Alarm bells for two of South Africa’s biggest employers

 ·18 Jun 2024

Manufacturing and mining—two of South Africa’s largest employers—are underperforming global counterparts and have cut hundreds of thousands of jobs due to load shedding, transport bottlenecks, poor economic activity, and regulatory concerns.

TIPS, an economic research institution, reported that the post-pandemic recovery conceals significant disparities between economic sectors.

It noted that private services, agriculture, public services, and logistics now contribute 40% of the GDP in Q1 2024, while the rest of the economy—including manufacturing and mining—is stressed.

Data compiled from Stats SA shows that since the fourth quarter of 2019, manufacturing and retail have shrunk by 5%.

Mining has seen a modest decline in tonnage sold, although its revenues have fluctuated substantially with world prices.

This has materially impacted employment.

In the year leading up to March 2024, the manufacturing sector lost 50,000 jobs, and the construction sector also experienced a slight decline.

TIPS noted that these sectors employed approximately half a million fewer people compared to the mid-2010s and 150,000 fewer than before the pandemic.

Significant job losses were reported in the manufacturing industry, specifically in the auto, glass, and non-metallic minerals sectors.

The transport equipment industry saw a 20% decrease, with over 20,000 jobs lost, while employment in glass and non-metallic minerals also declined.

Manufacturing is an integral part of South Africa’s economy, contributing 12% of GDP and 12% of formal sector employment—highlighting the notable concern.

By virtue of the manufacturing sector, this concern also extends to mining.

The industry also contributed R135.3 billion to the country’s fiscus, with wages increasing to R186.5 billion, employing more than half a million people across South Africa.

However, mining production rose 0.7% year-on-year in April after declining by 4.8% (revised from -5.8% year-on-year) in March. However, the outcome was below the consensus on Bloomberg of 1.1%.

Eight of the 12 mineral categories in the index contracted over the year, preventing a significant lift in April’s reading. Manganese ore, iron ore and coal output dropped by 22.5% y/y, 7.5% y/y and 3.6% y/y, respectively. This took a combined 3.7% points off the headline figure.

Investec Economist Lara Hodes mentioned that the energy-intensive mining sector benefitted from a suspension in rotational load shedding during the month.

However, the sector still faces various structural challenges, including a fragile water supply infrastructure that has deteriorated due to a lack of maintenance over the years.

Additionally, although progress has been made to reduce congestion at the ports, South Africa’s logistical challenges continue to impact activity and export potential.

As a result, the sector has experienced significant job cuts, with some still expected to lose more.

Steel is one industry that has faced a constant decline in jobs.

According to the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) COO Tafadzwa Chibanguza, the sector currently employs 362,871 people—a significant drop from the 577,507 people employed in 2008. 

This equates to a decline of 214,636 jobs, or 37.2%, representing a 2.9% decline per annum.

Another sector is platinum group metals (PGM) miners, which have been hard hit by steadily declining commodity prices. 

As a result, some miners have already begun restructuring their operations, potentially impacting between 4,000 and 7,000 jobs in South Africa. 

Concerningly, challenges facing the mining sector may continue as investors shy away from South Africa,

According to Old Mutual Wealth investment strategist Izak Odendaal, global miners are hesitant to invest in South Africa due to volatile labour relations, community disputes, organized crime, regulatory uncertainty, delays in process applications, and recent infrastructure bottlenecks.

Transnet’s inefficiencies have limited the export of vital minerals, affecting South Africa’s foreign exchange earnings.

The Fraser Institute ranks mining jurisdictions annually, and South Africa has steadily declined in attractiveness, now ranking among the ten least attractive mining destinations.

The evidence is declining mining production—the volume of stuff pulled out of the ground—over the past twenty years. 

Excluding gold, which is largely mined out, makes the picture somewhat better, but not much. 

In contrast, Australia, not facing the same physical and institutional bottlenecks as on this side of the Indian Ocean, has steadily doubled output over this period.

This contrast is shown in the graph below. 

Read: Audi, BMW, and Mercedes-Benz under siege in South Africa

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