Midterm budget: Strikes cost economy dearly
Wildcat strikes across the mining sector have cost South Africa more than an estimated R10-billion in lost production. From an ever widening trade deficit to lower expectations of tax revenue, a volatile rand and risks for employment, there are few aspects of the economy that have been left unscathed.
Following an unprotected strike at Lonmin's platinum mine in Marikana in August, where more than 45 people died as a result of the conflict, similar unrest swept through the platinum mining sector and affected industries, including road freight, vehicle manufacturing and diamond and iron ore mining. Wildcat action in the gold mining sector has been ongoing ever since.
In its medium-term budget policy statement released on Thursday, the treasury estimated that the total value of production lost to platinum and gold mining strikes and stoppages since the beginning of the year amounted to about R10-billion.
"Widespread strikes in the mining sector have had a significant effect on the economy in 2012," the treasury's policy statement said.
"The events at Lonmin's Marikana mine and the spread of industrial action since August have dented confidence and lowered growth prospects for the remainder of the year."
A decline in mining output and the spread of strike activity depressed activity in related industries such as manufacturing, logistics and services and had with negative consequences on gross domestic product (GDP), tax revenues, exports and employment. "The impact will be larger if strike activity is protracted," the treasury said in the budget.
In the year to August, mining output fell by 3.3% and the production of platinum group metals was 15.3% lower. "Continued strong growth in iron ore, spurred by Chinese demand, has offset some of the decline in platinum, gold and coal," the statement said.
Although a recent strike at Kumba Iron Ore's Sishen mine in Kathu in the Northern Cape brought production to a halt for two weeks, overseas clients were not affected.
South Africa's national income, adjusted for inflation, is 50% larger than it was 10 years ago.
"Current levels of spending can be sustained over the medium term, but expenditure cannot grow at the rate it did over the past decade," the treasury said.
The unrest also played a role in revised tax revenue, which was about R743-billion in the 2011-2012 financial year. The 2012-2013 estimate has been revised down by R5-billion to R821-billion. But the revision does not appear too worrying to the treasury. "This still implies a robust nominal growth rate of 10.6% over the previous year. But, it said, "if economic conditions deteriorate or mining sector output is disrupted over an extended period, further downward revision may be warranted".
A treasury official noted that the revised tax revenue estimate was due to a combination of things, including slowed trade following the sovereign debt crisis in the eurozone, and mining unrest had played only a small part.
Disruptions to platinum output affected trade with Germany, Japan and the United States, exacerbating a widening trade deficit, which is expected to reach 5.9% of GDP in 2012.
"Economic growth in South Africa has slowed to just 2.5% this year, held back by both global uncertainty and disruptions to domestic production," said Minister of Finance Pravin Gordhan in Thursday's medium-term budget speech. GDP was expected to reach just more than 3% in 2013.
The treasury said the main risk to the fiscal framework over the forecast period was related to economic performance. If GDP growth did not match expectations, revenue would fall short of current forecasts, implying the need for policy shifts to achieve the targets in the fiscal framework.
The rand has also remained volatile and the deterioration of the current account and wildcat strikes have negatively affected sentiment towards it.
The currency's exchange value depreciated from an average of R8.01 to the dollar in January to R8.62 in October. The weaker exchange rate, coupled with rising international food prices and higher petrol costs, is expected to place upward pressure on consumer prices during the second half of 2012. According to the budget, food price inflation is expected to average 9% in 2013, up from 5.1% in August 2012.
Despite the wave of unprotected strike and wage demands, nominal wage settlements have been lower than last year. Such settlements have averaged 7.4% in the first nine months of 2012, from 7.7% in 2011, and real wage growth has slowed to 1.8% in the first half of 2012, from 2.7% in 2011.
However, "rising wage demands across the economy could put pressure on new hiring", the budget statement said.
But Gordhan remained positive about the economic outlook.
"As a country we face difficulties, but we are not in terminal crisis. Let us set about proving the pessimists wrong, working together to fulfil our vision for a strong, prosperous and united South Africa."
See the rest of the M&G's medium-term policy statement coverage:
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