the interface between mining and manufacturing in south ... · 6.2 non-ferrous metal products 2.3...

The interface between mining and manufacturing

in South Africa: The context

22 August 2013

Interface between Mining and Manufacturing

conference

SANDTON – IDC Auditorium

Jorge Maia

Head: Department of Research and Information

2

Mining and manufacturing in SA’s GDP: 1994 and 2012

Agriculture, forestry & fishing

2.6%

Mining & quarrying9.3%

Manufacturing12.4%

Electricity, gas & water2.8%

Construction4.0%

Wholesale & retail trade, catering &

accommodation16.0%Transport, storage &

communication

9.1%

Finance, insurance, real estate & business

services21.5%

Community, social & personal services

5.9%

General government16.6%

Sectoral composition of the South African economy in 2012

Source: IDC, compiled from SARB data

Note: Sector share according to GDP at basic prices (current prices)

Agriculture, forestry & fishing

4.6% Mining & quarrying7.3%

Manufacturing20.9%

Electricity, gas & water3.6%

Construction3.1%Wholesale & retail trade,

catering &

accommodation14.2%

Transport, storage & communication

8.7%

Finance, insurance, real estate & business

services16.0%

Community, social & personal services

5.3%

General government16.2%

Sectoral composition of the South African economy in 1994

Source: IDC, compiled from SARB data

Note: Sector share according to GDP at basic prices (current prices)

• The combined contribution of mining and manufacturing to SA GDP in nominal terms declined from 28.2% in

1994 to 21.7% by 2012, entirely due to reduced share of manufacturing GDP.

3

Manufacturing share of GDP – SA vs world regions

• Manufacturing sector in SA

saw its share of GDP

declining quite sharply over

time if compared to the trend

observed in select developing

regions.

• Performance of individual

manufacturing sub-sectors

varied widely and most face

strong foreign competition in

local and external markets,

among other challenges.

10

15

20

25

30

35

40

1970 1975 1980 1985 1990 1995 2000 2005 2010

% S

hare

of

GD

P

Manufacturing contribution to GDP

Source: IDC, compiled from World Bank data

South Africa

East Asia & Pacific (developing)

Middle income countries

4

Industry share of GDP – SA vs world regions

• Relative importance of

industrial output (mining +

manufacturing + construction

+ electricity & water)

declined substantially in SA

over time.

• In line with world trend, but

noticeably higher.

• Contrasts sharply with higher

contributions in East Asia &

Pacific (developing) and to a

lessor extent middle income

countries.

• Real output of mining sector

declined over the past 2

decades, despite enormous

wealth and diversity of SA’s

minerals base.

20

25

30

35

40

45

50

1970 1975 1980 1985 1990 1995 2000 2005 2010

% S

hare

of

GD

P

Industry* contribution to GDP


South Africa



World

Note: * Industry comprises value added in mining, manufacturing, construction,

electricity, water and gas.

5

Services share of GDP – SA vs world regions

• In SA, services sectors

contribution mirrored world

average, but is substantially

higher than for middle

income countries and a

developing region such as

East Asia & Pacific.

• Services sectors have been

the pillar of economic

growth in SA since early

1990s:

– Financialisation of

economy;

– Proliferation of business

services;

– Strong expansion of

telecommunications. 20

30

40

50

60

70

80

1970 1975 1980 1985 1990 1995 2000 2005 2010

% S

hare

of

GD

P

Services contribution to GDP


South Africa



World

6

Composition of SA’s export basket

• Almost 60% of export basket dominated by gold, PGMs, iron ore, coal, motor vehicles, iron & steel and non-ferrous

metals.

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

Per

cen

t

Per

cen

t

Key merchandise export products in 2012

% share (Lhs)

Cumulative % (Rhs)

Source: IDC, compiled from SARS data

7

Composition of SA’s export basket (cont.)

• Manufacturing exports are

highly concentrated with

motor vehicles (14.7%

share) topping the ranks

in 2012, followed by basic

iron and steel (14.2%).

• The top-20 manufacturing

sectors (as per graph),

out of a total of 120 sub-

sectors, accounted for

77% of SA manufactured

exports in 2012.

