* Mining output plunge tips economy towards recession
* Platinum strike highlights structural problems
* Economy still too exposed to resources
By Ed Stoddard
NYANDENI, South Africa May 29 Mining accounts
for a fraction of South Africa's gross domestic product but
still hits well above its weight and is pushing the continent's
most advanced economy towards recession.
South Africa's economy shrank 0.6 percent in the first
quarter of this year, data showed this week, the first quarterly
contraction since a recession in 2009 as mining output plummeted
amid a protracted strike in the platinum sector.
A recession, defined as two consecutive quarterly declines
in GDP, seems certain as the strike by members of the
Association of Mineworkers and Construction Union (AMCU) against
producers Anglo American Platinum, Impala Platinum
and Lonmin has continued in the second quarter.
Mining has been in a state of long-term decline here and the
fact that it still packs such a punch highlights a number of
structural problems in the economy.
These include a failure to diversify the export base, which
leaves the trade balance, current account and rand currency
dangerously exposed to an overreliance on commodities, and an
inability to generate jobs from other sectors.
"Because our economy is diversified we often forget how
dependent we still are on mining commodities. It still
represents more than half of export revenues, which is
shocking," said Christie Viljoen of NKC Independent Economists.
"The government's big focus is on manufacturing, that's
where it sees the jobs and the exports. But if you look at how
important mining exports still are it raises big questions about
their success in diversifying exports," he said.
According to customs' data, mining commodities last year
accounted for around 57 percent of the 925 billion rand ($881
billion) worth of commodities that South Africa exported.
In this regard, South Africa's economy, for all its
sophistication and market liquidity, is very much typical of the
continent, with a heavy exposure to resources.
Natural resources still account for around three-quarters of
sub-Saharan Africa's exports, according to World Bank data.
The strike, which began in late January, has cost the
industry more than 20 billion rand in lost revenues so far. As
that would have been almost exclusively counted as exports, it
will pressure a current account deficit which is already equal
to 5.1 percent of GDP.
This in turn will make the rand currency vulnerable.
South Africa's export profile may reflect the region's but
its slow growth pace is very "un-African" at a time when many of
the continent's economies are expanding at super-charged rates.
International Monetary Fund managing director Christine
Lagarde told a conference in the Mozambican capital Maputo that
Sub-Saharan Africa was expected to grow 5.5 percent this year,
well above the global average, with some of its poorest
countries expanding by closer to 7 percent.
South Africa's growth is so feeble that even one relatively
small sector of the economy can tip the whole thing into
recession - which is exactly what is happening now.
Mining only accounts for 5.1 percent of GDP, according to
Statistics South Africa data, down from a peak of almost 20
percent in 1980, when the country was the world's top gold
producer and bullion's price was sky-rocketing.
But because the overall economy has been expanding so
sluggishly, mining's almost 25 percent plunge in output in the
first quarter on an annualised basis - its steepest contraction
in almost half a century - is pulling the rest down with it.
The industry is entrenched in the South African economy in
other ways as well that add to its ripple effects.
Its continuing reliance on a migrant labour system, drawn
from poor rural areas in regions such as the Eastern Cape
province far from the shafts, means the impact of lost wages for
example spreads through the country.
Standing outside his cinder block general store in the rural
Eastern Cape backwater of Nyandeni, Douglas Vava said his
business was down because the flow of money into the area had
reversed as the men on the mines had no money to send home.
"Women take the social grants they get for their children
and they are subsidising their husbands with the money. So our
spending capital here has shrunk," he said.
The typical miner has eight dependants and the 70,000 or so
striking workers have now lost at least a third of their annual
wages, compounding the knock-on effects of the stoppage.
($1 = 10.4987 South African rand)
(Editing by Susan Fenton)