JOHANNESBURG (miningweekly.com) − Finance Minister Pravin Gordhan said on Tuesday that South Africa has benefitted from the boom in commodity prices over the past several years, but that it had not led to significant growth in mining production.
In contrast, he indicated that mining production expanded by 30% in Australia and 44% in Brazil between 2003 and 2010, providing a huge boost for investment, tax revenues, jobs and incomes in these countries.
From January to August, overall mining production declined by 4%, with steep falls in diamonds and gold, despite a 12% increase in primary commodity prices.
The National Treasury said in the Medium-Term Budget Policy Statement (MTBPS) that strikes and safety related-stoppages disrupted production. These domestic factors, combined with global supply chain disruptions, a weaker global outlook, rand volatility, sharp rises in administered prices, policy and regulatory uncertainty, have also weakened business and consumer confidence.
The MTBPS showed that the country’s mining output slowed in the second quarter of the year. The contraction, as well as a slowdown in manufacturing and agricultural sectors, also contributed to South Africa’s gross domestic product growth slowing from a seasonally adjusted yearly rate of 4.5% in the first quarter of 2011 to 1.3% in the second quarter.
The MTBPS pointed to a weak global environment, but stated that South Africa’s economic growth would increase gradually over the next three years assuming there was a resolution to the European debt crisis, the avoidance of a US recession and continued growth in emerging markets, particularly China.
But should emerging markets, including China’s, show signs of weakness, this could result in downward pressure on commodity prices, reducing the profitability of the mining industry, National Treasury stated.
Overall mining value-add grew by 6.3 % year-on-year in the first half of 2011. A National Treasury spokesperson told Mining Weekly Online that value-add is expected to show continued growth in the second half of the year, as well as in the long term.
Uncertainty in the regulatory environment governing the transfer of mining rights, compounded by inefficient administrative processes and lengthy waiting periods for the issuance of water licences, logistical challenges, as well as electricity generation capacity were key factors affecting value add in the industry.
Other factors included exchange rate volatility, the debate on nationalisation, which has fed uncertainty among investors, and the higher costs and risks associated with deep-level gold mining.
A National Treasury spokesperson stated that while the debate on nationalisation, which is not a government policy, has fuelled investor uncertainty, it has not impacted mining investment.
Following a sharp contraction during the 2009 recession, private gross fixed capital formation has started to revive, expanding at a yearly rate of 4% in the second quarter of 2011, mainly due to increased purchases of machinery and transport equipment.
In fact, investment in mining [and communications] registered the fastest growth in the first half of the year. But, despite these improvements, real investment in the second quarter was 8% below its pre-crisis peak.
Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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