By Palle Ellemann, Lead Emerging Market Engagement at GES
…is my first thought, when I walk into the lift that is going to take me 3,000 metres underground to see how deep level gold mining is done in South Africa. It is a nerve-wrecking thought going that far down, but the CEO, COO and a couple of other senior executives are with us, so they must be quite confident that we are actually going to make it up again!
The remaining gold reserves in South Africa are becoming more difficult to access and some of the mining companies are restructuring to focus on fewer mines with lower operating costs. The gold price has dropped by about 40% since the peak in 2011 and this is putting strong pressure on the South African gold mining companies and the country in general. The mining sector is still a very large employer in South Africa and the government and unions are pushing back hard when mining companies suggest closing down non-profitable operations.
So far, there are still gold mining companies specialising in lower cost operations in difficult circumstances that are ready to take over the difficult mines. And they are ready to take the risk that inherently goes with mining operations at 3,000 metres’ depth. When something goes wrong, it often goes very wrong.
The South African economy is under severe pressure these days. Under the surface, social unrest is a constant threat fuelled by alarmingly high unemployment, one of the world´s most unequal distribution of wealth, and other legacy issues from the previous apartheid regime. And if this was not bad enough, South Africa is facing its worst drought in 23 years and a more structural challenge with water scarcity that has no solution in sight. The drought and water scarcity are predominantly impacting the most vulnerable people in the South African society – small-scale farmers and those living in areas with poor infrastructure. Some farmers have already started to slaughter the few cattle that they own because they are running out of water and want to sell before everybody else panics and meat prices drop due to excess supply.
On the positive side, there is a massive construction project in the Sandton area of Johannesburg where a totally renovated business district is shooting up, and all new buildings are designed to meet the 4 Star Green Building criteria. This is currently creating both jobs in the construction sector and more energy efficient office space, but it is also likely to lead to a significant traffic problem with thousands of cars commuting to the area. There is one train line for Sandton, while the planned expansion of the train network has not really started yet.
South Africa needs a new Mandela to lead a united country. But it needs to be a leader that can deliver solutions to some of the country´s massive challenges: diversify the economy to be less dependent on the extractive sector, stimulate job creation to bring down unemployment, ensure a reliable power infrastructure and initiate a transition away from a coal-based energy supply, mitigate water scarcity risks, and manage the tension between the different groups of the South African society. It is no easy task, but South Africa is positioned to take the lead and also benefit from the current economic growth and future prospects in the rest of Africa. It “just” needs to get its own house in order.