0

10

20

30

40

50

60

70

80

90

0

2

4

6

8

10

12

14

16

Per

cen

t

Per

cen

t

Key manufacturing export products in 2012

% share (Lhs)

Cumulative % (Rhs)


8

Broad sector mix of SA exports varies widely depending on destination

• Commodity exports feature strongly in countries such as China and Japan, whilst Europe, USA and Africa

are important destinations for SA’s manufactured exports.


Broad sector

World

(Total

exports)

USAEuropean

UnionJapan China Africa

Rest of

World

Agriculture 4.2 1.4 7.4 1.3 2.0 2.8 4.9

Mining 44.2 25.8 32.9 68.6 77.7 4.0 59.7

Manufacturing 51.6 72.8 59.7 30.1 20.2 93.2 35.4

Total exports 100.0 100.0 100.0 100.0 100.0 100.0 100.0

South Africa's exports to selected countries/regions in 2012

9

A highly concentrated export basket

Note: Items in red refer to mining Source: SARS, IDC calculations

Sector % share Sector % share Sector % share

1Motor vehicles, parts and

accessories21.3 Iron ore 47.0 Non-electrical machinery 14.9

2 Platinum 10.1Non-ferrous metal ores (excl.

gold & PGMs)17.2

Motor vehicles, parts and

accessories12.4

3 Basic iron and steel products 9.0 Coal mining 11.2 Processed food 8.8

4 Agriculture 7.4 Basic iron and steel products 7.5 Basic iron and steel products 7.7

5 Coal mining 6.4 Industrial chemicals 2.4 Other chemical products 7.1

6Non-ferrous metal ores (excl.

gold & PGMs)6.2 Non-ferrous metal products 2.3 Industrial chemicals 6.9

7 Iron ore 5.4 Other manufacturing 2.1Metal products, excl.

machinery6.6

8 Other manufacturing 5.0 Platinum 2.1Petroleum and petroleum

products4.7

9 Other mining 4.7Motor vehicles, parts and

accessories2.0 Electrical machinery 4.1

10 Industrial chemicals 4.0 Agriculture 2.0 Coal mining 2.8

11 Beverages 2.8 Paper and paper products 1.7 Agriculture 2.8

12 Processed food 2.6 Processed food 0.8 Paper and paper products 2.3

Cumulative % of above 85.1 Cumulative % of above 98.3 Cumulative % of above 81.1

Major exports to select regions/countries in 2012 (% share of exports)

European Union China Africa

10

Mining sector: Radically different mining sector today, far more diversified

• Coal, PGMs and iron ore increasingly dominant, whilst gold a mere shadow of its former glory.

Note: Shares according to mining sales

Gold20.6%

PGMs18.6%

Chromite2.1%

Copper1.4%

Iron ore17.1%

Manganese2.9%

Coal25.7%

Other11.7%

Share in mining industry in 2012

Source: IDC, compiled from DMR data

Gold67.1%

PGMs5.5%

Chromite0.7%

Copper2.1%

Iron ore1.9%

Manganese0.9%

Coal9.7%

Other12.1%



Gold49.2%

PGMs11.4%

Chromite0.8%

Copper2.5%

Iron ore2.8%

Manganese1.3%

Coal20.4%

Other11.7%



11

Mining sector at provincial level

Eastern Cape0.2%

Limpopo23.7%

Gauteng12.8%

Free State7.9%

KwaZulu-Natal3.4%

Northern Cape6.8%

North West24.8%

Western Cape0.4%

Mpumalanga20.0%

Mining value added in 2011 • Mining plays an important role at provincial

level.

• Most mining activity takes place in North

West, Limpopo, Mpumalanga and Gauteng

(see chart).

• Moreover, mining contribution to provincial

GDP and employment is as follows:

GDP Employment

– North West = 33.6% 28.7%

– Limpopo = 29.4% 12.9%

– Northern Cape = 26.7% 10.5%

– Mpumalanga = 24.9% 11.3%

Source: IDC, compiled from Stats SA data

12

Mining sector contributions to SA economy

• Mining sector contribution to SA economy

declined across a number of key economic

indicators, but a recovery can be observed in

terms of exports and jobs.

