Africa reels as global crisis hits mines

Tuesday, 23 December 2008 18:25

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 economist Leon Myburgh of metal prices that in recent years have boosted Africa's growth to an average of about five percent.

He said Zambia and the Democratic Republic of Congo 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.

"The ability of government to meet poverty targets is severely constrained as a consequence," he said.

Africa holds 30 percent of the world's mineral resources including 40 percent of gold, 60 percent of cobalt, 90 percent of platinum, 72 percent of chromium and approximately 65 percent of the world's diamonds.

Diamond mining giant De Beers has implemented an extended leave period for workers as a result of the economic downturn, which has seen diamond prices fall 30 percent since October.

This stands to affect the world's biggest diamond producer, Botswana, where the gem accounts for more than one third of GDP and 70 to 80 percent 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've stopped continuous operation, so we are not running mines 24 hours a day."

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.

"That is a very overwhelming situation. If you look at the price of platinum it has halved... from about $2 000 to $816 per ounce," said Lesiba Seshoka od the National Union of Mineworkers which represents 320 000 workers.

Zambia is also reeling from changes to the copper price, which slid from $8 000 per metric tonne to about $3 100 in less than six months.

Economics Association of Zambia economist Chibamba Kanyama told AFP the international crisis was making it difficult for mines to source capital for further exploration.

"The mining companies are really failing to source working capital, their shareholders are apprehensive about further investment in mining companies," he said.

"The reduction in growth in China has significantly affected demand for both base metals and the platinum family of metals."

Zambia, one of the world's biggest copper producers is also suffering from an oversupply of the metal due to massive quantities being offloaded in the market by those gambling on the copper price.

Zambia's mining industry feeds many other industries, and the chain effect of a slowdown in the copper belt has potentially devastating consequences.

"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," said Kanyama.

He 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," he said. - Sapa-AFP

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