Anal­y­sis: Min­ing will be the bedrock of eco­nomic growth this year

The Star Early Edition - - COMPANIES - Helmo Preuss

THE min­ing in­dus­try will be the bedrock of eco­nomic growth in South Africa this year, be­cause higher com­mod­ity prices will boost its con­tri­bu­tion to ex­ports, while im­proved profit mar­gins will en­able it to cre­ate more jobs and ex­pand ca­pac­ity.

Agri­cul­ture had a higher growth rate in the first quar­ter – 22.2 per­cent at a sea­son­ally ad­justed an­nu­alised quar­ter-on-quar­ter rate, com­pared with min­ing’s 12.8 per­cent – but min­ing’s share of gross do­mes­tic prod­uct (GDP) is 7.5 per­cent, com­pared with agri­cul­ture’s 2.2 per­cent. As a re­sult, min­ing’s R6.8-bil­lion con­tri­bu­tion to first-quar­ter GDP growth was more than dou­ble agri­cul­ture’s R3.36bn.

Both min­ing and agri­cul­ture are in the pri­mary sec­tor – that is, they take their in­puts from na­ture and turn it into a prod­uct. This prod­uct is con­verted into value-added prod­ucts or ser­vices by the sec­ondary sec­tor, which con­sists of man­u­fac­tur­ing, elec­tric­ity and con­struc­tion.

The prod­ucts from the sec­ondary sec­tor are dis­trib­uted or sold by the ter­tiary sec­tor, which con­sists of ser­vices such as trans­port, ware­hous­ing, whole­sal­ing and re­tail­ing.

It looks as if the flow is all down­stream, but min­ing and agri­cul­ture need in­puts from the sec­ondary and ter­tiary sec­tors, such as elec­tric­ity, fer­tilis­ers and ex­plo­sives. In ad­di­tion, their work­ers need to be clothed, fed and kept in good health. This is what one can call the cir­cu­lar flow of goods and ser­vices, so a small in­crease in the pri­mary sec­tor can have a large im­pact on the to­tal econ­omy.

What is the cur­rent state of play of the min­ing in­dus­try? Af­ter a dis­mal 2016, when com­mod­ity prices were low, prof­itabil­ity was min­i­mal and job shed­ding was the or­der of the day, the elec­tion of Don­ald Trump in the US brought about a re­vival in com­mod­ity prices, be­cause one of his elec­tion pledges was to spend $1 tril­lion on in­fras­truc­ture.

That prom­ise spurred a re­cov­ery in com­mod­ity prices, but it also en­cour­aged in­ven­tory re­build­ing, which re­sulted in in­creased vol­umes.

The South African min­ing in­dus­try re­sponded with a 8.2-per­cent in­crease af­ter sea­sonal ad­just­ment (5.4 per­cent if not sea­son­ally ad­justed) in pro­duc­tion be­tween Novem­ber 2016 and March 2017. The ex­tent of the turn­around is best il­lus­trated by the 24.4-per­cent in­crease, in non-sea­son­ally ad­justed terms, be­tween the low of Fe­bru­ary 2016 and March 2017.

The data in terms of min­eral sales is even more im­pres­sive. Not only has there been a sub­stan­tial gain by way of higher vol­umes, but higher com­mod­ity prices mean the value has also soared. There was a 44.3-per­cent jump be­tween Jan­uary 2016 and March 2017, to R39bn, while in US dol­lar terms the in­crease has been a strato­spheric 82.7 per­cent.

Talk about hit­ting the ball out of the park! No won­der for­eign­ers are sali­vat­ing when they con­sider South African min­ing com­pa­nies.

The South African min­ing in­dus­try in­creased pro­duc­tion by 5.9 per­cent yearon-year in the first four months of 2017, com­pared with a five-per­cent de­cline in 2016. The 10.9-per­cent year-on-year in­crease in bulk ex­port vol­umes in com­modi­ties such as coal and iron ore in May sug­gests that this ex­cel­lent per­for­mance will con­tinue for the rest of this year.

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