NYANDENI: Mining accounts for a fraction of South Africa’s gross domestic product but still hits well above its weight and is pushing the continent’s most advanced economy towards recession.

South Africa’s economy shrank 0.6 per cent in the first quarter of this year, data showed this week, the first quarterly contraction since a recession in 2009 as mining output plummeted amid a protracted strike in the platinum sector.

A recession, defined as two consecutive quarterly declines in GDP, seems certain as the strike by members of the Association of Mineworkers and Construction Union (AMCU) against producers Anglo American Platinum, Impala Platinum and Lonmin has continued in the second quarter.

Mining has been in a state of long-term decline here and the fact that it still packs such a punch highlights a number of structural problems in the economy.

These include a failure to diversify the export base, which leaves the trade balance, current account and rand currency dangerously exposed to an overreliance on commodities, and an inability to generate jobs from other sectors.

“Because our economy is diversified we often forget how dependent we still are on mining commodities. It still represents more than half of export revenues, which is shocking,” said Christie Viljoen of NKC Independent Economists.

“The government’s big focus is on manufacturing, that’s where it sees the jobs and the exports. But if you look at how important mining exports still are it raises big questions about their success in diversifying exports,” he said.

According to customs’ data, mining commodities last year accounted for around 57pc of the 925 billion rand ($881bn) worth of commodities that South Africa exported.

In this regard, South Africa’s economy, for all its sophistication and market liquidity, is very much typical of the continent, with a heavy exposure to resources. Natural resources still account for around three-quarters of sub-Saharan Africa’s exports, according to World Bank data.

The strike, which began in late January, has cost the industry more than 20bn rand in lost revenues so far. As that would have been almost exclusively counted as exports, it will pressure a current account deficit which is already equal to 5.1pc of GDP.

Published in Dawn, May 30th, 2014