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We often hear the comments about South Africa's economy being largely commodity based (and we have discussed this at length before in pages such as our South Africa's economic structure page. While this is all fine in good, the question one needs to ask is if South Africa's economy truly benefits if there is a boom in commodity prices? If not then has got to ask why not? If it's so commodity based what is holding it back from truly flourishing when commodities prices are high?
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Gold vs Platinum vs GDP
The graphic below shows the year on year growth rates in the prices of gold and platinum, and the year on year growth rates in South Africa's economy (GDP). Note the GDP growth rate has not been adjusted for inflation, as the platinum and gold prices has not been adjusted for inflation either. This makes the growth rates more comparable.
What is clear from the graphic above is that commodity prices are far more volatile than that of SA's GDP. While this is understandable as the GDP is an aggregate of a whole host of numbers and not just commodity related goods and services, one has to wonder if SA is such a large exporter of Gold and Platinum, why when there are significant price increases in these commodities we do not see significant increases in the economic growth rates of South Africa? Is SA's policies and taxes and laws a hindrance to the mining sector making the kinds of money it should when there is a commodity boom? Employment and safety rules and union pull and sway and strikes can all be stopping the sector from reaching its full potential, which in turn pulls down the overall economic growth rate as the multiplier effect is not maximized?
What is the multiplier affect? That is where growth in spending in one sector leads to additional growth and spending in other sectors, thus growth in the mining sector then amplifies growth in say construction (as more mines are built) and retail and housing as more people are employed and they demand more goods and services.
Policy inefficiencies, prohibitive labour laws, stringent and costly safety laws, excessive taxes could all have a significant impact on one of the primary sectors in South Africa which could lead t significant growth in secondary and tertiary sectors in South Africa.
What is the multiplier affect? That is where growth in spending in one sector leads to additional growth and spending in other sectors, thus growth in the mining sector then amplifies growth in say construction (as more mines are built) and retail and housing as more people are employed and they demand more goods and services.
Policy inefficiencies, prohibitive labour laws, stringent and costly safety laws, excessive taxes could all have a significant impact on one of the primary sectors in South Africa which could lead t significant growth in secondary and tertiary sectors in South Africa.
One wonders if the Mineral Resources Minister, Mosebenzi Zwane and his "amazing mining charter " has ever even thought about the potential contribution mining could make to South Africa's economy if the sector was given the chance to flourish and not being shot in the foot by government?
Table 1: Average Growth Rates of Gold, Platinum and SA's GDP
Gold |
Platinum |
SA's GDP |
13.6% |
12.3% |
10.3% |
The table above shows the average growth rate of Gold and Platinum (in Rand terms) and SA's GDP growth in nominal terms (I.e growth not adjusted for inflation). And from the table it is pretty clear that SA's economic growth rate is lagging price growth of two of its main commodity exports.
Is mining still in SA's future for investors? Read more here.
Is mining still in SA's future for investors? Read more here.