News / Economy

S. Africa's Zuma Seeks Calm at Mines, Triggering Rand Fall

South Africa President Jacob Zuma in Pretoria, May 30, 2013
South Africa President Jacob Zuma in Pretoria, May 30, 2013
Reuters
South African President Jacob Zuma tried to play down the effect of labor unrest on the economy on Thursday but managed to trigger a nearly three percent plunge in the rand against the dollar instead.
 
In a hastily convened news conference two days after weaker-than-expected economic data, Zuma tried to calm fears that last year's violent industrial action in the mining sector would be repeated.
 
“It is only in undemocratic countries that there are no strikes,” said Zuma, who faces a general election in less than a year. “I don't think we should take strikes as a problem.”
 
The rand, which has lost more than 10 percent this month on fears for the wider economy, breached the psychologically key 10.0 level against the dollar after the speech and extended the losses to 10.09 after mining giant Glencore Xstrata said three of its chrome mines had been hit by a wildcat strike.
 
“It seems increasingly evident that we will see no policy changes to either boost growth or deal with the situation in the mining sector,” Nomura economist Peter Attard-Montalto said. “Markets seem rightly unmoved by Zuma's attempts to reassure them.”
 
More than 50 people were killed last year in labor-related violence in the world's top platinum producer as a vicious union turf war spilled over into wildcat strikes that cost the economy billions in lost output and led to sovereign credit downgrades.
 
In the worst incident, police shot dead 34 striking miners at Lonmin's Marikana platinum mine, the bloodiest security incident since the end of apartheid in 1994.
 
The bloodshed, as well as the ruling ANC's close political ties to one of the feuding unions, the National Union of Mineworkers (NUM), has prompted questions about the government's neutrality even though Zuma denied his administration was “taking sides”.
 
Tensions are still simmering on the “platinum belt” and mining bosses in the gold and coal sectors are preparing for negotiations over pay demands as high as 60 percent.
 
The Association of Mineworkers and Construction Union (AMCU), NUM's foe, was skeptical about Zuma's claims to neutrality, particularly after mining minister Susan Shabangu came out with explicit backing for NUM last week.
 
“I hope what he is saying is happening on the ground,” AMCU president Joseph Mathunjwa told Reuters. “The utterances of his ministers are, however, contrary, with those at the highest ranks saying 'If you strike the NUM, you strike the ANC.”'
 
Plea for Growth

Data on Tuesday showed growth had slowed to 0.9 percent in the first quarter of this year from 2.1 percent in the last three months of 2012, mostly because manufacturing output shrank.
 
Growth in the rest of 2013 would have to be much higher for South Africa to achieve its 2.7 percent forecast, Zuma added.
 
“When our mining sector is in difficulty, it affects our economy widely, leading to industrial slowdown,” he said.
 
However, analysts were skeptical that the government could do anything.
 
“The world, especially investors, give actions and credibility much more weight than talk. The time is long past for just talk,” said Peter Major, a mining analyst at financial services firm Cadiz Corporate Solutions.
 
As well as platinum, used in vehicle catalytic converters, South Africa produces coal and gold, although the days when it produced over half of the world's bullion are long gone.
 
However, the mining sector directly accounts for six percent of economic output and - more importantly for the local currency - 60 percent of export revenues.
 
The rand has come under heavy pressure since early May, when Anglo American Platinum, the world's top producer, said it wanted to lay off 6,000 people in search of profitability.
 
Even though the layoffs were a drastic reduction of an initial plan to cut up to 14,000 jobs, unions threatened strikes.
 
A brief wildcat walkout earlier this month at a Mercedes Benz car plant in the coastal city of East London - the factory's first industrial action - raised fears of labor militancy spreading to other sectors.

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