Cape Town: The global financial crisis and nosediving commodity prices have dealt a major blow to mining-based African economies, where a recent boom is set to wither, setting back the fight against poverty.
Analysts say the economic downturn and its impact on commodity prices pose a possible disaster for resource-rich countries that have failed to diversify beyond the mineral wealth that fills government coffers. Mining companies are scaling back operations, resulting in retrenchments across southern Africa, while others are implementing emergency measures such as extended periods of leave to prevent further loss of jobs.
“It has been a very, very sharp depreciation,” said South Africa’s Citigroup Inc. economist Leon Myburgh of metal prices that in recent years have boosted Africa’s growth to an average of about 5%. He said Zambia and the Democratic Republic of Congo (DRC) were some of the hardest hit countries in the region, while those such as Tanzania—mostly focused on gold mining—were in less danger.
“These two have seen significant slowdown in their export receipt and in the DRC, it’s having an impact on government revenues, which is placing strain on the fiscal side of the economies,” he said.
Africa holds 30% of the world’s mineral resources, including 40% of gold, 60% of cobalt, 90% of platinum, 72% of chromium and approximately 65% of the world’s diamonds.
Diamond mining giant De Beers SA has implemented an extended leave period for workers as a result of the economic downturn, which has seen diamond prices fall 30% since October. This stands to affect the world’s biggest diamond producer, Botswana, where the gem accounts for at least one-third of gross domestic product and 70-80% of export earnings.
De Beers spokesman in South Africa Tom Tweedy said the extended leave period, which affected the entire region, would be re-evaluated in January. “We have also discussed the configuration of shifts and...we are not running mines 24 hours a day,” he said.
In South Africa, the financial crisis added to an electricity crisis earlier in the year that resulted in production stoppages. Some 32,000 workers are facing redundancy on top of another 32,000 retrenched in the third quarter.
Zambia is also reeling from changes to the copper price, which slid from $8,000 (about Rs3.88 lakh today) per tonne to about $3,100 per tonne in less than six months.
Economics Association of Zambia economist Chibamba Kanyama said, “We are facing massive redundancies, so far we have lost over 2,000 (jobs) and this is too much for a country that has only 400,000 in formal employment.” Kanyama said the result of the crisis would mean higher inflation levels and higher food prices. “It is kind of a disaster, even food security for the next year is threatened.”