South Africa’s reliance on commodities as a source of income and economic growth has been well documented and appreciated. Even if one goes as far back as the early 1900’s, its significance in the economy is apparent. In 1911/12 minerals comprised of 81.2 percent of South Africa’s total exports, with gold and diamonds alone accounting for 63.5 and 15.1 percent respectively (Bell, Farrell & Cassim 1999:6).
Moving forward approximately forty years, gold was still an intricate cog in the South African economy. Of particular importance was the opening of the Orange Free State gold fields in 1951, which saw gold output increase almost uninterruptible from 358 thousand kilograms to a peak of 1 million kilograms in 1970. Given the fixed gold price of $35 per fine ounce (which existed from 1933 to 1970), gold exports in US dollars rose in a similarly striking manner (Bell et al. 1999:7).
The 1970’s brought with it a commodity price boom. As an illustration of this, the price of gold increased from the fixed rate of $35 per fine ounce in 1970 to $52 per fine ounce in 1972; and then to a high of $613 per fine ounce in 1980. It wasn’t just gold, however, almost all mineral commodities experienced sudden price appreciation. Exports of gold and “other
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Value
Date
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mining” (coal; platinum; iron ore; diamonds; etc.) grew at 18.3 and 12 percent respectively, in constant US dollar terms (Bell et al. 1999:9-11).
Moving forward again, in 1996, South Africa had the largest reserves of gold, platinum group metals, titanium, chromium, manganese and vanadium in the world; whilst it was the largest producer of gold, platinum group metals, chromium and vanadium. Nonetheless, compared to the 1970s and 1980s the direct impact of mining, especially gold mining, on the South African economy had significantly decreased. (Khun, Minnitt, Monson, & Stilwell 2000) In the year 2000, platinum according to the value of sales figures, became South Africa’s greatest mineral asset (Stats SA (a)).
In 1998, mining directly accounted for 11 percent of GDP and 540 000 jobs compared to accounting for 26 percent of GDP in 1980. (Khun et al. 2000) Today, according to data from Stats SA, mining directly accounts for 5.1 percent of South Africa’s GDP with iron ore, coal, platinum group metals; and gold being the dominant drivers of this growth (Stats SA (b)).
In totality, from 1980 to 1996, the mining production index was seen to decrease slightly;
however, one has to consider the changing productivity levels of different mineral groups.
For instance, the gold production index decreased from 112 in 1980, to 82 in 1996 whilst the mining production index (excluding gold) increased from 87.3 in 1980 to 112.7 in 199623 (Khun et al. 2000).
Looking at the statistics from 1998 to present day, a similar pattern emerges with the decreasing importance of gold in South Africa’s mining sector. Whilst the mining production index (excluding gold) has increase from 74.63 in 1998, to 105.6 in June 2012, the gold production index has decreased from 171.4 in 1998, to 58.82 in June 201224 (Stats SA (a)).
23 The indexes quoted in this statistic have a base year of 1990.
24 The indexes quoted in this statistic have a base year of 2005.
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Figure 7 – Mining production index: Excluding gold, January 1998 – July 2012
Source: South African Reserve Bank 2012
Figure 8 – Gold production index, January 1998 – July 2012
Source: South African Reserve Bank 2012
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Jan-98 Nov-98 Sep-99 Jul-00 May-01 Mar-02 Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12
Index Value: constant prices 2005
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Jan-98 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12
Index Value: constant prices 2005
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From a totality perspective, mining is progressively playing a smaller role in the South African economy; it, however, still has an intricate role to play. Encompassing direct and indirect impacts of mining, it is estimated mining contributed to 18 percent of South Africa’s GDP in 2008 whilst accounting directly for 9 percent of total fixed income, 13.3 percent of total private sector investment. When one considers the multiplier effect, mining helped generate 18 percent of total investment in the economy. The mining sector also accounts for R1.4 trillion, or 31 percent of the value of the JSE as of December 2008 (Inggs 2010).
In 2008, the mining sector also employed 518585 people, accounting for 6.1 percent of total non-agricultural employment; with a further 500000 people estimated to receive employment indirectly due to mining activity. The mining sector also paid R32 billion in direct taxes and a substantial portion of indirect taxes, accounting for 17.3 percent of total company tax. These statistics continue to argue the significance of the commodity market in the South African economy, both directly and indirectly (Inggs 2010).
Particularly when discussing the mineral commodity market in South Africa, what is of interest to this dissertation is the impact that the financial crisis had on it. What one notices is that after making a high in June 2008 of R29.88 billion in sales, the market rapidly declined reaching as low as R17.26 billion in January 200925. This was largely lead by decreased demand for platinum which went from sales of R10.35 billion in June 2008 to sales of R3.56 billion in January 2009. It would ultimately take until March 2011 before total sales in the industry would reach the high set in 2008 (Stats SA (a)).
25 A point worth noting is that the US is not a major market for South Africa minerals, accounting for just over R3.2 billion of sales in 2008 and R2.3 billion in 2009. Compare this to China who accounted for R21.3 billion of sales in 2008 and R30.5 billion in 2009 (Stats SA (a)).
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Figure 9 – Total mineral sales, January 1998 – July 2012
Source: South Africa Reserve Bank 2012
Figure 10 – Sales: Selected minerals, January 1998 – July 2012
Source: South Africa Reserve Bank 2012
0 5000 10000 15000 20000 25000 30000 35000 40000
Jan-98 Nov-98 Sep-99 Jul-00 May-01 Mar-02 Jan-03 Nov-03 Sep-04 Jul-05 May-06 Mar-07 Jan-08 Nov-08 Sep-09 Jul-10 May-11 Mar-12
Rands -Millions
Date
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Jan-98 Feb-99 Mar-00 Apr-01 May-02 Jun-03 Jul-04 Aug-05 Sep-06 Oct-07 Nov-08 Dec-09 Jan-11 Feb-12
Rands -Millions
Coal Iron Ore Platinum Gold
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Although comparable statistics from before and after the crisis of the indirect influences of the mineral commodity market in South Africa were not attainable at the point of writing, one would expect that with the significant impact of the sector on the economy as a whole, it is not that far an assumption to propose that this massive decline in sales would have reverberated throughout having a similarly noteworthy impact.