Mining ekes out a gain in December
• Production increases at a modest 0.6% for the third successive month of growth, but less than market expectations
Mining production grew in December, but at a much slower pace than the first two months of the second quarter — and less than market expectations — suggesting that the sector’s contribution to GDP, and by extension tax revenue, is less than what the National Treasury would prefer.
Finance minister Enoch Godongwana is due to present the 2024 national budget in parliament on February 21, and with GDP and tax revenues declining steadily, the task ahead may be challenging in terms of balancing the fiscus.
Economists say the dynamics of external demand will play a pivotal role, and they maintain a cautious outlook given escalated geopolitical tensions. Potential disruptions in shipping could further affect domestic exports of break-bulk commodities, they warn.
The mining industry woes are also captured in Tuesday’s mining production numbers, as published by Stats SA, showing mining production rose 0.6% year on year in December 2023, after an upwardly revised 6.9% jump in the previous month, well below market forecasts of a 4.9% advance.
While this was the third successive month of growth in industrial activity, it was the weakest in the sequence.
Stats SA data shows mining production shrank 4.2% in December, after an upwardly revised 2.7% increase in November, and that total mining production was 0.4% lower in 2023 compared with 2022.
Stats SA data shows the largest positive contributors were platinum group metals that increased 9.4%, contributing 2.8 percentage points. Coal was up 5.8% and contributed 1.3 percentage points to the headline number. Chromium ore was another positive contributor, rising 19.9% and contributing 0.7 of a percentage point.
The sector has in previous financial years contributed to some of the tax overruns to finance growing demands on the fiscus.
It plays a big role in the economy, with the value of the industry’s production surpassing R1trillion for the first time in 2021, an increase of more than 30% on 2020, which was already 14% higher than 2019.
The sector also contributed R480.9bn to GDP in 2021, R78.1bn in taxes and employed 458,954 people.
According to the Minerals Council SA, the mining sector’s contribution to the fiscus, comprising direct company taxes, royalties and pay-as-you-earn tax contributions on employee wages, is projected to have increased by R9bn to R135.3bn.
Mining production continues to show weakness as power shortages and logistical inefficiencies at Transnet remain binding constraints on the industry.
The council said it expects the sector to have contributed 6.2% to GDP in 2023, down from 7.3% the previous year. The industry’s direct GDP contribution is forecast to be R425.6bn in 2023 from R483.3bn previously. In terms of employment, the council states the industry’s employment numbers are at 477,000, up from 469,353.
Senior economist at Oxford Economics Jee-A van der Linde said from a revenue-generating perspective, SA’s mining sector has found it more challenging to produce meaningful growth recently.
“During his address at the 2024 African Mining Indaba, President Cyril Ramaphosa highlighted mining’s significance to the domestic economy, acknowledged the shortcomings faced by the industry, and reiterated what the government is going to do to tackle these challenges — as he did the year before,” Van der Linde said.
He added that regulatory uncertainty, a lack of reliable electricity supply, logistical infrastructure inefficiencies, and theft undermine SA’s attractiveness for mining exploration investment.
Van der Linde said the operational performances of Transnet and Eskom, salient role players in the industry, have continued to deteriorate over the past year, with the odds of an imminent improvement still slim.
“Even so, there has been positive movement on the policy front, and signs of willingness from the government to increase private sector participation in the overall economy,” he said.
The outcome on Tuesday further crystallises fourth quarter GDP growth and further shows how key challenges affecting the mining sector, including electricity supply constraints and logistical impediments that continue to affect its growth.
At its prebudget briefing on Tuesday, PwC said it expects the Treasury to make a notable downward revision to its own growth predictions in the 2024 budget.
“Following disappointing GDP data released in December for the third quarter 2023, the SA Reserve Bank published very conservative economic growth forecasts in January 2023,” PwC chief economist Lullu Kugel said. “It is likely that Treasury will also have a conservative approach to the economic growth outlook, but will, however, provide realism into the outlook for fiscal revenues.”
Investec economist Lara Hodes said lacklustre global conditions also continue to affect export demand.
“Global manufacturing production fell for the seventh successive month as intakes of new business suffered a further contraction according to the results of the December JPMorgan Global Manufacturing PMI Survey,” Hodes said.
“The World Banks’ Metals and Minerals Index decreased more than 10.0% between January and December 2023.”
Investec expected mining production to rise 2.5% year on year on base effects, following a lacklustre 2022 reading.