WITH more than a quarter of the working-age population unemployed and a target of halving that jobless rate by the year 2020, South Africa has a significant challenge ahead.
The task is to convince investors in the mining sector of this struggling economy that there is a future and that their money is safe.
Unfortunately, the bulk of the large mining investors are in the world’s trading capitals of London and New York. From their vantage point, South Africa hasn’t done a great job in easing their concerns, especially in an environment where wealth preservation takes precedence over growth.
The most damning evidence of the lack of confidence in the more than $2-trillion worth of mineral riches in South Africa is a recent Deloitte report on the planned project investment across mining jurisdictions between 2012 and 2031.
The audit firm made a compilation of plans from company annual reports, press releases and Factiva. The projected spend in Australia is about $55bn, which is about $2.9bn a year of investment in an economy set to feel the pinch from a Chinese customer that won’t be as keen on its iron ore as in the past. Over the past decade, China’s consumption of raw materials has driven the commodities super-cycle, pushing prices of every metal you can imagine to record highs. But in the next 10 years, the world’s second-biggest economy is expected to shift its growth away from industry towards domestic consumption. It’s a shift in gear that drastically changes the game plan for commodity-producing nations.
Brazil is second in the capital expenditure stakes till 2031, with $33bn in spend forecast.
South Africa is placed a distant and depressing 12th in the money list. Capital expenditure plans for Africa’s biggest economy amount to a mere $3bn over the period, or $150m a year.
Our peer in the $3bn bracket is Botswana, whose only mined resources are diamonds, copper and nickel, and which has a population the size of the Free State’s. If you consider youth unemployment in South Africa, which is more than 50% and even higher in mineral-rich provinces such as Limpopo, spend of $150m a year over the next 18 years is a sobering number.
To halve unemployment, the government needs to create about 2.3-million jobs. With the expected spend in the mining sector so low, which along with farming is the most labour intensive, it’s near impossible we’ll reach that goal.
South African policy makers often talk about the goal of moving the economy away from mining and becoming more competitive in technology. But whatever jobs created there, will they be enough to cater for what’s a large unskilled labour base?
If there’s one thing we need from the African National Congress’ electoral conference more than a change in leadership, it is a big push to raise confidence in mining. Policy dithering over issues as important as nationalisation has to come to an end.
While some of its biggest supporters such as Julius Malema have been silenced for now, in every other investment briefing the question still emerges. It’s a vote of no confidence that of the almost $180bn in capex that Deloitte estimates may be spent over the next 18-odd years, South Africa’s share is under 2%.
We just have to turn the corner in this battle to restore confidence in the country.
THE all-share index keeps rising to new records every other week, even though there are many traders, analysts and others waiting for a huge correction. For many it’s a question of when, not if, the realities of the global and national economy start to bite.
For arguments sake, let’s say there is a simultaneous mass realisation that company earnings are nowhere near supportive of current valuations and there’s a big sell-off in equity markets.
Where is safety? Is it in US or German bonds that already have investors nervous about a possible bubble? Perhaps there’s safety in the dollar or the yen, whose liquidity, not the state of their economies, puts them in the safe-haven category. But the dollar too poses a risk as the US Federal Reserve’s continued quantitative easing could be seen as currency debasement. The Japanese central bank won’t be happy with a rapidly strengthening currency as it would further dent their competitiveness. The same applies to the Canadian and Australian central banks if their currencies were to appreciate sharply on safe-haven sentiment.
If, or rather when, there’s a correction, there are fewer and fewer places to go.