There are some signs, a new Barclays report asserts, that South Africa’s balance of trade in manufactured goods is starting to improve, helping to offset worsened terms of trade brought about by a decline in commodity prices. Print Send to Friend 2 0 Speaking at the release of the quarterly report on Thursday, economist Peter Worthington said that South Africa was facing ongoing domestic challenges, which were being exacerbated by global risks.
However, one “bright spot” was the recent recovery in the country’s trade-balance data – an improvement that took hold despite South Africa’s terms of trade being at their weakest level “in a number of years”, owing partly to a decline in coal and iron-ore prices and a rise in oil prices.
Following dismal merchandise trade balances in January and February, there had been a rebound in March and April, leaving the performance for the year-to-date slightly ahead of 2013 and 2014. “We started the year very poorly and it just got worse, so that by February we were looking at a cumulative deficit which was much bigger than we had experienced in any of the previous five years. But then we had a good March trade print; April was also quite good.
Then in May, we actually had a surprise surplus, partly on the back of improving balance of trade in the export of manufactures.” Worthington pointed to record vehicle exports of 33 441 units in May as a highlight and indicated that Barclays would be closely monitoring the export performance of manufactured products, including vehicle exports. “I’m really keen to track the performance, because the export of manufactured goods is really potentially what is going to rescue South Africa from the commodity price doldrums that we are languishing in at the moment.
We’ve been waiting a long time for export response to the weaker currency, and we may now be starting to see it.” The current account deficit narrowed in the first quarter of 2015 to 4.8% of gross domestic product (GDP) from 5.1% in the last quarter of 2014. However, this related primarily to a large improvement in dividend inflows, with the trade accounts deteriorating to -1.8% of GDP, as higher exports of manufactured goods were offset by lower exports of commodities such as coal and platinum group metals.
Barclays was forecasting the current account deficit would narrow to 4.3% of GDP this year from 5.4% in 2014, with the “continued deterioration in the terms of trade hinting at downside risks”. Another risk related to South Africa’s sensitivity to key portfolio capital flows, which remained vulnerable to shifts in risk sentiment, with Barclays seeing the main risk relating to the US Federal Reserve’s interest rate “normalisation”. “Overall, we see some easing of the current account deficit, but the country remains vulnerable to a sudden abatement of capital inflows, especially once the Fed starts to hike.”
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South Africa’s National Treasury said on Saturday electricity supply constraints were getting government attention at the highest level after rating agency Fitch said an unstable power supply had led it to cut growth forecasts.
Fitch affirmed its BBB rating but warned that the negative outlook for Africa’s most advanced but ailing economy reflected a range of risk factors. Print Send to Friend .
These included weak GDP growth and a failure to reduce the budget deficit and stabilise the government debt/GDP ratio “that may, individually or collectively, result in a downgrade”.
“Government recognises that the country’s economic growth performance needs to be higher in order to address the country’s challenges,” the treasury department said in statement. “Resolving the energy challenge is a priority”.
South Africa is building three large-scale power stations to reduce chronic electricity shortages that have forced power utility Eskom to impose rolling blackouts to prevent the grid from collapsing.
One of them, Medupi, produced power for the first time earlier this year from one of its six units. Once completed the plant will add nearly 5 000 MW to the country’s total generating capacity of 40 000 MW. Fitch had warned in March that a downgrade of its BBB rating for South Africa — two notches above junk status — was more likely than not.
It cited concerns that South Africa’s economy was running quite large twin budget and current account deficits, leading to rising public and external debt ratios. The treasury department said it would broadly stick to its spending ceiling budget plans of 3.9% of GDP for the 2015/16 fiscal year.
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Contributing 19 percent to its GDP, mining is essential to the economic prospects of South Africa. Chris Griffith, CEO of Anglo American Platinum, tells World Finance how platinum can be extracted in a sustainable way.
Although mining is the backbone of South Africa’s economy, its success is not without consequence; and only by considering environmental and social wellbeing alongside financial performance can leading companies pave the way for sustainable growth. As the country’s mining industry enters into the modern age, it is essential that companies work responsibly and, in doing so, benefit all corners of society.
Looking to the example set by Anglo American Platinum, it’s clear that key industry names can bring a greater measure of sustainable prosperity by focusing on matters aside from profit-making potential. We spoke to Chris Griffith, CEO of Anglo American Platinum about the country’s mining industry and the importance of corporate social responsibility in shepherding it on to greater things.
What’s the current economic environment like in South Africa, and how is this affecting the mining industry?
The South African economy is diverse with a number of activities contributing to the economy. However, mining is still a significant contributor to the South African GDP. Here at Amplats, we develop socio-economic programmes such as agricultural programmes and contribute significantly to South African education and health by building schools, clinics, roads etc. We see ourselves as an integral part of the society.
We are also encouraged by the manner in which stakeholders such as unions, employees, the government, businesses, investors and NGOs collectively agree that we have to work together to develop sustainable solutions in the mining industry. Labour unrest affects all sectors of the economy especially small businesses within mining towns. We have seen how a labour strike in one sector can negatively affect other sectors that are stable.
[M]ining is still a significant contributor to the South African GDP
Environmental, social and governance risks are fundamental to our business, we see financial risk as an integral part of the business, the same way we see environmental, social and governance risks, and we continue to identify risks in all areas of our business to ensure a holistic approach to business sustainability. We are encouraged that the South African economy is steadily improving.
How has that affected Anglo American Platinum and how has the company adapted to it?
