Labour unrest is hardly new to South Africa’s mining sector, which has experienced bouts of turbulence throughout much of its 150-year history. The first half of this year was little different – a strike at the world’s biggest platinum mine in January and February caused its owner, Impala Platinum, to halt production for six weeks. But tensions exploded in a way few thought was possible on August 16, when police shot dead 34 strikers at Lonmin’s Marikana mining complex, close to the capital Pretoria.
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While the police claim they were defending themselves against miners armed with machetes – and an inquiry launched by president Jacob Zuma is ongoing – South Africans have reacted in horror. The incident, which has since dominated local media, was reminiscent of the Sharpeville massacre of 69 anti-apartheid protestors in 1960, said the South African Institute of Race Relations.
Simmering tensions
For many, Marikana was a manifestation of South Africa’s wider economic and structural problems, particularly its high levels of poverty and the growing gap between the rich and poor. Protests over these issues and the government’s provision of services such as housing and electricity have been widespread in recent years. “While Marikana has garnered much attention – and justifiably so given the measure of human tragedy – it is only one in a series of long-standing and occasionally fierce signals of disenchantment on the streets,” says Goolam Ballim, chief economist at Standard Bank, the country’s largest lender. “I believe South Africa has been experiencing a low-intensity Arab Spring for the past nine years. The so-called service-delivery protests evince the aggrieved status of so much of the urban poor.”
South Africa’s economy has struggled since going into recession in 2009, when real gross domestic product (GDP) fell 1.5% amid the global crisis. Growth of 2.6% is expected this year, but that marks a slowdown from 2011, when GDP rose 3.1%, and is far less than the levels of between 5% and 5.5% experienced from 2005 to 2007.
Public finances have come under strain due to falling tax receipts. Having managed to achieve a surplus in 2007 and 2008, the government expects a budget deficit equivalent to 4.6% of GDP this fiscal year. “We thought we’d recover fairly quickly,” finance minister Pravin Gordhan tells The Banker in Pretoria. “We were in surplus in 2008. It was a small one, but it was quite an achievement. It was the recession that meant we lost R60bn [$8bn then, $7.2bn today] of revenues in 2009.”
Soon to be second
The country’s economic growth rate contrasts poorly with that in much of the rest of Africa. Output in the sub-Saharan part is forecast to expand by about 5% this year, while many of its major economies, including Nigeria, Ghana and Angola, are growing at well above 6%. South Africa is even expected to lose its position as the continent’s largest economy to Nigeria within four to eight years.
This is partly due simply to other countries starting from a lower base. It is perhaps inevitable that South Africa, which has by far the most sophisticated economy in Africa, struggles to grow as quickly as less developed states. And the malaise in Europe, to which one-third of South Africa’s manufactured exports are sold, has not helped.
Moreover, Nigeria’s rise is hardly surprising given its huge population of 160 million people (South Africa has a mere 50 million) and vast reserves of oil and gas. Nonetheless, that it is catching up so quickly is symptomatic, say many South Africans, of their country’s short-comings. “There are a whole load of things South Africa does that Nigeria will take decades to do,” says Cas Coovadia, head of the Banking Association of South Africa. “But we’d better wake up to the reality that while growth is not the be all and end all, we have one of the slowest growing economies on the continent.”
Such sentiments are echoed widely. What is most worrying for South Africa, say analysts, is that its current pace of GDP expansion is too low to create jobs or reduce poverty on a significant scale. “We’re chugging along at a growth rate that would be good enough for developed countries, but not for us if we are going to tackle our main challenges,” says Jacko Maree, chief executive of Standard Bank. “High unemployment and low growth levels perhaps provide fertile ground for protests by disaffected people without enough of a stake in the economy. We’ve seen that in the past year or so.”
The government admits as much. “There’s a clear recognition that we need higher rates of growth,” says Mr Gordhan. “Our aspiration is to get to between 5% and 7%. That would begin to reconfigure the employment scenario in South Africa.”