• The contributions of mining sub-sectors such as

PGMs, iron ore as well as coal are reflected in the

uptick in mining contribution in relation to GDP,

jobs and also in exports.

• Mining sector is still of vital importance to SA

economy.

0

100

200

300

400

500

600

700

800

900

0

2

4

6

8

10

1970 1976 1982 1988 1994 2000 2006 2012

Nu

mb

er

('0

00

)

Pe

r c

en

t

Mining employment

Mining employment as % of SA jobs (Lhs)

Mining employment (Rhs)

0

20

40

60

80

100

120

140

160

0

10

20

30

40

50

60

70

1970 1976 1982 1988 1994 2000 2006 2012

Ra

nd

bn

Pe

r c

en

t

Mining exports

Mining exports as % of SA exports (Lhs)

Mining exports at 2005 prices (Rhs)

0

20

40

60

80

100

120

140

0

5

10

15

20

25

1970 1976 1982 1988 1994 2000 2006 2012

Ra

nd

bn

Pe

r c

en

t

Mining GDP

Mining GDP as % of SA GDP (Lhs)

Mining GDP at 2005 prices (Rhs)

13

Mining sector importance in 2012

Total income

R497 bn

Value added

R267 bn

0

5

10

15

20

25

% C

on

trib

uti

on

Mining sector in the SA economy in 2012

44%

Source: IDC, compiled f rom SARB, DMR, Stats SA data

Remuneration

R101 bn

Input costs

R235 bn

Exports

R308 bn

Employment

524 000

Fixed investment

R75 bn

Capital stock*

R333 bn

Corporate tax

R21 bn

Dividend payments

R12 bn

The mining sector’s average share of GDP recovered in

the 2000s, largely on the back of the global

commodities boom, and also supported by the

emergence of new sources of demand for a number of

minerals.

Note: * Capital stock at 2005 prices

14

Mining sector importance in 2012: Linkages with other sectors

• More than 80% of overall spending by mining sector on its input requirements is sourced from domestic suppliers

of goods and services.

• Import leakage (direct import requirements) estimated at about R33 billion in 2012.

• Spending in the local economy (backward linkages) and supply to other sectors (forward linkages):

• Forward linkages (consumers of mineral products)

‒ Basic metals

‒ Motor vehicles & components

‒ Chemicals

‒ Petroleum refineries

‒ Electricity

‒ Construction & civil engineering

‒ Other industries (incl. jewellery)

• Backward linkages (suppliers of goods and services)

‒ Machinery & equipment

‒ Transport equipment

‒ Wood products

‒ Fabricated metal products

‒ Non-metallic minerals

‒ Chemicals & petroleum

‒ Electricity

‒ Water

‒ Transport services

‒ Construction & civil engineering

‒ Finance & business services

15

Mining sector importance in 2012: Economy-wide impact

Mining sector in 2012

GDP = R267 bn

Employment = 524 000

First round impact

GDP = R70.7 bn Jobs = 206 920

Economy-wide impact

across all sectors of

SA economy

GDP = R536.1 bn / Jobs = 1.35 mil

Indirect impact

GDP = R43 bn Jobs = 126 970

Induced impact

GDP = R155.5 bn Jobs = 487 620

16

Mining sector importance in 2012: Economy-wide impact (cont.)

Sectoral employment and value add directly/indirectly associated with mining sector

activities in 2012

Employment (% of sector) Value added (% of sector)

• Finance & business services 181 040 (10%) R62.1 bn (10%)

• Trade, catering & accommodation 163 417 (10% R44.5 bn (10%)

• Transport, storage & communication 84 461 (23%) R61.3 bn (24%)

• Agriculture, forestry & fishing 49 722 (8%) R5.7 bn (8%)

• Food, beverages & tobacco 18 785 (9%) R7.1 bn (9%)

• Chemicals, rubber & plastic 15 297 (11%) R8.8 bn (11%)

• Wood & paper products 12 739 (11%) R3.4 bn (11%)

• Construction sector 10 763 (3%) R3.7 bn (3%)

• Mining sector plays an invaluable role in SA economy through economic activity generated, jobs created and

foreign exchange earnings.

