South Africa’s Economic Concerns Deepen as Mining and Manufacturing Output Slump

South Africa is grappling with economic challenges as recent data reveals a decline in mining and manufacturing output during the third quarter of 2023. The implications are significant, hinting at a stalled GDP growth momentum and posing challenges for revenue collection.

Statistics South Africa’s report on Thursday, 9 November, disclosed a 1.9% year-on-year decrease in mining production in September 2023. Seasonally adjusted figures showed a 0.3% month-to-month decline in September and a 1.6% year-on-year contraction.

Similarly, manufacturing production experienced a 4.3% year-on-year decline in September 2023. Seasonally adjusted manufacturing production dropped by 0.5% in September 2023 compared to August 2023, following month-on-month changes of 0.4% in August 2023 and -1.6% in July 2023. In Q3 2023, manufacturing production decreased by 1.2% compared to Q2, with eight of the ten manufacturing divisions reporting negative growth rates.

Hugo Pienaar, Chief Economist of Minerals Council SA, expressed concerns, stating that these contractions support the view that South Africa’s real GDP growth momentum has likely stalled or, at best, slowed materially in Q3.

The situation is exacerbated by third-quarter production data from Kumba Iron Ore, revealing a 12% decline in sales compared to the previous year. The company attributed this decline to multiple Transnet equipment failures and adverse weather conditions at Saldanha Bay Port in September, impacting ship loading and leading to a 12% decrease in sales relative to Q3 2022 and a 6% decrease compared to Q2 2023.

Notably, these sectors contracted in Q3 despite a 0.7% quarter-on-quarter rise in electricity output. Finance Minister Enoch Godongwana, in his recent Medium-Term Budget Policy Statement, highlighted a tax revenue shortfall of R56.8 billion for 2023. Lower-than-expected corporate tax revenue, primarily from mining and manufacturing companies, contributed to this shortfall, with Transnet and Eskom’s failures weighing on their operations. Eskom and Transnet’s failures are estimated to contribute to a loss of approximately R200 billion in revenue collection, further complicating South Africa’s economic landscape.