Spending not cut
South Africa’s monetary and fiscal policies are being carried out with this in mind. The central bank, which was told two years ago by the finance ministry to start taking into account employment and growth as well as price stability, has slashed interest rates to 5%, their lowest level in 30 years. And the government has resisted choking the economy with austerity measures. Since 2009 it has opted to increase its expenditure by about 2.5% annually in real terms (which is less than the level of 10% reached in the last few pre-crisis years). “We said we would not kill the growth in government expenditure. We had the space to borrow,” says Mr Gordhan. “We were very clear from the beginning that we needed to maintain the balance between medium-term fiscal consolidation and supporting growth in the post-recessionary environment.”
Most of the government’s extra spending will be on infrastructure. It plans to invest R845bn on it in the next few years. Two-thirds of that will go towards improving electricity supply, which South Africa suffers a shortage of, and transport networks. It also intends to spend more money on education, the poor quality of which is one of the biggest blights on the country. An inadequately educated workforce is regularly cited by companies as their main bugbear. “We have a very clear energy plan, which will begin to resolve our constraints in the next two to three years,” says Mr Gordhan. “We’ve invested a huge amount, and will continue to do so, on the quality of the outcome of the education system and radically improving our skills training system together with the private sector.”
Opposition figures say that rather than actual levels of expenditure, the ruling African National Congress (ANC) should focus on making the various departments and tiers of government more efficient. In South Africa, they claim, plenty of spending is wasted due to bad management and corruption.
The problem is often most acute among local governments, as was demonstrated recently by a scandal in which several schools in Limpopo, one of the poorest provinces in South Africa, were left without textbooks for several months after officials failed to deliver new ones. “We are aware that almost all municipalities don’t correctly count their beans,” says Standard Bank’s Mr Ballim. “Yet it is precisely this tier of government that serves as citizens’ core touch point and so makes a difference to their lives.”
Mining woes
In the short term, South Africa’s economic prospects could hinge on its mining sector. Although it accounts for less than 10% of GDP, it makes up almost 30% of the Johannesburg Stock Exchange’s market capitalisation, meaning its health heavily sways foreign investors’ sentiment towards the country.
Strikes early in the year have already slowed the economy. Mining output dropped 17% in the first quarter, which was significant enough to knock a whole percentage point off South Africa’s annualised growth in that period.
Marikana has the potential to cause even greater damage. Industrial unrest spread following the shootings and by mid-September 40% of overall platinum production in the country had ground to a halt, according to Absa Capital, an investment bank. Strikes were also affecting some gold mines.
Attempts to calm the situation have not been made easier by some political figures capitalising on the tensions, not least Julius Malema, the former head of the ANC’s youth arm and who was ousted from the party in February. Touring mines in the aftermath of Marikana, he called on them to be made “ungovernable” until huge pay demands were met.
Despite Mr Malema’s critics viewing him as a demagogue, he clearly has significant support among South Africa’s masses. Economists say his popularity underscores not only the dangers of rising inequality in the country, but the increasing mistrust between the government, business community, trade unions and workers. The problems at Marikana were exacerbated by the emergence of a rival union to the long-standing and ANC-affiliated National Union of Mineworkers, whose leaders many miners felt had become too distant. As such, they lost faith in the collective bargaining system that has long been used to settle wage negotiations.
Mr Gordhan says Marikana shows more needs to be done to address miners’ concerns and improve their working conditions. “Mining is still a very important part of the economy,” he says. “It’s in our interests to get back to stability sooner rather than later. Marikana and the disruptions in the mining sector are a reminder to all of us that there’s a still work to do to improve the bargaining system, the welfare of the workers and to ensure better synergies between unions, mine owners and the government.”