• Considering the substantial inter-industry linkages with supplying and supporting industries elsewhere in the

economy, the overall contribution to the SA economy is significantly larger than its own direct impact.

• The impact of mining and its related activities is clear throughout the SA economy in terms of job creation and

value add in various sectors.

17

Manufacturing sector: Diversified, but with some dominant sub-sectors

• Although diversified, SA’s manufacturing sector is still dominated by chemicals; metals and machinery; food and beverages.

• Textiles & clothing, furniture and other manufacturing lost substantial market shares since 1994.

Food

16.8%

Textiles &

clothing7.0%

Wood & paper

9.7%

Chemicals

18.6%Non-metallic

mineral products4.1%

Metals &

machinery20.6%

Electrical

machinery3.0%

Radio & TV

1.5%

Transport

equipment7.7%

Furniture & other

11.0%

Share in manufacturing industry in 1994

Source: IDC, compiled from Quantec data

Food

22.1%

Textiles &

clothing3.0%

Wood & paper

9.1%

Chemicals

22.7%

Non-metallic

mineral products3.8%

Metals &

machinery20.3%

Electrical

machinery2.7%

Radio & TV

1.3%

Transport

equipment8.1%

Furniture & other

6.7%

Share in manufacturing industry in 2012


18

Manufacturing sector contributions to SA economy

• Manufacturing sectors % contribution to SA GDP and employment has declined over time, with 2012 ratios substantially lower than in the 1980s.

• However, sector has become increasingly export-oriented, particularly since 1994, with its share of overall export basket (goods & services) sharply higher.

• Nonetheless, manufactured exports are highly concentrated, with a few sectors such motor vehicles & components, basic iron & steel, basic chemicals, basic non-ferrous metals and petroleum products dominating the export basket.

0.6

0.8

1.0

1.2

1.4

1.6

1.8

4

6

8

10

12

14

16

1970 1976 1982 1988 1994 2000 2006 2012

Nu

mb

er

(millio

ns

)

Pe

r c

en

t

Manufacturing employment

Manufacturing employment as % of SA jobs (Lhs)

Manufacturing employment (Rhs)

0

50

100

150

200

250

300

0

10

20

30

40

50

60

70

1970 1976 1982 1988 1994 2000 2006 2012

Ra

nd

bn

Pe

r c

en

t

Manufacturing exports

Manufacturing exports as % ofSA exports (Lhs)

Manufacturing exports at 2005prices (Rhs)

0

50

100

150

200

250

300

350

10

12

14

16

18

20

22

24

26

1970 1976 1982 1988 1994 2000 2006 2012

Ra

nd

bn

Pe

r c

en

t

Manufacturing GDP

Manufacturing GDP as % of SA GDP (Lhs)

Manufacturing GDP at 2005 prices (Rhs)

19

Manufacturing sector growth

• Various sub-sectors of manufacturing with substantial linkages to mining experienced relatively high average growth rates post-1994 until onset of global crisis, such as:

– chemicals,

– metals & machinery,

– transport equipment,

– electrical machinery.

• Manufacturing sector growth averaged 2.8% p.a. over the period 1994 to 2012.

-4

-2

0

2

4

6

8

10

Ma

nu

factu

rin

g

tota

l

Fo

od

&

bev

era

ge

s

Tex

tile

s &

clo

thin

g

Wo

od

& p

ap

er

Ch

em

icals

No

n-m

eta

llic

min

era

l

pro

du

cts

Me

tals

&

ma

ch

inery

Ele

ctr

ical

ma

ch

inery

Rad

io's

& T

V

Tra

nsp

ort

eq

uip

men

t

Fu

rn

itu

re &

oth

er

ind

ustr

ies

% C

han

ge p

.a.

Average annual real GDP growth in manufacturing

1994-00

2001-07

2008-12


20

Mining and manufacturing sectors’ interface

• Mining sector demand for

intermediate inputs rose from

R129 bn in 1992 to R169 bn

by 2012 in real terms.

• Domestic sourcing as a % of

total demand declined from

85% in 1992 to 81% by 2012.

• Share of manufactured

goods as intermediate inputs

for mining sector declined

sharply over time, from 50%

of total in 1992 to 31% by

2012.

