As commodity prices tumble – the platinum price fell below $1,000 per ounce to levels last seen in 2009 – mining companies are coming under immense pressure. If you couple this with the crippling platinum strikes of last year, it is no wonder mining companies are looking to shed jobs. Earlier today we saw Anglo American reporting an interim loss of $3 billion, with the company looking to shed as much 50,000 jobs in the next three years, while Lonmin is looking to cut 6,000 jobs. In the below piece, Investment Solutions’ Chris Hart looks at the jobs crisis facing South Africa and says it extends beyond the mining sector. – Stuart Lowman
by Chris Hart*
Lonmin is facing a battle for survival. This company is not alone. Further substantial job losses are in the retrenchment pipeline across the mining and resources sector. This is driven by rising costs and falling commodity prices.
The mining recession is feeding back into the manufacturing sector. Tourism has also been plunged into recession through the administrative imposition of visa restrictions. Other factors such as load shedding, tax hikes and rapidly rising administered prices have also retrained the economy to less than pedestrian growth.
There is no relief from the public sector with parastatals also shedding jobs and an urgent need for the government to trim its bloated public sector wage bill. Multiple deficits in the government and household sectors have also increased South Africa’s vulnerability to a downturn.
It is possible that over the next few quarters that several hundred thousand jobs could be shed across the different economic sectors. The need to focus on job creation is more urgent than ever. Some factors such as falling commodity prices are beyond South Africa’s control. However, there are many factors that are within South Africa’s power to turn around.
Essentially, South Africa must look to improve its competitiveness especially around administrative issues to attract investment. When the global powers make mistakes, South Africa should seek to capitalize on those mistakes, not emulate them. The key mistakes South Africa needs to rectify include improving labour relations; regulatory reform and tax reform. Labour unrest is a very visible investment deterrent. However, the regulatory tsunami of the past couple of years is draining the economy of resources that are desperately needed for economic growth.
The biggest job creating deterrent is that they require economies of scale, which is anti-SME. SME’s are the engine of job creation.
Finally, tax reform is urgently needed to shift and lower the tax burden. South Africa is one of the most heavily taxed emerging market economies, which is an investment deterrent. Taxes that target capital formation and investment viability are also highly destructive in South Africa’s context of excessively high unemployment. Taxes also need to target the end of the value chain rather than compromise the potential multipliers.
Ultimately, to bring new economic activity into existence, investment is needed. South Africa is capital deficient and needs to become much more investor friendly to both local and foreign investors. It is investment into business and business expansion that is essential to create sustainable jobs.
Unemployment is South Africa’s national emergency. Unemployment must also become South Africa’s top national priority. All other issues must defer to reducing unemployment.
*Chris Hart is the Chief Strategist at Investment Solutions
