The total value of mining production lost due to strikes and stoppages in 2012 amounted to R15.3-billion, the National Treasury revealed in its 2013 Budget, presented to Parliament last week.

Mining value-added output fell by 4.3% in the first three quarters of 2012 in response to strike-related production stoppages, while weaker global growth slowed Chinese demand and softened commodity prices.

Although mining output between July and October fell by 16.7%, it rebounded somewhat in the last two months of the year. Nevertheless, output was still 3.1% lower in 2012 than in 2011.

Notable production losses were recorded, with production in copper declining by 21.8%, gold production slumping by 14.5% and platinum-group metals output falling by 12%.

In contrast, iron-ore production increased by 15.7%.

The National Treasury warned that delays in the resumption of full operations, shaft closures and fraught labour relations could constrain output for a prolonged period, with structural impediments and a changing global context affecting the outlook for the sector.

China and other emerging markets were currently the principal drivers of demand and prices for a range of industrial, energy and agricultural commodities. Weak automotive markets in Europe and Japan and increased recycling of autocatalysts have contributed to lower demand for platinum.

Private-sector investment growth slowed to 4.3% in the first three quarters of 2012, compared with 4.6% in the 2011 corresponding period. Investment by the mining and manufacturing sectors, which accounted for about 60% of overall investment growth in 2011, also slowed sharply in 2012.

Finance Minister Pravin Gordhan said in his Parliamentary address that although South Africa’s economy had continued to grow in 2012, this had been at a slower rate than projected at the time of the 2012 Budget.

The country’s gross domestic product (GDP) growth reached 2.5% in 2012 and was expected to grow by 2.7% in 2013, rising to 3.8% in 2015. Inflation remained moderate.

Gordhan, however, pointed out that South Africa’s trade performance was holding South Africa back, with exports growing marginally by 1.1% in real terms in 2012, while imports increased by 7.2%. The deficit on the current account of the balance of payments was 6.1% of GDP.

“This means, in simple terms, that expenditure in the South African economy exceeded the value of production and income by about R190-billion last year. “This is partly a consequence of the dis-ruption of mining sector activity and the structural reduction in mineral exports due to lower demand,” he stated.

As a result of weak growth in Japan and Germany, exports to these countries fell by 20% and 12% in 2012, while softer growth in China saw exports fall by 4.9%. Platinum exports were hardest hit, dropping by 18.5% in value, while iron and steel exports decreased 7.6%.

Gordhan said South Africa’s export performance was projected to improve, as the mining sector rebounded and external demand strengthened.

“The current account deficit will, however, remain under some pressure, averaging 6.2% over the next three years, as the terms of trade show little improvement and import growth responds to rising domestic demand, particularly public-sector capital investment,” he indicated, adding that risks to the country’s economic growth outlook included weaknesses in its mining sector.

Tax Review

The mineral and petroleum royalty regime had broadened the tax base, allowing for increased revenue during periods of high commodity prices, while providing relief to marginal mines when commodity prices and profitability were low.

The National Treasury’s broader review of South Africa’s tax system would consider whether this approach was sufficiently robust and assess what the most appropriate mining tax regime would be to ensure the country remained a competitive investment destination.

Corporate income tax revenue from the mining sector had been volatile in recent years, due to unstable global commodity prices and the rand exchange rate. Mining-related corporate income tax revenue, which had been recovering following the 2009 recession, was expected to contract in 2012/13, largely owing to lower commodity prices and labour unrest.

However, Gordhan noted that tax revenues were expected to improve over the medium term in line with higher economic growth and the stabilisation of key commodity prices.

South Africa’s mining sector contributed R18.55-billion or 17% to the country’s corporate income tax in 2011. Mining also directly contributed R99.42-billion or 5.9% to the country’s GDP during the same year. This rose to R467.95-billion or 18.7% when indirect effects were included.

Meanwhile, Gordhan said government recognised the key role the private sector played in growing the country’s economy.

He indicated that the National Treasury had, in the lead-up to the 2013 Budget, engaged with several business leaders on the investment and development challenges facing the country.

Investment plans included R2.5-billion in expansion projects and longer-term investment plans of R15-billion in new mining projects. Gordhan said such plans signalled growing confidence in the business outlook, despite challenging conditions.

“We find ourselves in a challenging period, with revenues R16.3-billion lower than expected at the time of the 2012 Budget. This is predominantly due to weak economic growth during the second half of 2012, mining sector disruptions and lower commodity prices,” Gordhan put forward.