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All News » Cost Pressures & Power Struggles – The African Mining Industry

Cost Pressures & Power Struggles – The African Mining Industry

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South Africa should be an economic powerhouse. With 50% of the world’s known gold reserves and plentiful reserves of coal, manganese, diamonds and other valuable minerals, the country would seem to have a strong foundation on which to sustain growth. However, the mining industry has been beset with industrial unrest fueled by cost pressures and rising wage bills. These problems threaten the future viability of the industry.

Trade Deficit

South Africa can ill afford such problems. The mining sector accounts for 10% of GDP and it generates 60% of the country’s total export revenues. More than half a million people are employed in the mining industry, so the country’s economic welfare is reliant on mining. Despite these abundant reserves, the country has a significant trade deficit, totalling 19 billion ZAR, fuelled by costly oil imports and consumer goods. The economic position of the Rainbow Nation isn’t as precarious as others. It remains the leading economy on the African continent and has been cited as one of the emerging economies catching up with the likes of the BRIC economies (Brazil, Russia, China and India). Reserves of gold, platinum, chrome, coal, manganese and a host of other minerals provide the country with a resource base to be envied.

Industrial Action

However, the negative balance of trade does it no favours, despite having this incredible collection of mineral reserves. Thanks to the industrial unrest in the mining sector over the summer of 2013, the balance of trade took a turn for the worse when mineral exports sharply declined. All this coincided with widespread strikes by South Africa’s gold miners.

Despite bringing to the surface some of the world’s most valuable commodities, South Africa’s miners take home very low wages and mostly live in poverty. In August 2013, 80,000 gold miners went on strike demanding a 60% pay rise, which their union, the National Union of Mineworkers, claimed would bring their earnings up to a living wage. They also demanded improvements to working and employment conditions.

The mine’s owners not surprisingly rejected the claim, saying that wages couldn’t rise because of the increased costs of mining deeper into the ground to extract the gold and reduced profits because of a fall in the price of gold. The miners eventually settled on an 8% increase, but the stoppages caused an estimated $30m a day in lost output.

The previous year, in 2012, platinum miners went on strike. The dispute turned ugly when police shot dead 34 striking miners, shocking the nation. The government, led by President Jacob Zuma, has been working on new legislation to force the wealthy mining employers to improve pay and conditions. The current problems are certainly attributable to poor employment practices and exploitation, along with ineffective legislation. This has been compounded by the global economic slowdown and a thirst for oil imports. The government is well aware that until such bitter industrial disputes in the mining industry become a thing of the past, the country’s biggest export commodity and therefore its economy remain on a knife edge.

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