• Share of machinery and

equipment fell steeply.

• In turn, the share taken by

services-related activities

has risen substantially,

particularly transport &

storage.

Mining sector demand for intermediate inputs: % share

Sector 1992 1997 2002 2007 2012

Agriculture 0.10 0.07 0.07 0.04 0.05

Mining 0.72 1.14 0.75 1.29 1.30

Manufacturing 49.99 41.24 37.25 31.53 30.58

Machinery & equipment 16.47 12.78 9.61 7.69 8.94

Transport equipment 3.80 2.47 4.36 4.10 2.50

Wood & wood products 5.12 3.33 2.27 1.27 1.74

Chemicals, rubber & plastics 13.63 12.72 13.29 12.66 11.33

Non-metallic mineral products 0.94 1.45 1.31 1.07 0.94

Fabricated metal products 6.62 5.71 4.16 3.00 3.40

Other manufacturing 3.41 2.78 2.25 1.73 1.73

Services 49.19 57.55 61.93 67.14 68.07

Electricity, gas & water 14.75 11.05 6.24 5.35 6.81

Construction 3.12 2.69 2.13 1.37 2.08

Transport & storage 15.37 28.76 37.55 44.07 41.18

Finance & business services 3.31 4.86 6.12 6.16 6.64

Other services 12.65 10.19 9.89 10.20 11.36

Total 100.0 100.0 100.0 100.0 100.0

Total value in R billion (nominal): 15.3 33.5 76.8 117.5 168.8

Total value in R billion (Real 2012 prices): 129.3 182.4 181.0 186.5 168.8

Sourcing ratio - domestic:foreign 85:15 82:18 82:18 80:20 81:19

21


• A number of sectors rely on

the mining sector as a key

source of demand for their

respective products/services.

• In manufacturing, sub-

sectors such as rubber,

machinery & equipment,

other transport equipment,

wood, as well as many other

sectors supply a substantial

portion of their output to the

domestic mining sector.

20

17 17

10 9 9

7 7

5 4

0

5

10

15

20

25

Perc

en

t

Significance of mining sector to top-10 supplier sectors in SA (% of supplier sector output sold to mining sector in 2012)


22


• Top-10 supplying industries

to overall mining sector in SA

employed 104 000 workers

in 2012 due to their direct

supply linkages with the

mining sector.

• However, including the

indirect & induced effects,

the total number of jobs

associated with the mining

industry by these top-10

suppliers amounted to

345 000 jobs.

• Out of these supplier

industries, the manufacturing

sub-sectors employed some

40 000 direct jobs and

145 000 jobs economy-wide

through demand for their

output by the mining sector.

60

2

20

2

34

3

7

21

0

5

10

15

20

25

30

Nu

mb

er

('000)

Jobs associated with direct supply to the mining

industry in 2012


Top-10 supplier sectors to mining industry have

just over 104 000 direct jobs associated with this

activity, or 14% of their combined workforce.

23


• The employment multipliers of

the respective mining sub-

sectors is smaller than those

in its top-10 supplying

industries.

• The demand for basic

chemicals by the mining

industry will result in the

highest job multiplier, whilst

the machinery and equipment

sector has the smallest job

creation impact.

0

2

4

6

8

10

12

Jo

b m

ult

ipli

er

Employment multipliers for the mining industry and

its key suppliers


The Mining sector employed 524 000 people in 2012.

Its overall economy-wide employment contribution

(incl. through all linkages) stood at 1.35 million jobs.

Mining sub-sectors

Employment multiplier example:

Basic Chemicals sub-sector has

a multiplier of 11.2, implying that

for every direct job in Basic

Chemicals a total of 11.2 jobs are

being supported economy-wide.

24

Mining and manufacturing sectors’ interface: Machinery & equipment sector as a supplier of final products

• Mining sector investment

demand for machinery &

equipment in final form (i.e. not

as an intermediate product)

has risen substantially over

time in real terms, especially

since the late 1990s.

• Domestic machinery &

equipment sector output has

consistently expanded over the

same period.

