AMN - South Africa seeks brighter future despite challenges - comment by Yolanda Torrisi

2016 was one of the most difficult economic and political years in South Africa and as the world’s mining executives begin the yearly trek to the Mining Indaba in Cape Town, which starts next week, there are high hopes for a return to more prosperous times.

Economic growth continues to be slow and sits under 1%. The country has not been able to recover from the 2007-2008 global financial crisis and last year’s shock Brexit and low commodity prices have continued to shake an already fragile economy.

Politically it has been turbulent with the ANC experiencing infighting and factionalism, and there continues to be growing opposition to President Jacob Zuma.

However, there is hope for South Africa and many believe that it can return to a path of recovery by engaging stakeholders and looking at practical solutions.

Mining has been hit very hard but continues to be the backbone of the South African economy.

In a recent published interview, former African Mining Network guest speaker, South African Chamber of Mines CEO Roger Baxter told reporters the mining sector faced very challenging times. The mining sector lost R37 billion ($US2.64 billion) in 2015 and challenges continued throughout 2016.

“Rand prices of key export commodities have stagnated or declined while domestic cost pressures for mining inputs have risen by staggering rates with the cost of electricity trebling over seven years, the total cost of wages increasing by more than 10% per annum over a period of five years and the cost of materials increasing by more than 10% per annum over the past five years (the cost of steel alone increased by 12% per annum),” Roger Baxter said.

External shocks were also a drag on the mining industry.

“Globally, the mining sector has been under huge pressure. The slowdown in the Chinese economy, anaemic growth rates in other regions and exchange rate fluctuations have all contributed to declining demand and prices for most minerals,” Roger Baxter said.

It is expected that this year the mining sector will focus on cost cutting, improving productivity, and capital discipline and adjustment in order to ensure its survival.

South Africa must have policy certainty so that investors are comfortable with long-term investments, while more efforts are needed to keep improving investor confidence. There is a need for South Africa to diversify its economy and rely less on commodities.

Inflation has been outside the target range (3-6%). Food prices have increased and the currency continues to devalue. Wage and salary settlements continue to come in above inflation and productivity gains and high electricity costs. Inflation is expected to reach 5.5% by the end of next year.

The country avoided being downgraded to junk status in December when the ‘Big Three’ rating agencies left it one notch above it.

Overall South Africa continues to weather the storms and remains resilient to the challenges.

- Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the African continent. Contact:yolanda@yolandatorrisi.com