adminthis past year.
The unrest took a toll on economic growth, exports, the rand’s exchange rate, and business and consumer confidence.
Perhaps most significantly, it tarnished investor perceptions of South Africa and triggered the first credit rating downgrades for the country since the advent of democracy in 1998.
“The mining strikes came from nowhere and smacked us on the head,” says Absa Capital economist Jeff Gable. “It reminded everyone of South Africa’s deeper structural challenges, made people a bit more fearful and pushed SA’s image in the eyes of global investors a few steps backward.”
The wildcat strikes kicked off with a stoppage at Lonmin’s Marikana platinum mine in August during which 44 people died. Unrest at other platinum and gold mines followed, costing the economy more than R10 billion in lost output by the end of October, according to estimates from the Treasury.
The strikes were responsible for a sharp contraction in mining production during the third quarter of this year, which curbed overall growth in the economy to 1,2 percent from 3,4 percent in the second quarter — its slowest pace since the recession in 2009.
The unrest further led to the losses of about 15 000 jobs in the mining sector during the third quarter and knocked the rand to a three-and-a-half-year low at about R9 to the dollar in both October and November.
But the most unsettling effect of the industrial action was that it highlighted the country’s deeply entrenched socioeconomic challenges — poverty, inequality and high unemployment.
Moody’s Investors Service downgraded South Africa’s credit rating by one notch to Baa1 in September, citing a decline in the government’s institutional strength amidst “increased socioeconomic stresses” and “diminished capacity” to manage risks to growth and competitiveness.
Standard & Poor’s followed suit in October, downgrading its rating for SA to BBB from BBB+ — a notch lower than Moody’s. S&P warned that the strikes would feed into the political debate ahead of elections in 2014, creating uncertainty over future economic policy.
“The downgrades were all about political issues,” says NKC economist Christie Viljoen. “The second half of the year was dominated by local events; we shot ourselves in the foot with headline-making bad news stories.”
By comparison, the first half of the year was much tamer, dominated by a deepening global slowdown and its effect on demand for local exports.
Worries over the fallout from Europe’s sovereign debt crisis and the looming US “fiscal cliff” prompted the Reserve Bank to unexpectedly cut its key repo rate half a percentage point to 5 percent in July.
The fiscal cliff refers to automatic tax increases and spending cuts due to take effect next month, which could tip the US economy into recession. — BusinessDay.
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