Important South African industry in recession

South Africa’s mining industry is in technical recession after two consecutive quarters of negative growth, hampering the country’s economic recovery. 

This was revealed as part of Statistics South Africa’s release of GDP data for the first quarter of 2025, with the mining sector’s contribution declining over the past three months. 

The sector contracted by 4.2% during the first quarter, resulting in a 0.2% negative impact on GDP growth. 

Worryingly, this decline was far sharper than the revised 0.1% recorded during the last three months of 2024. 

The decline in the sector’s contribution to GDP has been primarily due to the declining value of platinum group metals (PGMs), whose prices have steadily declined in recent months. 

These metals are seen as less valuable with the rise of electric vehicles, with one of the primary uses for platinum being for catalytic converters in internal combustion engines. 

As electric vehicles continue to gain popularity, the industrial use of the metal is expected to decline, which will push its price lower. 

The decline in production from the local industry in recent years also comes amid a soaring gold price, driven higher by increased geopolitical tension. 

However, once a vital South African industry, gold mining declined in the country as much of its reserves were fully tapped, and it became economically unviable to continue mining precious metals at extreme depths. 

This means that South Africa has largely missed out on the gold mining boom, particularly in terms of its impact on the local economy, employment, and exports. 

South African investors have benefited from the rally in gold prices and the corresponding rise in mining stocks, with many of these companies still listed on the JSE. 

This includes icons such as Gold Fields and AngloGold Ashanti, alongside Sibanye-Stillwater, Harmony Gold, DRDGold and Pan African Resources. 

However, many of these companies’ large, productive mines are no longer located within South Africa, resulting in their share prices appreciating, but with little increase in economic activity within the country. 

The collapse of mining in South Africa

The decline in activity within the mining sector continues a decades-long trend of deteriorating production, with the industry suffering from numerous headwinds. 

Data compiled by Stanlib chief economist Kevin Lings shows that South Africa’s mining production has consistently declined over the past two decades. 

While there have been momentary upticks in production during commodity booms, the long-term trend is downwards. 

This is partly due to the decline in gold mining in South Africa, with this sector’s output declining by 85% since 1994. 

However, this decline was expected to be covered by a rise in production from chrome, iron ore, and platinum. South Africa has some of the highest quality deposits of these minerals. 

The country has been largely unable to capitalise on this opportunity due to regulatory uncertainty in the sector. 

Opening a mine requires several decades of planning, investment, and construction, which makes these companies extremely sensitive to any uncertainty. 

Without certainty that policies and regulations will remain stable over decades, these companies will not invest in opening new mines in a country. 

Instead, they may prolong the lifespan of existing mines or limit output to save money on operating costs. 

In South Africa, regulatory uncertainty has also been coupled with the collapse of Eskom and Transnet, which has greatly increased the cost of operating a mine in the country. 

Repeated above-inflation electricity tariff increases have made it unviable to sustain refining operations in South Africa and have made it prohibitively expensive to increase production or open a new mine. 

Transnet’s inefficient operations, on the other hand, have made it increasingly difficult for miners to get their products to global markets. 

This has resulted in the country ineffectively capitalising on commodity booms and, in some cases, forced miners to reduce output to meet Transnet’s available capacity. 

The steady decline of mining production in South Africa can be seen in the graph below, courtesy of Lings.