South African mine strikes could damage country’s economy, analysts say

September 13, 2012

As unrest sweeps across South Africa’s platinum industry, analysts fear the impact of industrial unrest on the continent’s largest economy, already hit hard by the euro-zone crisis.

Industrial strife is set to affect the country’s growth prospects, further damaging shaky investor sentiment, experts warn. On Thursday, thousands of striking miners gathered amid threats that they would bring the industry to a halt.

The rand fell more than 2 percent Wednesday after Anglo American Platinum, the world’s biggest producer of the precious metal, said it was suspending operations at five shafts in Rustenburg to protect the security of some 26,000 employees at the mines.

This was the latest in a series of actions at mines across South Africa since workers at the Marikana mine complex, operated by Lonmin, the London-listed company, went on strike Aug. 10. The police killing of 34 protesters Aug. 16 hardened the strikers’ positions. Lonmin’s production in South Africa has been halted for five weeks. Gold Fields has since been hit by two strikes, one erupting days after the other had been resolved.

“If workers are not at work they lose salaries, but not only that, it has a major economic impact on the country,” Susan Shabangu, the mineral resources minister, told the Financial Times.

South Africa’s economy was built on mining, and it remains an integral driver of growth. The sector employs about 500,000 people, and it contributes between 5 percent and 8 percent of gross domestic product.

The sector’s importance to the economy was made clear earlier in the year when Impala Platinum was hit by a six-week strike and other companies endured safety stoppages. The mining sector contracted by 16.8 percent. In the second quarter, mining expanded by 31 percent, helping GDP growth hit 3.2 percent for that quarter, up from 2.7 percent in the previous three months.

Although economists say it is too early to quantify the impact on GDP, that bounce seems set to be reversed.

“It feels like it [the unrest] is becoming more protracted and spreading, so you are looking at 5 percent of the economy declining at an annualized rate of maybe 25 or 30 percent, and that would obviously detract quite a lot from GDP,” said Kevin Lings, chief economist at Stanlib, as asset manager. “So instead of [the economy] growing at 2.5 percent, it could be growing at 1.5 percent. That’s the type of effect we are looking at.”

The fear is that the unrest could have an indirect impact on other sectors, such as the struggling manufacturing industry. “I’m very concerned about it. . . . I’m worried that it could spread further,” said Stewart Jennings, chairman of the Manufacturers Circle, an industry group. “With the recession in Europe, we are short of orders and this makes it worse for us. The last thing we need is domestic turbulence.”

South Africa is one of the emerging markets most exposed to Europe, and its economy was forecast to grow by about 2.5 percent this year. This is far below the figure needed to tackle poverty and 25 percent unemployment, problems that the Marikana violence has highlighted. This week, the central bank said the account deficit had widened to 6.4 percent of GDP, a ratio last seen in 2008 and up from 4.9 percent in the first quarter.

The Johannesburg Stock Exchange has so far remained stable, with its all-share index at similar levels to where it was Aug. 16, while foreign inflows into the bond market remain strong.

But the worry is that the damage to South Africa’s image could be long lasting as Marikana adds to concerns about policy uncertainty, mounting social pressures and a tumultuous political climate within the governing African National Congress.

“I don’t think one can wish away the fact that there’s a negative perception that’s been exacerbated, not only by Marikana, but by what has emerged as a consequence of Marikana,” said Martin Kingston, chief executive of Rothschild, the investment bank, in South Africa. “Many clients, and not just in the mining sector, are trying to make sense of what happened and whether there are broader implications for their operations or their opportunities in South Africa.”

— Financial Times

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