Following a quarterly decline in the third quarter’s real GDP, growth bounced back in the fourth quarter of last year, which the Minerals Council South Africa says bodes well for all sectors; however, it also warns that mining underinvestment is a major underlying concern for the country’s economy. 

Statistics South Africa (Stats SA) earlier this week reported that real GDP expanded by 0.6% quarter-on-quarter in the fourth quarter, which followed an upwardly revised contraction of 0.1% in the third quarter.

Regarding the mining sector, mining GDP contracted by 0.2% quarter-on-quarter in the fourth quarter, following an 0.8% increase in the third quarter.

The mining sector’s GDP growth rate for the full 2024 was 0.3%, with the suspension of loadshedding in April 2024 having supported economic recovery.  

Even so, non-energy and industry-specific constraints meant that output declined in six of the ten major economic sectors in 2024.

The largest contraction among the sectors was in agriculture, where value-added output declined by 8% year-on-year in 2024.

Another weak spot in 2024 was the construction sector, having contracted by 5.1% year-on-year, which Minerals Council says was consistent with poor real fixed investment, or capital expenditure (capex).

Total capex declined by 3.7% in 2024 after increasing by almost 4% in 2023 amid a boom in renewable-energy installations.

During 2024, investment by the general government, public corporations including State-owned enterprises, and the private sector all declined. Private sector capex was the biggest drag on the overall investment number.

Commenting further on the mining sector’s performance, the Minerals Council says the GDP data for the fourth quarter provided the first official estimates for mining sector fixed investment in 2024.

These figures are only available in calendar years as opposed to being released quarterly.

As in several other sectors, the data for 2024 showed a bleak picture.

In real, inflation-adjusted terms, mining capex declined by 9.6% year-on-year. This compares with 0.1% mining investment growth in 2023.

“Based on recent company financial results, we know that capex in sectors such as platinum-group metals and diamonds was lower relative to 2023. This reflects depressed demand and commodity prices in these subsectors.

“Notwithstanding the decline, mining capex contributed almost 14% to total nominal fixed investment spending in South Africa during 2024,” the Minerals Council explains.

Broadly speaking, the decline in mining capex should be seen in an environment of constrained mining sector profitability.

The council cites Stats SA’s gross operating surplus (GOS) data, which indicated that, for the second consecutive year, mining profits declined on a yearly basis.

After plunging by 18.5% in 2023, the GOS for mining declined by a further 1% during 2024.

National Treasury Budget documentation in February suggested that corporate tax receipts from the mining sector could be down by as much as 28% year-on-year in the 2024/25 financial year.

“It has to be acknowledged that although there was sufficient electricity production to meet demand, decaying and poorly maintained infrastructure at municipal level meant that many communities continued to suffer from power supply disruptions,” Minerals Council chief economist Hugo Pienaar says.

Of interest is that even with the downswing in profitability in the last two years, mining’s GOS was 49% higher in 2024 than during the pre-Covid-19 period in 2019.

This outpaced a 42% increase over the same period in the GOS for the non-mining sectors, reflecting strong mining profit growth in 2020 and 2021.

Outlays on mineral exploration were also poor in 2024, having declined by 6.2% year-on-year.

This was the fifth consecutive year that the value of mineral exploration was stuck between a paltry R1.1-billion and R1.2-billion in real terms.

“If South Africa is to ensure a future pipeline of primary mining extraction, the (sustained) low levels of exploration need to be turned around with urgency,” Pienaar asserts.

OUTLOOK

Although not without setbacks, continued progress to ensure sustained power availability, some further traction on improving rail and port efficiencies, as well as subdued inflation and lower interest rates bode well for improved real GDP growth this year, the Minerals Council states.  

This should be further supported if the Government of National Unity remains intact. In a nutshell, the domestic environment is expected to support faster rates of growth this year.

In contrast, the global environment has been challenging so far this year, with no let-up in sight.

US President Donald Trump’s radical trade policies are set to weigh on global trade and GDP growth, with the risk that it postpones the progress in bringing inflation down to central bank targets, Pienaar emphasises.  

He adds that a globally facing sector such as mining will be particularly vulnerable under these conditions.

“This further emphasises the need for business-friendly mining sector regulations and policies in South Africa, as well as improved network infrastructure. For mining to reach its full potential, we need to see more progress on these fronts in 2025, and beyond.”