Fears over contraction of two key sectors
• Uncertainties about sector regulation blamed for fourth-quarter decline, as manufacturing production drops too
The mining and manufacturing sectors saw significant contraction in the last quarter of 2016 and there are fears the poor performance could continue into the first quarter of 2017.
The two sectors are among the largest contributors to GDP and account for a large portion of the workforce.
Their contraction will also drag GDP growth down.
Mining production fell 4% in the fourth quarter of 2016.
Economists said that uncertainty on policy, specifically regarding the mining charter, had contributed to the decline and to an environment of restrained investment.
Manufacturing production shrank 1.1% in the last quarter of 2016, overshooting predictions of a decline.
Econometrix director Azar Jammine said on Thursday that both results were disappointing and would negatively affect the first quarter.
Mining production contracted 4% in the fourth quarter of 2016 and economists said uncertainty on policy, specifically the Mining Charter, contributed to the decline and to a restrained investment environment.
Manufacturing production shrank 1.1% in the last quarter of 2016, which overshot prior predictions of a decline. Mining output decreased 1.9% in December. The sector has posted year-on-year output declines every month since October 2015. Manufacturing production, in comparison, fell 2% in December 2016.
Mining and manufacturing are significant contributors to GDP and account for a large portion of the workforce.
On Thursday Econometrix director Azar Jammine said: “Both results are disappointing. It’s going to impact the first quarter negatively.”
Investec economist Kamilla Kaplan singled out the new Mining Charter and the Mineral and Petroleum Resources Development Act as having contributed to the contraction in mining because the uncertainty they created had resulted in disinvestment and a general investment strike among miners.
Jammine agreed with Kaplan, saying: “The disinvestment in mining is worrisome. Increases in costs and government interference have resulted in mining closures.”
The Mining Charter was again the subject of hot debate at this week’s Mining Indaba in Cape Town, at which the big mining companies bemoaned the fact that the Department of Mineral Resources was dragging its feet in finalising the document. The Mining Charter is also subject to a legal challenge in the High Court in Pretoria.
Kaplan said that operating costs and infrastructural constraints had caused the decline in mining.
Barclays Africa economist Miyelani Maluleke said: “Investment in mining could benefit from further policy clarity with respect to the [act’s] amendments and the Mining Charter.”
Platinum group metals were the main driver of the drop in mining production in the fourth quarter, with their output plunging 15.1%.
Simona Gambarini, a commodities economist at Capital Economics, said: “The mining industry has been going through a tough time for a while and this [fourth-quarter decline] will weigh down on the economy.
“Last year was weighed down by disruptions but, surprisingly, [platinum group metals], which saw the biggest drop, had no disruption despite wage negotiations. It doesn’t bode well for the country and the industry. Investment will return in 10 years, but as of now there is no incentive for investors in the industry.”
William Jackson, a senior emerging markets economist at Capital Economics, said the fall was caused by the two additional public holidays in December.