Road to Mangaung
Analysts are divided over what the political ramifications of Marikana will be. Some think the president will find it harder to keep his position as head of the ANC – and thus be its candidate for the 2014 elections – when it holds a major conference in Mangaung (formerly Bloemfontein) in December. Numerous press reports have stated that the vice-president, Kgalema Motlanthe, will mount a bid against his boss, partly in response to the shootings. “It’s reasonable to suggest that it’s now tougher for president Jacob Zuma to retain his place at Mangaung than would have been the case absent of ‘Marikana’,” says Mr Ballim. “Should he prevail, the endorsement may not be ringing.”
Others, however, think that Mr Zuma’s supporters will be galvanised just as much as his opponents and will claim that any change in the ANC’s leadership will scare investors who crave political stability. “His chances are no better or worse after Marikana,” says Steven Friedman, a political scientist at the University of Johannesburg. “I don’t believe that a single person who is going to vote in the ANC conference at the end of the year has changed his or her mind as a result of Marikana.”
The killings at Marikana and increasing labour unrest have done plenty to harm South Africa’s image. One local newspaper said in early September that the outlook for the mining sector was “dire” and that South Africa would “slip further down the rankings of the world’s great mining countries”.
Yet it is testament to the high regard in which emerging market investors hold South Africa that its stock market – which was already up 12% in the year to date – actually rose in the month following Marikana. And the rand, far from collapsing, barely budged.
Regardless of the rise of other African states, South Africa is still far ahead of them in terms of the strength of its institutions and quality of its infrastructure. Many South Africans point out, perhaps justifiably, that theirs is the only country on the continent yet capable of hosting high-profile events on the scale of football’s World Cup, which South Africa did with aplomb in 2010. And its position as the main diplomatic and economic power on the continent was enhanced recently with its admission to the BRICS club of Brazil, Russia, India and China.
First-world markets
South Africa’s financial system, meanwhile, is superior to those in many other major emerging markets, let alone African ones. The World Economic Forum in its latest global competitiveness report said the country had the world’s best auditing standards and second safest banking system. “Foreign investors would all prefer a faster-growing economy,” says Mr Maree of Standard Bank. “But they know we in South Africa have the rule of law and courts that will uphold their contracts. All the sophisticated elements are here.”
The capital markets were boosted recently when Citi announced that South Africa would, from the beginning of October this year, become the first African country included in its World Government Bond Index. This added to already strong foreign demand for government debt, with big net bond inflows between January and August and yields tightening in a sign of investors’ confidence in the government’s fiscal management. “The story has been phenomenal,” says Victor Mphaphuli, a fund manager at Stanlib, one of the country’s largest institutional investors. “Where we are is a result of foreigners coming in to the market. The government has shown great intent to make the deficit as manageable as possible.”
Even if some overseas funds cut their exposure to South Africa because of events in the past few weeks, most bankers believe its local investor base is easily big enough to fill the void.
Despite the volatility following Marikana, some commentators say the extent of labour unrest in the country is exaggerated. Mr Friedman argues that outside of the mining sector, there has been less industrial action than usual this year. “If you look at commerce and manufacturing, there has been little, if any, strike activity,” he says.
Nonetheless, South Africa’s structural deficiencies are such that growth of 3% is probably the best it can hope for in the next two years, despite robust consumer spending and inflation having fallen from 12% to less than 5% since 2008. “It’s very difficult to see the economy growing much faster in the short to medium term given the global economic situation and our infrastructure constraints,” says Mike Brown, chief executive of Nedbank, a large local lender.
The ANC seems likely to win the elections in 2014 and thus extend what will be by then a 20-year period of rule since the end of apartheid. Yet, notwithstanding its electoral dominance, it will come under increasing pressure in the next few years if growth fails to reach the levels needed to boost the livelihoods of the majority of South Africans.
For the time being, however, many ANC politicians might be distracted by their looming conference. “South Africa’s immediate Rubicon is Mangaung,” says Mr Ballim. “Conceivably, 2013 may be a more constructive year for its politics and hence its economy.”
