Keeton is with the economics department at Rhodes University.
THE platinum strike is in its fifth month. We learned last week that it has already caused a 0.6% annualised contraction of South Africa’s gross domestic product (GDP) in the first quarter. Mining production shrank a huge 25%. Manufacturing contracted, too, at an annualised 4.4%. Some of this is because manufacturers supplying the platinum mines are also being hurt by the strike. But it also reflects a deeper weakness in the economy as a whole, which was already causing great anxiety.
Since 1994, GDP has fallen in only four quarters. GDP declined for one quarter in 1998 and for three quarters in 2008-09. Both times the causes were external. This time, the contraction is entirely self-inflicted.
The social costs of the strike are huge. Religious leaders speak of hungry adults stealing from children at school feeding projects. HIV-positive mine workers on antiretrovirals have been denied access by strikers to the mine clinics where they receive these life-saving drugs. To survive, most strikers will have borrowed from money lenders at exorbitant interest rates.
Their debt repayments will swallow up any increase they gain in wages as part of a settlement. The indebtedness of the mining companies is also rising as without income, their obligations under existing loans escalate. This will reduce future profitability and so the Treasury will bear some of the long-term costs of the strike through reduced tax revenues.
At the heart of the conflict is a chasm between what workers believe they should earn and what their employers believe they can afford to pay. The unions do not believe employers that their offer represents the most that can be added to the wage bill without threatening operations. This distrust is compounded by the struggle for supremacy between rival unions, the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union. And the government is rejected as the “honest broker” because of the African National Congress’s alliance with the NUM.
Hanging over everything is the uncertain future of platinum group metals prices. It is astonishing that such a large and lengthy disruption of supply has had little effect on prices so far. In most commodity markets, even small supply shortages usually result in significant price rises. The failure of prices to rise may be the result of producers selling stockpiles of metals.
Alternatively, demand must have shrunk to levels where it can be met by present production. Both explanations point to a market in substantial oversupply. If so, a return to normal production could drive down metals prices sharply. Possibly it is fear of just such an outcome as much as present affordability that is driving employers’ resistance to strikers’ demands.
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