Lower commodity prices are weighing heavily on South Africa and dampening revenue growth, Finance Minister Pravin Gordhan said on Wednesday.
And better days are not in sight: in the budget review, a mixed outlook has been predicted for South African commodities, amid warnings that labour disputes remain cause for concern.
"Among our emerging market partners, growth remains strong, but demand for mineral products has moderated, and is unlikely to pick up soon. The prices of our largest sources of foreign earnings remain depressed," Gordhan said.
"The deterioration in the terms of trade, largely driven by commodity price movements, has been a significant factor in widening the current account deficit," according to the budget review.
Commodity prices declined in 2013, largely because of slower demand from emerging markets, particularly China, which accounts for more than 40% of world demand for base metals.
The price of platinum fell by 10.7%, and the prices of coal and iron slid by 5.5% and 7.4% respectively.
Decline in the gold price
"The stronger recovery in advanced economies reduced the attractiveness of gold as a store of wealth, which led to a 28.1% decline in the gold price."
Gordhan did note, however, that the rand remained an effective shock absorber against global volatility.
The budget review explained that the depreciation of the rand offset the negative effects of falling commodity prices on domestic mining companies.
"While commodity prices have declined in United States dollar terms, rand-based prices increased by an average of 6.1% in 2013," the review said.
According to the figures provided, precious metals and stones, mineral products, base metals and steel contributed more than 60% of South Africa’s total exports in 2013.
"Given projected commodity price trends over the medium term, South Africa is unlikely to benefit from large terms of trade gains, which supported the sustainability of the current account in the past," the review said.
The government does think, however, that platinum prices are likely to rise following the planned reduction in output in South Africa and higher industrial demand associated with tighter emission standards .
Demand from India and China will support coal prices. Iron ore prices are expected to stabilise as a result of expansion by Australian and Brazilian companies, which will increase global supply. And expanded shale gas production should limit oil price increases.
Gordhan said the infrastructure programme would aim to catalyse opportunities in mining, but it could face further delays.
Potential domestic risks to the economic outlook also include "protracted labour disputes, which could depress consumer and business confidence", he said.
Addressing President Jacob Zuma, Gordhan spoke about the prevalence of such protests, saying: "More must be done to improve management and accountability at all levels of government … the labour relations environment needs more stability … [and] … the indebtedness of many vulnerable workers must be addressed."
On the latter, Gordhan noted that the Cabinet had approved a number of measures to stamp out the abusive and fraudulent activities of reckless lenders and unscrupulous debt collectors, one of the most prominent issues when strikes over wage hikes brought South Africa’s mining sector to a halt in the second half of 2012.
Actions against abusive practices
"Working jointly with the ministers of trade and industry and justice, we will shortly commence actions against abusive and unsustainable practices," he said.
Growth in the mining sector remained volatile in 2013, as industrial action, maintenance and other disruption affected production.
Output increased by 4% in 2013, largely as a result of a strong fourth–quarter recovery.
Manufacturing production struggled to gain momentum in 2013, as it battled to overcome maintenance stoppages at a major steel mill and several oil refineries, as well as strikes in the motor vehicles and parts subsectors.
According to the budget review, production stoppages related to strikes and maintenance in the mining, electricity and manufacturing sectors slowed growth, but did not affect revenue collection as adversely as it did in 2012, when lengthy mining strikes in the second half of the year resulted in lower corporate provisional tax payments for both mining and manufacturing.
Actual total tax revenue for 2012/13 was R12.6-billion lower than in 2012 budget estimates.