• This sector has a degree of

global competitiveness as

illustrated by the rising trend in

its export propensity (barring

the recent global downturn

period) to 25% by 2012.

• However, import penetration

ratio has been rising steeply,

amounting to 56% in 2012.

0

10

20

30

40

50

60

70

0

20

40

60

80

100

120

140

160

180

200

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012

Perc

en

tag

e

R b

n (

2005 p

rices)

SA's machinery and equipment sector

Mining sector investment in machinery & equipment (Lhs)

Output in R bn (Lhs)

Export propensity (Rhs)

Imports as % of domestic demand (Rhs)


25

Mining and manufacturing sectors’ interface (cont.)

• Mining sector sales to

domestic sectors for

intermediate consumption

rose from R120 bn in 1992 to

R319 bn in 2012, in real

terms.

• Demand for mining products

by local manufacturing sector

for further beneficiation/

processing represented 77%

of the total in 2012, somewhat

lower than 86% peak in 2002.

• Share of sales of mining

output to services sectors

such as construction (e.g.

building materials) increased

over this period, whilst that of

sales to electricity sector (e.g.

coal) declined.

Mining sector sales to domestic sectors as intermediate demand: % share

Sector 1992 1997 2002 2007 2012

Agriculture 0.44 0.64 0.38 0.66 0.76

Mining 0.77 0.90 0.61 0.70 0.69

Manufacturing 80.97 80.87 85.88 82.38 77.33

Machinery & equipment 0.44 0.32 0.26 0.36 0.34

Transport equipment 0.31 0.39 0.49 0.96 0.77

Wood & wood products 0.06 0.04 0.02 0.02 0.02

Chemicals, rubber & plastics 33.16 36.21 41.63 36.24 40.32

Non-metallic mineral products 5.75 5.44 4.27 6.18 5.41

Basic iron & steel 18.18 18.88 23.32 23.01 17.27

Fabricated metal products 0.67 0.83 0.58 0.71 0.80

Other manufacturing 22.41 18.77 15.32 14.91 12.40

Services 17.81 17.59 13.13 16.26 21.22

Electricity, gas & water 9.18 9.82 7.98 6.18 8.32

Construction 5.33 4.92 2.88 6.93 8.76

Transport & storage 0.59 0.51 0.36 0.47 0.47

Finance & business services 1.71 1.25 1.06 1.24 1.74

Other services 1.00 1.09 0.84 1.44 1.94

Total 100.0 100.0 100.0 100.0 100.0

Total value in R billion (nominal): 14.3 42.6 93.9 217.4 319.2

Total value in R billion (Real 2012 prices): 120.3 231.7 221.2 344.9 319.2

26

Enhanced interface between mining and manufacturing: Some of the potential positive spin-offs

• Expansion and/or diversification of production base in manufacturing sub-sectors, as well as related

services sectors.

• Increased value addition in the domestic economy.

• Increased demand for mining sector products from expanding domestic manufacturing sub-sectors.

• Economies of larger scale production leading to improved manufacturing sub-sector competitiveness,

impacting positively on domestic procurement (including mining sector) and potentially increasing

export propensity of manufacturing.

• Domestic manufacturing competitiveness enhanced if benefitting from more competitively priced inputs

(including mining sector inputs for manufacturing as intermediate demand).

• Lower commodity concentration of export basket, contributing to mitigating vulnerability of current

account to commodity price fluctuations, potentially reducing exchange rate volatility.

• Reduced import penetration.

27

Enhanced interface between mining and manufacturing: Some of the potential positive spin-offs

• Greater collaboration in R&D efforts pertaining to mining technology, innovative applications of mining

and/or beneficiated products, with positive spin-offs for sectoral competitiveness and demand for

mining and manufacturing output.

• Infrastructure sharing potential, improved logistics co-ordination, potentially positive repercussions on

associated costs.

• Employment creation and skills development, improved welfare and socio-economic stability.

• Positive implications for domestic operating environment (including cost structures), increasing

attractiveness of SA economy from an investor perspective (local and foreign).

Thank you

Session 2

Interface between Mining and Manufacturing - Programme final with chairs.doc

the interface between mining and manufacturing in south ... · 6.2 non-ferrous metal products 2.3...

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