Riaan Van Wyk should have seen it coming. In the weeks before Christmas the mine safety engineer looked on as diamond prices plunged and production at Namakwa, a South African mining company, was scaled back. Even so, when he was handed his cards last week along with 350 other workers Mr Van Wyk says it was “a great shock”.
Mr Van Wyk is one of 14,000 expected job losses in the mining sector but he will not be the only South African to be taken by surprise as falling metal prices and slumping global demand drive the country closer to recession.
For months South Africans have believed themselves to be sheltered from the global crisis. The government has prided itself on the way its financial sector has remained insulated from the credit crunch, partly because its banks were not allowed to invest in the loss-making credit derivatives that devastated the balance sheets of their European and US counterparts. As recently as October Trevor Manuel, the finance minister, boasted to parliamentarians:“The storm has arrived . . . [but] we can say to our people: ‘The thunder will pass.’ ”
More recently, the gathering clouds of global recession seemed to have a silver lining for South Africa. Falling oil prices have brought big benefits to a country that is a heavy importer of petrol, with prices at the pump falling by nearly 50 per cent since August. Food prices too are down, reducing inflationary pressure and making room for the central bank to drop interest rates further following a 50 basis point cut last month.
Rising public investment ahead of the 2010 football World Cup and the fact that one of the country’s key metal exports – gold – has a tendency to do well in bad times, could also help shore up the economy. Local press reports have even hinted at a mini-boom. “Good times are coming” was how daily newspaper The Star put it a week or so ago. Or – in the words of writers at The Sunday Times – the day before Mr Van Wyk was handed his notice – “After a tough 2008, 2009 looks to be just fine.”
But all the evidence suggests the downward drag of global recession and particularly the plunge in commodity prices could be beginning to overwhelm these positive factors. “The global economy has slowed dramatically and the demand for South African exports [60 per cent of which are base and precious metals] has fallen significantly,” says Jeff Gable, head of research at ABSA Bank, who estimates that the economy contracted by half a percentage point in the last quarter of 2008, its worst performance for more than a decade.
For the governing African National Congress, which goes to the polls in the next few weeks amid rising expectations of social and economic improvement, the slowdown poses a number of problems. For one, with credit markets increasingly hard to access it could become harder to finance a current account deficit that is high by international standards, and expected to stand at 8 per cent of output this year.
That could put pressure on the rand, which would ramp up inflationary pressure and reduce the scope for the interest rate cuts that might help ease life for heavily indebted middle class consumers.
But the biggest concern is rising unemployment. Even after five years of 5 per cent annual growth – by the far the fastest in South African history – unemployment has remained stubbornly high at 23.2 per cent. About a third of the workforce could be idle, if those who have given up looking for work are taken into account.
A slowdown – even if growth is still modestly positive – means those numbers will get worse. Mr Gable reckons that jobs will be shed throughout the year. “It may not technically be a recession but it is going to feel like one.”
Mr Van Wyk, meanwhile, worries about the future. Reeling off a list of redundancies in the mining sector, he asks: “Where do all these people go?”