ECONOMY: The Cost Of a Bullet to Our Economy
Recent Gauteng Business News
Are other costs measureable‘
What impact will it have on South Africas economy‘
The succinct answer is that in the 10 days since the explosive events unfolded, the Rand weakened by 12% as investors pulled out of local bonds. A weak Rand means higher oil import prices. This has the knock-on effect of an increase in fuel prices, leading to higher Producer Price Inflation (PPI), and even higher Consumer Price Inflation (CPI) and food prices. GDP growth rates may have to be revised. This is seen against the backdrop of an already fragile economy which keeps property prices under pressure while real-estate plods along its slow recovery path.
In addition, South Africa and its platinum industry suffered a serious blow to its reputation. This is not scare-mongering. Economists describe the impact as severe. Our economy is heavily reliant on mining exports. Executives in boardrooms as well as brokers on the trading floor are trying to decipher the long-term cost of the clash between miners and police on that fateful day - just when things appeared to be improving. The latest GDP number released today - 3, 2% in Q2 2012 (up from 1, 7% in Q1) is on the back of a 31, 2% overall improvement in mining activity following the strike-affected 16, 8 % Q1 contraction. Now though, economists predict that mining will come under renewed pressure. As it stands the Lonmin mine alone is losing revenue to the tune of 3, 000 ounces of platinum per week (equivalent to R37 million) while negotiations continue.
This tragedy underscores the socio-economic reality. Unions and their members believe they have legitimate objections while mining companies must remain sustainable after pay hikes are discussed. Since the global meltdown in 4 years ago, the platinum sector has struggled to regain its former stature and retrenchments remain a possibility. Many companies were forced to become introspective. Streamlining - cutting out inefficiencies within production often led to job losses, something the South African socio-economic fabric can ill afford. Property prices in the platinum belt paid a hefty penalty when the metals prices slumped in 2008.
Interestingly, the happenings at Lonmin have had the opposite effect on platinum prices. The price climbed from below $1400/ounce to $1560/ounce within the 5 days following the crisis on the back of concerns about supply from South African mines. South Africa holds an estimated 70-80%
of the known reserves of the metal, used both in jewellery as well as for catalytic converters in vehicle exhaust systems. Other sectors of the economy may be affected. Economic progress relies on equilibrium between labour competitiveness and equitable pay being reached peacefully by mutual agreement. The findings of those tasked to investigate the events of 16 August 2012 will not close this chapter nor will it fully reveal the cost of firing that bullet. Rather it may provide a foundation for a full-spectrum, intelligent risk analysis.
Business News Sector Tags: Economy|