In 2022, mining and metals accounted for 54% of SA’s exports of goods, far higher than the global norm. In China, mining contributes 3% of goods exports; in other upper-middle-income economies the figure is 40%, mostly oil and gas.
Yet mining in SA generates only 3% of employment and 10% of GDP. That is only slightly more than in other upper-middle-income countries excluding China.
Clearly, mining remains an irreplaceable source of foreign exchange and tax revenues for SA. However, in itself it doesn’t generate much employment or provide new opportunities for growth, and its large economies of scale mean a few big companies inevitably capture most of the returns. By extension, the mining value chain contributes heavily to SA’s deep inequalities and high unemployment, with the attendant social and fiscal ills.
Politically, it leads to lobbying to save existing investments, notably in coal and steel, at the cost of more labour-intensive and innovative industries. Economically, it drags down growth except when global mining prices surge.
SA’s mining has diversified a lot in the past 30 years. In 1994 gold contributed almost half of SA’s mining value added. By 2023 its share had plummeted to 10%, while its GDP contribution shrank 75%. Nonetheless, total mining value add expanded 15% because of rapid growth in iron ore, coal, platinum and lately chrome and manganese.
However, these trends have done little to create new employment or improve resilience to swings in global mining prices, which over the past 30 years have increasingly aligned across minerals.
Mining dependency has also left SA with some of the highest greenhouse gas emissions in the world, per person and relative to GDP. SA mining has historically had a symbiotic relationship with coal, the leading source of energy for the mines, refineries and Transnet. But as the climate crisis intensifies and renewable generation becomes cheaper, the costs of relying on coal have escalated. Moreover, since 1994 coal prices have risen faster for domestic users than for exports.
Mining largely defines the structure of manufacturing, entrenching a bias towards capital-intensive activities that create comparatively few jobs. In 1994 heavy industry, including metal products, machinery, automotive and petrochemicals, accounted for 60% of manufacturing value added. The figure remains virtually the same today. But these heavy industries provide only 40% of formal manufacturing employment.
In contrast, light industries — food, clothing & footwear, electronics, consumer chemicals and furniture — produced a quarter of value added in manufacturing, but employed a third of the sector’s formal workers.
In this context, the metals and coal refineries face rising challenges. On the one hand their fundamental economic justification is that SA has rich mineral resources. But unless they own their raw material suppliers, as in the case of Columbus Steel and Sasol, they nonetheless end up paying the world price, wiping out their comparative advantage. On the other hand, the delays in dealing with load-shedding vastly raised the costs of the energy-intensive refineries, even as their dependence on dirty energy threatens their access to overseas markets.
Internationally, mining prices have become more volatile and speculative. Still, they seem unlikely to see a prolonged surge any time soon, despite the spikes during the pandemic and Russia’s invasion of Ukraine. SA’s largest market for minerals has long been China, where growth has recently slowed sharply.
More fundamentally, when mining prices rise over long periods, manufacturers find substitutes or more efficient production techniques. When platinum prices soared in the 2010s, they slashed their use per catalytic converter, cutting into demand. The anticipated shift to electric vehicles would have an even more dramatic effect on the catalytic converter industry, though it could boost demand for other minerals.
SA cannot do without mining’s foreign exchange earnings. But overcoming joblessness and inequality requires vastly scaled-up support for more labour-intensive industries, and consequently some extraordinarily tough trade-offs.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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