By Raymond Obermeyer, Managing Director, SEW Eurodrive

There is no question that the Covid-19 pandemic has had a devastating impact on South Africa’s already fragile economy resulting in a growing debt to GDP ratio and an estimated funding shortfall of R3.4 trillion to the fiscus over the next three years.

South Africa entered the Covid crisis in a recessionary environment. What the pandemic has done is amplified this poor economic outlook. The figures are alarming: GDP declined by 30% in the second quarter, accompanied by the loss of more than 1 million jobs. In addition to rising unemployment, deteriorating credit ratings have added impetus to poor business and investor confidence.

As the economy teeters on an abyss, restoring business and investor confidence will be a crucial mechanism to accelerate GDP growth and alleviate job losses. Any economic recovery strategy will require, amongst other issues, policy certainty so that the country is able to compete on the international stage for investment given that we will be competing for funding with other emerging markets. Investors will want to be assured of regulatory certainty, market stability and fiscal discipline before looking to invest in South Africa.

As alarming as the economic environment appears to be, the Covid-19 crisis offers a number of opportunities for South Africa to trigger an economic reset. These include unlocking sector opportunities with strong multipliers that have the ability to create jobs and enable GDP growth.

South Africa’s mining industry has traditionally been a significant contributor to the country’s GDP. However, in recent years the industry has been in structural decline with around 50 000 direct jobs lost in the past two years and real production output down 10% in the same period. Annual capex spending in the past three years has been reduced by 45%. The industry faces significant headwinds currently with 65% of mining output in the top half of the cost curve.

There are numerous reasons for this decline including, amongst others, regulatory uncertainty which has resulted in a decrease in brownfield projects, capex investments and exploration, and poor investor confidence.   

According to the SA Minerals Council, the Covid-19 crisis is likely to reduce output this year by 15 to 25% and slash capex even further which will exacerbate the challenges facing the industry. The Council has called for urgent action on 8 prioritised initiatives which it says requires the co-operation of government, industry and labour to implement. They include regulatory reform and an overhaul of current regulations; a focus on modernising the industry to improve productivity and inclusivity; a reliable energy supply and permission to self-generate energy; expanding rail and port capacity; jointly develop community investments; an improved mapping and exploration strategy; the establishment of a government-industry task force to expedite high-impact projects; and promote South Africa as an investment destination.

The Council argues that taking action on these prioritised initiatives could potentially allow the mining industry to save around 70 000 jobs and create an additional 26 000 mining jobs directly – and 47 000 indirect jobs – as well as increase primary mineral sales by $3.6 billion and allow for an additional R300 million in tax revenue by 2024.

As the industry has recognised, there is no time to waste. The mining industry is ready to engage with government and other stakeholders in order to collaborate to secure early wins as well as medium and long-term game changers. Whether the political will exists to enable the industry to grow and become a more meaningful contributor to GDP and a larger employer remains to be seen.