While South Africa’s mining sector is currently benefitting handsomely from high commodity prices and increasing production, strikes and a debate over nationalism threaten to slow growth ahead.
The country’s total mineral production was up 9.6% in May compared to the same month a year earlier, Statistics South Africa said in mid-July, though the country’s gold output fell 5.8% over the same time period.
Despite rising production and gold prices – an ounce of which was worth about $1625 on July 27th – the outlook for the sector has worsened in recent weeks, with strikes looming in the key platinum, gold and coal segments.
What industry players are calling “strike season” has officially begun and the threat of strikes could affect several major mining outfits. In mid-July, the country’s National Union of Mineworkers (NUM) said it was seeking raises of about 14% for mining sector workers, but that the big three companies – AngloGold Ashanti, Gold Fields and Harmony Gold Mining Company – were only offering raises of between 5% and 7%.
Then, on July 20, NUM served De Beers Consolidated Mines with a strike notice after wage talks between the two parties failed. The company was offering workers a 7.5% increase in wages and a one-off payment of R2500 ($361.72), but the union stood firm on its demand for a 15% pay rise, far higher than inflation, which stood at 4.6% in May. A total of 100,000 gold miners from AngloGold Ashanti, Gold Fields, Harmony Gold and other smaller producers were due to go on strike at 6pm local time on Thursday, July 28th, with the action potentially costing the sector as much as $25m per day in lost output.
The threat of strikes – not to mention the strikes themselves – is disrupting production, which contributes to higher gold prices. With South Africa’s gold output standing at 88,000 ounces per week, even a week-long strike could significantly affect output. In addition, the possibility of continued strikes in the fuel industry, which have already led to shortages for consumers at the pump, could also dent output if gasoline does not make its way to the mines.
The industry has also found itself, once again, at the centre of a heated debate over nationalisation, an issue that many thought had been laid to rest almost a generation ago. Though mining only accounts for around 8.8% of GDP, similar to the contribution of the tourism industry, it is one of the highest-profile components of the economy, one that is often seen as synonymous with the country itself. With highly concentrated ownership, including extensive foreign holdings, the industry has often come in for criticism and been subject to calls for nationalisation.
While the government has established a committee to look at the pros and cons of nationalisation – with delegates to undertake studies of the mining industries of a number of countries around the world with a view to considering the issue at the African National Congress’s (ANC) 2012 policy conference – it has denied reports that it has already made a decision to take the industry out of private sector hands.
The idea has received backing from the Congress of South African Trade Unions, the country’s largest labour federation, with the organisation’s general secretary, Zwelinzima Vavi, saying in early July that nationalisation was necessary and that the country’s mineral wealth must be shared.
Julius Malema, the leader of the ANC Youth League (ANCYL), has also called for greater sharing of mining revenues. Addressing a conference of the ruling party’s youth wing on June 16th – at which he was elected for a second term as the league’s head – Malema said the nationalisation of the mining industry was now the top policy item for the ANCYL. According to Malema, this would allow for mining revenues to be better directed towards overcoming youth unemployment and redress the social and economic inequalities that still divide the country.
Nationalisation had long been a policy of the ANC when it was outside of the establishment but it was dropped in the early 1990s over concerns that such a move would see investors abandon post-apartheid South Africa and undermine the economy.
Unsurprisingly, calls for nationalisation have prompted a strong response from mining industry leaders and their supporters. Roger Baxter, the chief economist at the Johannesburg-based Chamber of Mines, believes even the possibility of it could result in a drop in investment in the sector.
“Many of South Africa’s mining companies have operations which have 30- to 50-year lives,” he told Bloomberg news agency on June 28. “Companies are going to be more reluctant to invest if there is any threat of expropriation.”
It is not just industry insiders who are opposed to the proposal. Simpiwe Tshabalala, the chief executive of Standard Bank, fears that the nationalisation debate will harm South Africa’s growth and job creation prospects. “If the nationalisation debate grinds on for many more months, there will be fewer new businesses, fewer new jobs, more poverty and less development for decades to come,” he warned in the July 7 edition of Business Day.
A recent report issued by Citigroup said that it was unlikely that the country’s mines would be nationalised, with the more probable option for the government being raising the rates of tax paid by the industry. “Higher taxes are the lesser of two evils in our view, but could also discourage foreign investment, given South Africa’s relative unattractiveness as evidenced by current underinvestment,” the report said.
Such a move to boost revenues from the mining industry via taxes, rather than taking direct control, might help to mollify some of the pro-nationalisation elements within the ANC’s ranks, especially after the party holds its internal elections next year.
All of these recent events, however, follow a well-established local pattern: gold prices fluctuate, mining workers strike every summer and the nationalism debate – while on hold for a while – was never quite over. After all is said and done, however, South Africa’s mining sector has always returned to business as usual, and this year is not expected to be any different. And when production does get under way at normal rates, the country has the prospect of higher commodity prices to look forward to.