Economist: Mining industry not really recovering
Chief Economist at the Chamber of Mines, Henk Langenhoven said the industry was still in a precarious position despite the encouraging figures recorded during the first quarter of 2017.
When South Africa's GDP figures, for the first quarter, were released earlier this year, the contribution to the South African economy by the mining sector was positive. However, Langenhoven thinks those figures mask the reality for an industry that has been plagued by troubles during the past five years.
"The positive seasonal contribution of mining to the economy masks the current precarious position of the South African mining sector," said a cautious Langenhoven.
"The sector's performance during the first quarter of 2017 was slightly better than the first quarter of 2016, hence the seasonality of the data pointing to an annualised 12.8 percent improvement. Digging deeper into these numbers reveals very concerning trends, however," added Langenhoven.
Langenhoven points to various trends in the global economy, which he feels should have sparked a far greater upsurge for the industry in South Africa. However, he just isn't seeing it, adding that the worst thing the industry could do now, is rest on its laurels.
Among the trends that he feels remain a major concern are the following:
- Sales (exports) of South African commodities should have continued to rise, even if only in ‘landed’ rand terms (when the interplay with the exchange rate is taken into account).
- Profits should have started to improve from the very low base (2015 returned losses of nearly R40 billion for the sector). And, based on Stats SA’s fourth quarter financial surveys, they did.
- Increased production should have followed, given better prices, even if only on the back of the low value of the rand. Mining production improved by nearly 6 percent during the first quarter of 2017, and was fairly widespread across the different minerals.
"Digging deeper into the numbers reveals a desperate situation: The annualised 12.8 percent growth figure published derives from a quarter 1 2017 improvement of 3 percent on quarter 4, 2016 - which is a 4.5 percent improvement on the first quarter 2016.
"The 3 percent quarter on quarter improvement would yield 12 percent growth over 12 months. Looking at the actual (nominal) numbers, a completely different picture emerges. Quarter-on-quarter value-add by mining declined by 16 percent or R13.5 billion."
"Owing to the massive numbers of jobs lost between 2012 and 2016 - around 70,000 - the cost of employment is declining; during the first quarter 2017 it decreased by 13 percent or R5,124-billion on the last quarter of 2016. This explains 38 percent of the value-add shrinkage. Gross operating surplus (which includes depreciation) declined over the same period by 18 percent or R8,456-billion. The latter explains the 62 percent fall in value-add.
"Furthermore, we can assume that there was virtually no net investment in the first quarter of 2017, so the 18 percent decline actually represents an 18 percent drop in profits. When this number is superimposed on the historically reported profits in the quarterly financial surveys, the long-term trend of profitability falls back to the average of the last 10 years, indicating that mining is simply not recovering."
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