HSBC analysts have warned that infrastructure and logistics constraints were holding back South Africa from benefiting from its status as the world’s largest producer of manganese ore.
The global bank highlighted the importance of stability in services offered by key State-owned companies such as Transnet and Eskom, among others.
This comes as South Africa’s production of manganese ore declined by 9.1% while sales volumes for the commodity were also 24.4% lower for the three months to the end of February, according to recent data from StatsSA.
HSBC trade economist Shanella Rajanayagam said public- private partnerships on key State institutions such as Transnet were key to ending the gridlock that was muzzling the country’s resource opportunities.
Power outages have been hobbling South Africa’s production, while rail and ports inefficiencies have also been impacting large mining producers, Rajanayagam said.
“South Africa is the largest exporter of manganese globally, and while production has more than tripled in nearly two decades, infrastructure constraints in the form of unreliable electricity supply, as well as port and rail logistics bottlenecks, have been the biggest hindrance,” Rajanayagam said.
However, on the electricity supply front, Rajanayagam said Eskom had managed to free up some cash for its day-to-day operations “after receiving financial support from the government,” the ports and rail operator Transnet “remains in a challenging position”.
She said this was despite the extension of up to R47 billion in government guarantees to meet its short-term obligations.
“Public-private partnerships (PPPs) are envisaged to be a key next step in moving these entities towards improved efficiency and reliability,” Rajanayagam said.
“But in the meantime, these challenges have rendered domestic supply and value chains vulnerable, as they are also hampering export and import flows while prolonging supplier delivery times.”
A number of analysts said that South Africa could benefit from the PPPs in its efforts to turnaround the economy and further grow the mining sector, and contribute to its top position as a leading manganese producer.
SA’s regional peer, Zambia, which has rich copper deposits, also has an opportunity to excel in shaping the global value chain in the electric vehicle market.
Nonetheless, similar to some of its other peers on the continent, there is much to overcome for Zambia.
HSBC said while new copper reserves were being discovered, copper grades across the popular copper-belt province appeared to be declining.
This suggested further mapping of mineral deposits beyond this area and the discovery of new extraction capacity was necessary.
Worse still, reliable energy supply is also a hindrance to copper mining in Zambia, as the sector uses 50% of domestically generated electricity, mostly sourced from hydroelectric plants that have been at the mercy of unstable rainfall patterns.
This as regional mining powerhouses - South Africa, Zambia, the DRC, Zimbabwe - stand a chance to benefit from the global race to transition to cleaner technologies and electric vehicles.
With most of the global production of manganese, copper, lithium and other greener metals vested in the region, all these countries have to do is to unlock their full potential by addressing the infrastructure bottlenecks that are holding back production impetus.
“Uncertainty surrounding taxation for copper projects has also been a hindrance to investment in copper mining. Once electricity production is stabilised, Zambia could attract investment in upstream extraction and processing sectors, where it would be able to move higher in the global value chain,” said Rajanayagam.
“While there has been very little evidence that re-shoring and the shift in global supply and value chains is impacting trade patterns in Africa, we think opportunities remain for the continent to position itself strategically.”
BUSINESS REPORT