Rhodes University Logo
Rhodes > Business School > Latest News

Outlook for mining is about the future of jobs

Date Released: Mon, 9 June 2014 13:00 +0200

THE platinum strike is in its fifth month. We learned last week that it has already caused a 0.6% annualised contraction of SA’s gross domestic product (GDP) in the first quarter. Mining production shrank a huge 25%. Manufacturing contracted, too, at an annualised 4.4%. Some of this is because manufacturers supplying the platinum mines are also being hurt by the strike. But it also reflects a deeper weakness in the economy as a whole, which was already causing great anxiety.

Since 1994, GDP has fallen in only four quarters. GDP declined for one quarter in 1998 and for three quarters in 2008-09. Both times the causes were external. This time, the contraction is entirely self-inflicted.

The social costs of the strike are huge. Religious leaders speak of hungry adults stealing from children at school feeding projects. HIV-positive mine workers on antiretrovirals have been denied access by strikers to the mine clinics where they receive these lifesaving drugs. To survive, most strikers will have borrowed from money lenders at exorbitant interest rates. Their debt repayments will swallow up any increase they gain in wages as part of a settlement. The indebtedness of the mining companies is also rising as without income, their obligations under existing loans escalate. This will reduce future profitability and so the Treasury will bear some of the long-term costs of the strike through reduced tax revenues.

At the heart of the conflict is a chasm between what workers believe they should earn and what their employers believe they can afford to pay. The unions do not believe employers that their offer represents the most that can be added to the wage bill without threatening operations. This distrust is compounded by the struggle for supremacy between rival unions, the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union. And the government is rejected as the “honest broker” because of the African National Congress’s alliance with the NUM.

Hanging over everything is the uncertain future of platinum group metals prices. It is astonishing that such a large and lengthy disruption of supply has had little effect on prices so far. In most commodity markets, even small supply shortages usually result in significant price rises. The failure of prices to rise may be the result of producers selling stockpiles of metals. Alternatively, demand must have shrunk to levels where it can be met by present production. Both explanations point to a market in substantial oversupply. If so, a return to normal production could drive down metals prices sharply. Possibly it is fear of just such an outcome as much as present affordability that is driving employers’ resistance to strikers’ demands.

Recently, Anglo American CEO Mark Cutifani admitted that both employers and labour were to blame for the impasse. He pointed out that Australian mine workers earn five times more than their counterparts in SA, but they produce about 10 times more per worker. The productivity gap reflects the difference between a highly mechanised industry employing few skilled workers (Australia) and a labour-intensive industry with a large, mainly low-skilled labour force (SA). This, Cutifani says, needs to change. But how will it change and who will pay the price?

Productivity levels could be raised over time through increased mechanisation. This would mean more is produced by present workers or less is produced at lower cost with a reduced labour force and more machines. SA’s existing mining processes and ore bodies do not easily lend themselves to mechanisation. So a real possibility is a dramatically changed mining industry with shafts that can’t be mechanised having closed, and others operating with new processes that require far fewer, much more productive and better paid workers. In such a future, employment and production could fall, substantially.

This will have profoundly important social and economic consequences. Already SA faces huge unemployment and a structurally high deficit on the current account. Mining is one of our largest employers and our largest export sector. Where will the new jobs be created to replace lost jobs in mining? And what will replace reduced mining exports?

Our industrial strategy pins its hopes on the growth of manufacturing and well-paid jobs producing goods for export. But the reality is that manufacturing is contracting just as demand in our major trading markets is reviving. The dream of an outcome in which booming manufacturing replaces mining is a long way from being achieved.

The platinum strike has caused huge economic damage and unspeakable social suffering. It beggars belief that a settlement cannot be reached, given the pain being felt all round. Like First World War generals of a century ago, the labour and employer leadership fight on, believing that as long as their opponents suffer more than they do, they will eventually emerge victorious. But even a Pyrrhic victory remains elusive.

By Gavin Keeton

Source: Business Day

Gavin Keeton is with the economics department at Rhodes University.

Source:Business Day