The industry can achieve global cost competitiveness if the private and public sectors take concerted action.
The mining value chain is the historic bedrock of South Africa’s economy. It directly contributes more than 300 billion rand to GDP, directly employs more than 450,000 people, and is the economic anchor of many communities around the country.
Unfortunately, much of the news about South African mining in recent years has been negative. Total mining employment has fallen by approximately one tenth in the last 10 years—a net loss of more than 50,000 jobs. Moreover, McKinsey analysis shows that the productivity of South African mining operations for key commodities has declined over the past five years, even as mining companies in other regions have made rapid gains in productivity.
Unless the South African mining industry can improve its cost competitiveness, even sharper declines in its fortunes could be ahead. McKinsey research finds that 47 percent of South African mining jobs, along with 42 percent of revenues, are in the vulnerable bottom quartile of global cost competitiveness. Global trends, such as the transition to clean energy and a shift in China’s economic focus away from infrastructure development to new technologies, could dampen demand for South African mining commodities in the years ahead.
The seriousness of these issues should not be underestimated. Yet our purpose in this paper is not to dwell on the challenges but to highlight the real potential of the South African mining industry to return to growth. Even in the short term, the industry can achieve global cost-competitiveness if the private and public sectors take concerted action. Mining companies can drive real gains in productivity within the space of a few years if they step up technology adoption and improve key dimensions of organizational health such as employee motivation and the work environment.
In the medium and long term, the prospects for the South African mining sector could be even brighter. The opportunities to rekindle growth and job creation include localizing the value chain from mining operations, expanding downstream processing for key commodities, and unlocking the potential of the country’s rich ore bodies. Among others, these include iron ore, manganese, and platinum group metals (PGMs), as well as niche commodities such as vanadium and industrial minerals.
Such investments in the mining sector will be critical to accelerate growth in South Africa’s broader economy. Given that the life of a mine can extend to 30 years or more, mining is an important driver of long-term investment. It can also be a key source of stimulus for other sectors of the economy, including infrastructure, energy, and transportation. A renewed mining industry can once again be a primary engine of growth, job creation, and development for South Africa.