South Africa Begins New Year Reeling From More Huge Job Cuts

Mining firm Samancor Chrome said on Wednesday it may cut up to 2,500 jobs as yet another South African company announces layoffs in response to economic challenges.

Samancor attributed the job cull to weak chrome prices and power supply disruptions caused by shortages at the state-owned utility Eskom. As a result, the company needs to cut costs and deal with higher electrical tariffs.

Samancor, a privately held firm that produces ferrochrome – an alloy of chromium and iron used to make stainless steel -- has already warned of almost 600 other potential job cuts at its smelting operations and corporate offices.

Another mining company, Glencore said it may eliminate 665 jobs at its ferrochrome smelter facility in Rustenburg – also from pressures arising from high electricity tariffs and power cuts.

“The consultation process is as a result of deteriorating operations and market conditions across the South African ferrochrome industry, including unsustainable electricity tariffs and interruptions, cross subsidies and real cost inflation,” the company said in a statement. “The Rustenburg smelter has suffered material financial losses which are expected to continue for the foreseeable future.”

Analysts at Berenberg said that the restructuring at Rustenburg could lift ferrochrome prices by removing tons of the product from the market.

Glencore produced 1.58 million tons of ferrochrome around the world in 2018. The company holds a total smelting capacity of 2.3 million tons per year in South Africa, of which Rustenburg accounts for 430,000 tons.

However, lower-cost China has become the world’s biggest producer of ferrochrome, with South Africa in second place.

South African precious metals miner Sibanye-Stillwater has also announced thousands of job cuts as it restructures its Marikana mine operations in Rustenburg.

Companies in other sectors have also announced job cuts this year.

Earlier this month Massmart Holdings, the South African unit of Walmart (WMT) said it plans to shut down its 23-store Dion-Wired chain of high-tech appliance shops and 11 Masscash wholesale outlets. About 1,440 workers will likely lose their jobs. Massmart has been beset by falling retail sales in a weak economy.

Telkom, a South African wireline and wireless telecommunications provider, may cut more than 3,000 jobs as it reels from declining sales in its landline business and a weak local economy.

These and other planned job cuts will only place more pressure on President Cyril Ramaphosa’s government, already burdened by a 29% national unemployment rate.

“Labor market dynamics – job growth, income growth -- are the most important drivers of consumption expenditure and I worry that if we see more of these kinds of [job cut] announcements it could further depress household consumption expenditure,” said Miyelani Maluleke, a senior economist at Absa Bank Ltd.

Maluleke warned that rapid population growth since 2015 has made any gains in gross domestic product meaningless.

“[The economy] doesn’t even begin to scratch the surface of what is required in terms of jobs for new entrants in the labor market,” Maluleke said. “As a result I think you’re going to see the [jobless] rate grow.”

Maluleke further warned that the South African economy needs to achieve sustained annual gross domestic product growth of 2.5% to 3% in order to reduce the unemployment rate. But the economy hasn’t grown by more than 2% a year since 2013.

In response to chronic economic travails, the International Monetary Fund reduced its growth forecast for South Africa for 2020 and 2021. The IMF now projects the economy growing at only 0.8% this year (down from a previous forecast for 1.1% growth) and by 1.0% in 2021, down from an earlier forecast for 1.4% growth.