South Africa’s biggest industry is in a downward spiral

 ·14 Dec 2022

South Africa’s R1 trillion mining industry is in a downward spiral, say economists at Nedbank, with the sector recording its ninth consecutive month of decline in October.

Mining production declined by 10.4% year on year in October, the bank noted this week, after shrinking by 5.1% in September.

“Erratic power supply, inflationary pressures, supply chain disruptions, and the challenges associated with illegal mining continued to restrict production,” it said.

“The drag came from platinum group metals (PGMs), gold, diamonds, and manganese ore, where output fell by 32.5% YoY, 6.3%, 22.5%, and 10.5%, respectively. Together these four
commodities shaved 11.8 percentage points from the annual growth rate in total mining production.”

Month-on-month, mining production dropped by a sharp 2.5% MoM, after declining by 0.1% and 0.4% in September and August, respectively. The diminished output of platinum, manganese ore and diamonds drove the monthly decline, Nedbank said.

Making matter worse, mining production has not recovered to pre-pandemic levels and remained 13.4% below the level achieved in October 2019, highlighting the continued strain on the sector.

Mineral sales grew by 0.5% YoY in October, slower than 21% in September.

“Despite the moderation in commodity prices, it remains relatively elevated and continues to support mineral sales. Coal, in particular, has benefitted from stronger demand due to the ban on Russian exports,” the bank noted.

Overall sales have mainly been driven by coal, which has increased by 16.2% YoY, contributing 4.2 percentage points to the overall growth rate.

Looking ahead, the mining sector is unlikely to recover in 2023 amid the weaker global economic outlook and challenging operating environment, Nedbank said.

“The buoyant demand for some commodities, such as coal and copper – given its increased prominence in the shift to renewable power sources – will be offset by domestic supply constraints and a decline in demand for other commodities on the back of an expected slowdown in the world economy.

“Additionally, the prices of most of South Africa’s leading commodities will continue to moderate in the new year and decrease the value of mineral sales,” the bank said.

Mafias descend

On top of prevailing market conditions and the state of South Africa’s electricity grid, mining companies are now also speaking up about extortion rackets that are increasingly disrupting their businesses.

In an interview with Bloomberg this month, chief executives from several local mining groups, including AngloPlatinum and Implats, spoke of so-called “procurement mafias” that mobilise communities into violent extortion schemes.

According to the Hawks, the mining industry is under attack, with syndicates “creating their own mafia-type groupings that exert pressure.”

From damaging infrastructure to threatening workers and blocking operations, criminal elements are increasingly targeting mining firms to extort contracts or pressure companies and their workers to meet certain demands.

“In the worst case, they demand partial payment from people that have honest contracts; otherwise, they disrupt their ability to deliver goods and services. Anyone that steps up to intervene is intimidated,” mining execs said.

The rackets are not exclusive to the mining sector – having made roots in construction and transport as well – and analysts and economists have warned that the increased prevalence of these attacks is pushing investment away from South Africa.

Read: ‘Mafia’ warning for South Africa’s economy: report

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