IN LOOKING to get a greater share of SA’s mineral wealth through the creation of a state-owned mining company, I’m pretty sure proponents of nationalisation are reading the slowdown in the global economy, and in particular in China, as just a blip in what’s a very long-term resources boom story.
It is true that a point will come when the global economy bottoms out and we’ll see a return to growth. How long until we see a sustainable period of such growth, is still anyone’s guess at this stage.
But will we see the Chinese inspired "super" commodity cycle also coming back? The nationalisation brigade within the ruling party may be getting the South African taxpayer exposed to a sector that may no longer hold the promise it has once held.
The rate of Chinese spend on infrastructure (roads, bridges) from which commodity-producing countries such as SA and Australia have benefited and to which they have become accustomed, is set to taper off over the coming years. There are only so many roads or bridges that can be built.
Australia has already started to feel the pain as a result of the significant drop in iron-ore prices. The country is the biggest exporter to China and its miraculous growth story, despite the global slowdown, looks like it is coming to a sharp and dramatic end. Brazil, the other growth story, is losing its lustre.
So never mind the global economic slowdown we are experiencing as inspired by Europe’s sovereign debt crisis, economic change is under way in China.
Growth over the next decade in China is going to have to come from consumption. Its middle class is estimated to be about 100-million, more than double the South African population, and will become the key driver of its growth, which means we are going to rethink how we gain from it.
You know there’s a strong and growing middle class when footballers begin to see China as the retirement village of choice instead of the US.
Skybound Capital’s Chinese chief investment officer, Theodore Qi Shou, expects his country, the world’s second-biggest economy, to become more and more like the world’s biggest economy, the US — one based on consumption.
Even in terms of exports, China may in the end become less of a threat to local industries such as clothing and textiles. The country is becoming a bigger importer of finished goods as its competitive edge — cheap labour — gets blunted.
Earlier this year, Adidas announced it was closing its only apparel factory in China as part of a move to improve efficiency. Three years ago, Nike closed its Chinese shoe plant.
Neighbouring and smaller countries such as Cambodia, Vietnam and South Korea are seen as a better bet nowadays.
So, as a manufacturing base for the world, China is not necessarily the last port of call. Its exports are cooling, and to support growth it is going to need domestic consumption to offset those declines.
The Chinese economy is already rebalancing and will continue to do so, with consumption’s share of gross domestic product rising steadily over time.
Because of the European and US economic slowdown, the Chinese "are hoping to turn urbanised Chinese into consumers," says Ian Cruickshanks, head of research at Nedbank Capital.
The shift to domestic consumption and a slowdown in the pace of Chinese infrastructure spend is going to affect SA’s resources sector. There’ll still be demand for minerals, but it’s going to be a while until it reaches the levels we saw before the 2008 crash.
Unfortunately for us, the politics of the land is pushing the government into getting a bigger slice of a sector that’s probably not going to provide the dividends in the form of jobs or revenue on which its proponents are trying to sell it.
WHAT the platinum sector wished for at the start of the year, it got. The government has reviewed safety stoppages which have caused miners to lose significant amounts of production, and platinum miners were most affected by this.
As SA and Zimbabwe are the sources of most of the world’s platinum, miners were hoping that along with unions and the government they would be able to ease up on output to boost prices. Those talks are no longer needed as the fallout from the Marikana tragedy has seen the price of the metal rally over recent weeks.
But the cost of getting all they ever have wanted this year is getting steeper by the day, so much so that some mines may close altogether. It’s a case of be careful what you wish for, because your wish might just be granted.
More in this section
- Hard for Shuttleworth to win if he sounds like a whingeing whitey
- LETTER FROM AMERICA: Microsoft chief mulls bigger part in pulling customers’ strings
- Have a little sympathy for Igesund and Bafana
- Some things must be private, even in hi-tech world
- IN THE MARKETS: Big four banks letting their clients in Mthatha down
- Why you should not trust a political analyst