Government killing one of South Africa’s largest employers

South Africa’s mining industry has shrunk consistently over the past decade in terms of both output and employment, significantly impacting the country’s economic growth. 

This is primarily due to regulatory uncertainty in the sector, which discourages investment in new ventures and expansion of existing mines. 

Regulatory uncertainty has been coupled with the collapse of state-owned enterprises such as Eskom and Transnet, which impact the operational performance of mines in South Africa. 

This is feedback from the chief investment strategist at Old Mutual Wealth, Izak Odendaal, who outlined the steady decline of South Africa’s mining industry in a recent research note. 

The economic picture in South Africa remains mixed, with real first-quarter GDP growth being only 0.1% on a quarter-on-quarter basis. 

Compared to the first quarter of 2024, real GDP was 0.8% larger. Add back inflation, and nominal growth was 4.4% year-on-year.

The first quarter saw a 4% quarter-on-quarter decline in mining output, despite firm precious metals prices and weakness in the manufacturing sector. 

The end of persistent loadshedding has not helped these two electricity-intensive sectors much, partly due to ongoing logistical challenges, Odendaal said.  

On both fronts, improvements are expected over time as reforms in the electricity and logistics sectors gain momentum.

For instance, the Department of Transport announced last week that it received 162 formal responses to a request for information on private sector participation in the country’s rail and ports system, mainly along mining corridors.  

Although it is still early in the process, this initiative is expected to lead to increased investment and improved operational performance in logistics.

The steady decline in output from these two sectors has been a significant drag on South Africa’s economic growth, as both are major employers. 

Crucially, these two sectors can absorb relatively low-skilled labour relatively quickly, making them very important in tackling South Africa’s unemployment crisis. 

They also provide much-needed foreign exchange earnings through exports worldwide, thereby bolstering the local financial system and assets. 

The collapse of mining in South Africa

South Africa’s mining production has plummeted over the past two decades, with regulatory uncertainty, state-owned enterprise (SOE) collapse, and volatile labour relations taking their toll. 

However, mining companies have been the best-performing shares on the JSE so far in 2025, despite the sector being in a technical recession. 

This largely reflects global factors, particularly the increased uncertainty regarding the trade policy of the United States. 

Odendaal noted that it is essential to recognise that the JSE has outperformed the broader emerging markets index in dollar terms, indicating that some local factors are at play.

The most notable such factor is the strong performance of mining shares, despite the sector’s decline since 2000. 

The local mining sector has shrunk in output and employment over the past decade and is weighed down by infrastructure bottlenecks, regulatory uncertainty, and security issues.  

This is negative for the economy, the fiscus and job creation. The infrastructure issues are being addressed, but regulatory matters remain a bone of contention, while organised crime continues to be a scourge. 

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

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.

Nonetheless, when commodity prices jump, so does the profitability of miners, even if production does not increase. 

The dollar gold price has increased 28% this year, while platinum and palladium have increased 22% and 11% respectively.

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

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.