Dark clouds gather for industry employing 92,000 South Africans

South Africa’s coal-mining industry faces significant headwinds from declining production, inefficient logistics, and the transition to a low-carbon economy. 

This places the industry, which employs 92,000 people in South Africa, at significant risk of collapse. 

Researchers at the Reserve Bank, Pierre Monnin, Ayanda Sikhosana and Kerschyl Singh, issued this warning as part of an analysis of the impact of the transition to a low-carbon economy on South Africa’s financial sector. 

While the effects on financial institutions will be significant, more attention should be paid to the potential impact on South Africa’s coal mining sector. 

This sector is a vital source of employment and foreign exchange earnings for the country through coal exports. 

Perhaps more importantly, in 2023, South Africa relied on fossil fuels for 83% of its electricity generation. The vast majority of this came from coal-fired power stations. 

South Africa has committed to winding down the use of coal to power its industry and households. The country is on track to reach its goal of reducing greenhouse gases sufficiently to limit global warming below 2°C. 

While this is a positive sign, the researchers said implementing South Africa’s Just Energy Transition (JET) has been limited by political and governance challenges. 

They said this is due to South Africa’s historical reliance on coal and its related political dynamics. 

A major problem with the JET is the lack of support for the thousands of jobs set to be lost from a significant decline in coal mining in South Africa. 

The reliance of South Africa’s economy on coal, both as an energy consumer and as an exporter, is critical to manage as it transitions to a low-carbon economy. 

South Africa ranked as the 13th-highest carbon emitter worldwide and the 38th-highest per capita, making it the leading carbon-emitting country in Africa. 

South Africa is the fifth largest exporter of coal, with around 5.5% of global coal exports. Coal constituted about 25% of the country’s total exports.

The researchers warned that if the transition away from coal is not managed properly, the effects could pose a systemic risk to the financial sector and the broader economy. 

The potential collapse of the coal value chain in South Africa puts 92,000 jobs at risk, with Mpumalanga particularly hard hit. 

Another major potential impact is a sharp decline in tax revenue from coal mining companies and exports. 

The researchers said this does not mean the transition should be halted. Rather, its decline should be managed appropriately, and workers should be reskilled to find other jobs. 

Data shows that coal production in South Africa is already declining, falling by over 3.5% in 2022 alone. 

In the last decade, coal mining production has declined by 17%. This is despite the increasing demand for resources as China and India look to fuel their growth with cheap energy. 

Global demand may grow, but this is unlikely to last as people are already shifting to cleaner energy sources, the researchers said. 

This shift will pose a further challenge to South Africa’s coal mining industry and its broader economy. 

They warned that declining coal production also risks increased energy insecurity in South Africa, with Eskom unable to invest in alternatives due to its debt burden. 

The convergence of a carbon-intensive economy, socioeconomic precarity and energy insecurity poses challenges for South Africa’s transition.

Between 2013 and 2035, South Africa faces a transition risk estimated at more than $120 billion (R2.2 trillion) in present value terms. 

This transition risk estimation is largely attributable to coal dependency and a reduced export cash flow of US$83.7 billion (R1.5 trillion).