The most violent mining strikes in South Africa since the end of apartheid are hobbling an economy that’s faced with a 25 percent jobless rate and threatened by further credit rating downgrades.
Growth in Africa’s largest economy will ease to 2.3 percent this year, the slowest pace since a 2009 recession, according to the median estimate of eight economists surveyed by Bloomberg this week. That’s down from 2.5 percent before the mining strikes began in August and 3.1 percent in 2011. The estimates range from 2.1 percent to 2.5 percent.
Illegal strikes that spread from Lonmin Plc (LMI)’s Marikana mine in August prompted Anglo American Platinum Ltd. (AMS) to fire 12,000 workers on Oct. 5. Gold Fields Ltd. (GFI) said 11,000 workers returned to work today and 1,500 who didn’t will be fired. That may put President Jacob Zuma’s pledge of slashing the jobless rate to 14 percent by 2020 out of reach.
“A meaningful amount of jobs” may be lost in the next year, Mike Schussler, chief economist at independent research group Economists.co.za, said in a phone interview from Johannesburg. “To carry on like this, we are destroying the future of our country.”
Schussler estimates the unemployment rate, which is already the highest of more than 60 nations tracked by Bloomberg, will exceed 25 percent for the next two to three years. The economy may lose about 85,000 jobs this year, Michael Kafe, an economist at Morgan Stanley in Johannesburg, said in a note to clients on Oct. 15.
Investor confidence has been shaken by the strikes, which left at least 46 people dead at Lonmin’s Marikana mine, including 34 protesters killed by police on Aug. 16. The rand has slumped 4.8 percent against the dollar since then, the worst performer of 25 emerging market currencies tracked by Bloomberg. The currency dropped 0.3 percent to 8.629 per dollar at 6:19 p.m. in Johannesburg today.
Moody’s Investors Service and Standard & Poor’s lowered South Africa’s credit rating in the past three weeks, citing rising political risk, slower economic growth and a weakening in government finances. They left the rating on a negative watch, indicating the chance of further downgrades if economic conditions don’t improve.
“In 30 years, we haven’t seen such a spread of wildcat strikes in the mining sector,” Peter Major, head of mining at Cadiz Corporate Solutions, said at a panel discussion hosted by Bloomberg in Cape Town on Oct. 16. “It’s going to take a few years for normality to return.”
Wage settlements above the 5 percent inflation rate are boosting costs for mining companies, threatening jobs. Lonmin ended the six-week strike at Marikana by giving workers pay rises of as much as 22 percent. Impala Platinum Holdings Ltd. (IMP) gave workers a second salary boost this year to bring the average increase to 15 percent. The two companies employ about 60,000 workers in total.
Anglo American Platinum said today it will delay firing striking workers at its Union and Amandelbult mines as it moves salary talks forward. While the company won’t reinstate the 12,000 workers fired at the Rustenburg operation, it plans to discuss this further with labor unions, Johannesburg-based Anglo American Platinum said in a statement.
“If you assume some of the mining companies are going to have to cut costs because of the longer-term effects of the salary increases, it’s not unrealistic to estimate we could lose between 55,000 and 70,000 jobs in the short to medium term,” Claude Baissac, the founder of country-risk consultants Eunomix, said in a phone interview from Johannesburg.”
The Reserve Bank, led by Governor Gill Marcus, already lowered its growth forecast to 2.6 percent in September and may review it again because of the strikes, Deputy Governor Daniel Mminele said in Tokyo on Oct. 14. Finance Minister Pravin Gordhan may adjust his 2.7 percent growth estimate in his mid-term budget next week.
The labor unrest is putting pressure on an economy already hit by falling manufacturing output as the debt crisis in Europe curbs export demand. Factory output, which makes up 15 percent of the economy, contracted 1 percent in the second quarter, while South Africa posted its biggest current-account deficit in almost four years of 6.4 percent of gross domestic product in the period.
The shortfall is undermining the rand and adding to pressure on inflation, making it more difficult for the central bank to lower borrowing costs. The bank left its key rate unchanged at 5 percent in September, after lowering it for the first time in 20 months in July.
“It is difficult to see where the potential good news will come from at this point,” Razia Khan, head of Africa economic research at Standard Chartered Plc in London, said in a phone interview. Aside from interest rate cuts “there is very little else the authorities can do in terms of engineering some sort of economic resurgence.”
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