Despite the challenging environment of the industrial action, the effect of business improvement initiatives is evident across all our operations. Our revised marketing strategy aimed at improving margins and increasing future demand for platinum group metals (PGMs) continues to have a positive impact. We prioritised all existing asset-optimisation, supply chain programmes and initiatives identified in the 2012 Platinum Review. We continue with our value-driven strategy, cost-reduction programmes and improving operating efficiencies.
Our focus remains on the restructuring and repositioning of our portfolio. We have the high quality assets to enable us to do this, and a new capital optimisation programme to ensure we allocate our scarce capital to the highest potential assets and projects.
What mechanisms does Anglo American Platinum have in place with regard to the environment?
We aim to create and extract maximum value from our full basket of metals in a safe, profitable, competitive and sustainable way, for the benefit of all stakeholders. We do this responsibly by ensuring that resources such as water and energy are optimised and saved. For example, our total new-water consumption decreased from 33.4 million metres cubed in 2013 to 27.1 million metres cubed in 2014. We have total basal energy expenditure of 61.3 percent against a 2013 target of 58 percent. Our safety has improved too. We believe that zero harm is achievable.
What has the company done to ensure it is socially responsible towards South Africa?
Social deficit is a fundamental issue not only for Anglo American Platinum, but for all sectors of society and governments in the developing nations, and South Africa is far from unique. Moreover, South Africa is still repairing wounds suffered as a result of apartheid, and most of our host communities still lack fundamentals such as schools, roads, health facilities, transport infrastructure and so on. Mining is seen as a source of employment and income, and the local economy still needs to be uplifted to improve access to facilities and other opportunities.
Mining contributes significantly to the GDP of South Africa and other countries where we operate. In figures, mining creates 1.35 million jobs, accounts for about 19 percent of GDP and is a critical earner of foreign exchange – typically greater than 50 percent. The industry also accounts for 20 percent of private investment, 12 percent of total investment, attracts significant foreign savings of around ZAR 1.4trn ($121.4bn), has approximately ZAR 440bn ($38.1bn) in annual expenditure, spends ZAR 93.6bn ($8.1bn) on wages, ZAR 4bn ($346.9m) on skills development and ZAR 2bn ($173m) on community investment.
In 2014, Anglo American Platinum trained 49,763 employees, with 4.9 percent of total payroll spent on training and development. With regard to sustainability indicators; in healthcare 16,875 community members received primary healthcare by company funded mobile clinics. In education 79.4 percent of the company bursary fund for communities was awarded; and there was the completion and handover of a ZAR 40m ($3.47m) school for the local community in Bizana. We also invested in skills training, with 1,320 employees, community members and contractors benefitting from adult basic education and training programmes.
We believe our social contribution is notable and significant. However, our host communities and citizens require more and there is still a lot to be done, which is why, as a company, we have developed Alchemy. Alchemy – Anglo American Platinum’s ZAR 3.5bn ($303.8m) social development framework model for shared ownership – is a community based empowerment scheme. The sole aim of Alchemy is simply to develop and empower our host communities beyond the life of mine. We believe that this is the right thing to do and that overtime, communities will benefit immensely from this strategic initiative.
Anglo American Platinum was recognised as Best Performer in 2013 and 2014 by the Johannesburg Stock Exchange’s Socially Responsible Investment Index.
What main governance structures and processes has the company put in place and what impact are they having?
The board regards governance as fundamental to the success of the company’s business and is committed to principles of good governance in directing and managing the company to achieve its strategic objectives. The board conducts its business in accordance with the principle of King III, which includes the exercise of independent discipline, responsibility and transparency, and also the accountability of directors to all stakeholders setting out its role and responsibilities.
Through proactive stakeholder engagement, not only do we integrate media views but, specifically, engage minority shareholders because we believe that they provide useful and important views and strategies to ensure that the business remains sustainable.
Stakeholders are engaged in groupings and on an individual basis. That is why we have developed an ESG communication strategy that will ensure that every stakeholder’s view is taken into consideration and addressed.
In short, structures such as a Safety and Sustainable Development Committee, Social Ethics and Transformation Committee, Audit and Risk Committee, Executive Committee and a Business Integrity Committee ensure that the whole system operates within local and international good governance frameworks.
What are Anglo American Platinum’s key policies with regard to sustainable development more generally?
Sustainability is not an isolated phenomenon but an integral part of the business. Everything we do is done through lenses of sustainability, and our policies are reviewed and tested against best international sustainability practices and standards. The anti-competitive policy is a practical example: our reputation as a business may be negatively affected if we do not identify employees and contractors who are exposed to antitrust risk, and ensure that they all receive appropriate training. As a company we subscribe to the principles of International Council on Mining and Metals, which means that we must mine responsibly. We ensure minimal environmental impact and eliminate other factors such as noise and dust.
What challenges do the company and wider industry face?
As the company develops so too do social needs. Land and housing is a challenge, and the two represent a high risk to employee health and safety. As a company, we build houses and ensure employees have a living-out allowance when choosing to live outside of identified accommodation. Some of the challenges have come as a result of undeveloped infrastructure, such as public roads, and while this is not entirely within our control, we see this as a challenge because our employees are exposed to unsafe roads. In response to these challenges we partner with local, provincial and national government in initiatives focused on improving infrastructure. We build roads, provide safe transport and provide accommodation.
What is Anglo American Platinum’s overall vision for the future in terms of the wider platinum industry?
Our vision is to be a global leader in PGMs, from resource to market, as we work towards a better future for all.
Source: World Finance
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