The "concerning" economic growth dynamics across the South African mining sector should reinforce the need for the seventh administration, whatever shape it may take, to sustain and preferably fast-track the structural reforms started by the sixth administration, Minerals Council South Africa said on June 5.

As was telegraphed by the high-frequency monthly production data in the first three months of this year, Statistics South Africa reported on June 4 that mining sector GDP measured in real terms contracted in the first quarter.

Value added by mining declined by 2.3% quarter-on-quarter, almost fully reversing the solid increase of 2.6% quarter-on-quarter recorded in the fourth quarter of last year.

Mining’s contraction in the first quarter, which was driven by lower activity in the platinum group metals (PGM), coal, gold and manganese sectors, subtracted 0.1 of a percentage point from overall real GDP.

Compared with the first quarter of 2023, mining value-add fell by 0.3% year-on-year.

Helped by a notable 13.5% quarter-on-quarter rebound in the agricultural sector from weakness in the second half of 2023, non-mining GDP managed to eke out a modest quarterly gain of just 0.1% quarter-on-quarter during the first quarter.

Besides mining, value-add in five other major sectors declined in the first quarter, highlighting broad-based economic weakness at the start of this year. There is also the implication of the larger decline in mining relative to the non-mining part of the economy to consider, with mining GDP now a notable 9.5% below its pre-Covid-19 level.

In stark contrast, the non-mining part of GDP was 1.7% above the pre-Covid-19 level during the first quarter.

This underperformance by mining really started in 2022, a period characterised by record power cuts and worsening logistics performance. The mining sector remains particularly exposed to these constraints, the Minerals Council said.

The tough operating environment for mining at the start of the year was also highlighted by the gross operating surplus figures. These provide an indication of profitability across the different sectors. The gross operating surplus for mining declined by 12.8% year-on-year in the first quarter.

For the non-mining part of the economy, this measure increased by 6.7% year-on-year, again revealing a stark divergence between the mining and the non-mining sectors of the economy.

The one area where mining did outperform was on compensation of employees, which increased by 8.6% year-on-year in the first quarter. On average, this measure rose by a much lower 3.4% year-on-year in the non-mining sectors.

The bottom line, according to the Minerals Council, is that following a poor start to the year, the absence of load curtailment to the mines, and broader loadshedding to the rest of the economy, so far in the second quarter bodes well for an improved GDP performance in the April to June quarter.

However, production cutbacks in a key sector such as PGMs because of issues that are unrelated to energy security suggest that overall mining output may not realise the full benefit of the reprieve in load curtailment, at least not initially.

In terms of overall GDP, the moderate contraction in the first quarter suggests some downside to our already subdued real GDP growth forecast of 1% for this year.