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Mining sector spirals, but third-quarter growth on track

BUSINESS LIVE / 19 OCTOBER 2018 - 05:04 / SUNITA MENON

Contraction of sector will weigh on GDP, but growth elsewhere is expected to lift economy out of recession in the third quarter

SA's mining sector in August had its biggest contraction in more than two years, but the economy is still expected to record growth in the third quarter.

Council CEO Roger Baxter estimates that SA’s mining investment could almost double in four years if the country was again seen as one of the most attractive mining investment destinations. Picture: RUSSELL ROBERTS

Mining production decreased 9.1% year on year in August 2018 after a contraction of 5.2% in July. This was the biggest contraction since March 2016. A Bloomberg survey of economists had expected a 4% contraction.

The sector is likely to contract in the third quarter as it revised its gains in the second quarter. SA plunged into a recession for the first time since the global financial crisis, recording a contraction in the first half of the year.

“The second consecutive notable decline in mining production data is a stark reminder that the mining sector is by no means out of the woods yet, with a growing probability that the mining sector will be a negative contributor to third-quarter GDP growth,” said NKC economist Elize Kruger.

Despite this, growth in the retail and manufacturing sectors would probably boost the economy enough to ensure a slight uptick in growth.

“It still looks like the economy as a whole finally escaped recession in the third quarter due to recoveries in the retail and manufacturing sectors,” said Capital Economics economist John Ashbourne. But he warned that growth would still remain considerably lower than growth recorded in 2017.

The industry was plagued by worries about the escalating trade war between the US and China, which might dampen Chinese demand and lower commodity prices, hitting commodity exporters such as SA, warned Kruger.

Concern about US import tariffs on the steel and aluminium sectors, high electricity prices and hefty wage demands were headwinds that would also continue to strain the mining sector in coming months, she said. But hope hinged on the latest version of the Mining Charter.

A surge in policy certainty is expected to attract much-needed investment in the sector.

At the beginning of October, the Minerals Council SA welcomed the third version of the charter, aimed at boosting black ownership in the sector, but the council remained concerned about some aspects.

The council said the charter provided a clear and durable framework “within which the critical goals of growth and competitiveness” could be achieved. It hoped greater clarity would be achieved as guidelines for implementation were developed over the next two months.

Council CEO Roger Baxter estimates that SA’s mining investment could almost double in four years if the country was again seen as one of the most attractive mining investment destinations. This could create 200,000 more jobs in the economy, with 50,000 direct jobs created in mining alone.

However, some analysts are not convinced that the charter will revitalise the sector. “While the latest version of the charter will provide much-needed regulatory clarity, it will largely fail to attract new investment as it remains more restrictive than the regulatory framework currently in place,” said a report released last week by Fitch Solutions Macro Research, which is separate from credit ratings agency Fitch Ratings.

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LINK : https://www.businesslive.co.za/bd/economy/2018-10-19-mining-sector-spirals-but-third-quarter-growth-on-track/

Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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