Namibian mining faces uncertainty as strike begins

by Cobus De Hart 0

Lonmin begins its post-strike rebuilding process Indaba is a platform where leaders from the mining and resources sectors engage in discussions. PHOTOS: Getty

The Namibia Statistics Agency’s (NSA) recently released mining production index (MPI) declined to 103.7 points in May from 107.5 points during April.

The decline is predominantly ascribed to a marked decrease in diamond and zinc production. In contrast, the sub-indices for uranium, copper and gold reflected positive month-on-month gains during May.

Regardless, the readings on the composite MPI for April and May are a significant improvement compared to the first quarter, when the readings on the MPI hovered between 80 and 90 points.

 The desert economy expanded by 1.6% y-o-y in Q1 of 2014, down from real growth of 4.9% y-o-y recorded during the last quarter of 2013.

A contributing factor to Namibia’s poor economic performance during the January – March period relates to a marked slowdown in mining output; the industry contracted by 10.4% q-o-q in the first quarter.

Encouragingly, the strong readings on the MPI for April and May suggest the mining industry is on track to record strong growth during Q2.

Nonetheless, the outlook for the mining industry for the remainder of 2014 is tempered by low international uranium prices. With global uranium stockpiles still being relatively high, the price of yellowcake might remain low for longer than originally anticipated.

Lower uranium prices might see producers scale back operations until such time as international prices recover. On June 9, Bloomberg reported that the Rio Tinto Group will reduce the workforce at its Rössing uranium mine by 23% due to weaker global uranium demand and prices.

In more bad news for the mining industry, The Namibian reported on July 28 that the Mineworkers Union of Namibia (MUN) served Namdeb management with a 48-hour strike notice in the preceding week.

This decision followed overwhelming support by union members, of which 95% voted in favour of a strike as a means to resolve wage disputes.

Negotiations between MUN and Namdeb – a joint venture between De Beers and the state – started in November last year, but the two parties have been unable to reach an agreement and the negotiations were deadlocked, hence the decision by MUN to resort to strike action.

MUN is demanding a 15% wage increase, while the mining company offered an increase ranging between 7.5% and 8.5%, depending on the tier of employment.

In addition, the union also demands a 14% housing allowance compared to the 8.5% offered by the company.

Other demands include an 85% school fee subsidy and an increase in the company’s share of employees’ medical aid contributions from 20% to 80%.

MUN workers were set to start striking on July 31 in what will cost Namdeb some N$10m per day in lost production; a protracted strike is certainly not out of the question.

Diamonds are Namibia’s principal export commodity and accounted for roughly 26% of total exports during 2013.

In addition, the fact that Namdeb dominates the diamond mining industry with upwards of 95% of the local gem output implies that the strike by the company’s employees would cripple the entire industry for all intents and purposes.

The Namdeb strike represents an even bigger risk to the mining sector than low uranium prices and could have a significant impact on the desert economy’s growth prospects, current account deficit, fiscal revenues and foreign reserve holdings.

The Bank of Namibia (BoN, the central bank), in its recently released Economic Outlook 2014-16, stated that local economic growth will average 5.1% p.a. during 2014-15, supported by robust construction works in the mining sector and those associated with the planned public housing programme.

The first 1,000 houses under the Mass Housing Development (MHD) programme are scheduled to be handed over to the government by September 30.

The MHD plans to build 185,000 affordable houses by the year 2030, which will be implemented in phases at a projected total cost of N$45bn.

According to the blueprint for the MHD initiative in Namibia, published in October 2013, the main objectives of the programme include: 1) provide access to affordable housing to the Namibian people; 2) economic empowerment through ownership of a tradable asset (a house) that can be used as security for further wealth and asset generation at the household level; and 3) creating jobs and stimulating economic growth. The programme aims to create 20,556 new jobs by 2030.