The Cost of a Bullet to our Economy

Private Property South Africa
Cathy Nolan

Government’s investigation into the recent tragedy at Marikana in North-West, will hopefully answer amongst others, the question of who fired the first bullet. Irrespective of the answer, the question remains: What did firing that bullet cost? Indeed, some costs such as the emotional cost – the loss of breadwinners, fathers and husbands to their families - may never be fully comprehended.

But are other costs measureable? What impact will this have on South Africa’s economy?

The succinct answer is that in the 10 days since the explosive events unfolded, the rand weakened by 12% as investors pulled out of local bonds. A weak rand means higher oil import prices. This has the knock-on effect of an increase in fuel prices, leading to higher Producer Price Inflation (PPI), and even higher Consumer Price Inflation (CPI) and food prices. GDP growth rates may have to be revised. This is seen against the backdrop of an already fragile economy that keeps property prices under pressure while real-estate plods along its slow recovery path.

In addition, South Africa and its platinum industry suffered a serious blow to its reputation. This is not scare-mongering. Economists describe the impact as “severe”. Our economy is heavily reliant on mining exports. Executives in boardrooms as well as brokers on the trading floor are trying to decipher the long-term cost of the clash between miners and police on that fateful day - just when things appeared to be improving.

Now though, economists predict that mining will come under renewed pressure. As it stands the Lonmin mine alone is losing revenue to the tune of 3 000 ounces of platinum per week (equivalent to R37-million) while negotiations continue.

This tragedy underscores the socio-economic reality. Unions and their members believe they have legitimate objections while mining companies must remain sustainable after pay hikes are discussed. Since the global meltdown four years ago, the platinum sector has struggled to regain its former stature and retrenchments remain a possibility. Many companies were forced to become introspective. Streamlining – cutting out inefficiencies within production – often led to job losses, something the South African socio-economic fabric can ill afford. Property prices in the platinum belt paid a hefty penalty when the metal’s prices slumped in 2008.

Interestingly, the happenings at Lonmin have had the opposite effect on platinum prices. The price climbed from below $1 400/ounce to $1 560/ounce within the five days following the crisis on the back of concerns about supply from South African mines. South Africa holds an estimated 70-80% of the known reserves of the metal.

Other sectors of the economy may also be affected. Economic progress relies on equilibrium between labour competitiveness and equitable pay being reached peacefully by mutual agreement.

The findings of those tasked to investigate the events of 16 August will not close this chapter and nor will they fully reveal the cost of firing those bullets. Rather it may provide a foundation for a full-spectrum, intelligent risk analysis.

Credit: Dieter Deppisch, Sector Analyst, Knowledge Factory

Disclaimer: The information in this document and its attachments is derived from sources which are regarded as accurate and reliable although errors can occur due to reliance on 3rd party resources. However, the content of this report does not constitute advice, may not be applicable to all circumstances and may include projections based on past trends where actual or verifiable data is unavailable. Detailed advice and or consultation with Knowledge Factory should be sought in individual cases and queries. All opinions and estimates contained in this report may be changed after publication at any time without notice. No liability is accepted whatsoever for any direct or consequential loss arising from the use of this document. While every effort has been taken to ensure that no errors, unforced omissions or inclusions have been made, no responsibility for any error, omission or loss sustained by any person acting or refraining from acting as a result of this document is accepted by Knowledge Factory (Pty) Ltd its subsidiaries, and / or the authors of the material.

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