisis due to the introduction of in-person bio-metric visa requirements in October 2014 and the need for parents to have unabridged birth certificates from June 2015 onwards.

The in-person bio-metric visa requirement resulted in a 62 per cent year-on-year slump in Chinese tourists to South Africa in November 2014 as there are only two consulates in China – in Beijing and Shanghai – that can process applicants.

The Tourism 2014 report by Statistics South Africa (Stats SA) on Tuesday showed that tourism growth stalled in 2014 with only a 0.1 per cent rise in tourist arrivals to 9.549 million after a 3.6 per cent increase in 2013 and a 10.2 per cent jump in 2011.

BRIC tourists to South Africa plunged by 39.3 per cent in 2014 to 218,036 compared with 15.3 per cent drop in overseas tourists to 2.66 million.

The manufacturing sector has also been hard it and needs a boost, says Minister of Economic Development Ebrahim Patel [STATS SA]

Elsewhere, the manufacturing sector has been hurt by load shedding with four of the past five months showing year ago declines.

In May, there was 1.4 per cent year on year (y/y) decline, which was mainly due to lower production in the electricity-intensive basic iron and steel, non-ferrous metal products, metal products and machinery division (-5.8 per cent y/y) and the petroleum, chemical products, rubber and plastic products division (-4.6 per cent y/y).

Include other sectors

But other analysts, like Credit Guarantee Insurance economist Luke Doig, believe that South Africa shouldn’t restrict itself to only boosting the agriculture, tourism and manufacturing sectors but also include the mining, business services/finance/banking/insurance, energy and construction industries in order to grow the economy at a far greater pace than the current pedestrian rate.

Doig says that policy certainty needs to be improved in order to boost investment and create employment opportunities across all sectors.

“The fact that such a large forex earner faces the challenges that it does implies that all role players need to do their utmost to ensure that the dwindling fortunes of mining are stabilised and indeed reversed whilst also seeking to boost other sectors,” Doig told The BRICS Post.

The Business Confidence Index has fallen for several years [SACCI]

His comments came as the South African Chamber of Commerce and Industry (SACCI) expressed concern that the present low domestic economic growth rate was not merely the consequence of cyclical or other short-term factors, but had deeper underlying problems.

There was an urgent need for persistent higher economic growth without which South Africa’s economic problems cannot be alleviated.

SACCI’s Business Confidence Index rose to 87.9 in July 2015 from a 16-year low of 84.6 in June 2015. Except for a brief resurgence in 2011, the index has been in decline since 2008.

By Helmo Preuss in Pretoria, South Africa for The BRICS Post