(The following statement was released by the rating agency)
Aug 24 – The violent protests at the Marikana platinum mine in
South Africa, which have tragically left 44 dead and sparked wage protests at
other mines, partly reflect factors peculiar to the platinum sector.
Nevertheless, the protests highlight broader structural problems that have long
weighed on South Africa’s rating, Fitch Ratings says.
These include policy uncertainty, particularly regarding the mining sector, and
lack of progress on education and labour reforms which, as acknowledged by last
year’s National Development Plan, has resulted in insufficient growth to create
the jobs required to put a dent in an unemployment rate of 25%. This, combined
with diminished fiscal space, formed the basis for Fitch’s decision to put South
Africa’s ‘BBB+’ rating on Negative Outlook earlier this year.
The protests alone do not directly affect the sovereign rating, but they do
highlight structural problems that may weigh on it. In the longer term, as we
have previously said, failure to speed up growth and sustain job creation will
weaken South Africa’s credit fundamentals. High unemployment is already
associated with widespread crime, which is regularly cited as one factor
deterring foreign investment. Over time it could also threaten social and
political stability, damaging the investment climate further.
The latest protests are another setback for South Africa’s mining sector, which
has been struggling since the early 2000s. Overall output is below 1994 levels,
partly for geological reasons, but the sector has also suffered from
under-investment as rising costs, political and policy uncertainty and most
recently talk of mining nationalisation, has made South Africa a less favourable
investment destination compared with peers.
Output growth has been meagre. Underinvestment and poor performance has seen
employment in the mining sector fall by 131,000 jobs since 2001, at a time when
surging commodity prices encouraged large-scale investment in other mining
jurisdictions. Growing militancy and rising wages have added significantly to
labour costs and undermined profitability. Wages in real terms have risen by
47% over the past decade, while strike action caused over 1.7 million man days
to be lost over the period.
By failing to capitalise on the commodity boom, the country has missed an
opportunity to increase government and export revenue and to fast track
development – all fundamental to long-term improvement in a country’s sovereign
credit rating.
Many factors contribute towards a country being able to realise its resource
potential. Regulatory and fiscal regimes are amongst the most important
determinants of investment and therefore the growth potential of the mining
sector. The extent to which countries have been able to ramp up production and
take advantage of higher commodity prices has varied substantially. We will
examine this in more detail in a special report to be published later this year.
