Pressure on mine jobs eases as rand weakens

South African mine unions and employers joined forces this week to urge the government to act against a strengthening currency that has been undermining exporters and putting thousands of jobs at risk.

Supported by employers, the National Union of Mineworkers (NUM) marched on a Reserve Bank monetary policy committee meeting on Wednesday to protest the effects of the strong rand on job security. The following day Bank governor Tito Mboweni announced a 0.5 percent drop in interest rates, prompting a sharp depreciation of the rand - the currency lost 26.5 cents against the US dollar by Thursday afternoon - to end the day at R6.47 to the dollar. On Friday the rand was around R6.50 to US $1, having previously tested the R6.00 to US $1 level.

The Bank lowered its repo rate, at which it lends to commercial banks, from 8 percent to 7.5 percent, and commercial banks in turn lowered their prime lending rate to 11 percent, the lowest in decades.

The Chamber of Mines of South Africa said it "welcomed the news of the half a percentage point reduction in interest rates". Chief executive Mzolisi Diliza said in a statement that "even though we would have liked a full percentage point decrease, this is still an encouraging move by the governor [Mboweni]".

A reduction in interest rates "is only one of a number of corrective measures indicated as necessary by the mining industry in a protest submission to the Reserve Bank yesterday. The industry believes that this can help bring about a favourable climate for an economically balanced level for the rand, allowing both the import and export sectors to thrive", the chamber noted.

By lowering interest rates Mboweni has discouraged so-called 'hot money' inflows from overseas investors by narrowing the differential between South Africa's relatively high interest rates and those of its major trading partners.

Unlike foreign direct investment, there was "no economic benefit for the country" from 'hot money' inflows, said NUM head of publicity George Lekorotsoana. "You want to flush out your hot currency people," he said.

Lekorotsoana said NUM welcomed the Bank's interest rate cut: "such a move should begin to impact positively on the broader aspect of our mining companies, as they were bleeding [due to rand strength], particularly your marginal mines".

Many marginal mines were "not making money", which meant "jobs are ... put on hold, and the chances of people losing jobs are much greater".

"On this particular issue the unions and employers are in agreement. We were clear: put it [the currency] between R7,50 and R9 [to the dollar] ... if you weaken it any further, then the import sector is going to cry. We need [currency levels] to benefit both sides, import and export," Lekorotsoana added.

Bill Lacey, economic consultant for the South African Chamber of Business, told IRIN he believed the Bank had made the right move in cutting rates, but added that "hopefully the [Bank's] policy will remain to ensure that inflation is kept in check". The country has an inflation target range of between 3 and 6 percent.

As oil prices reached record highs this week, raising the risk of imported inflation, Lacey sounded a note of caution over a weaker rand-higher oil price scenario and stressed that "what we are after is some stability to our currency - that's the essential requirement. The way it has fluctuated over the last three years has been no good for business planning purposes."