S.African deadly mine violence likely to spook investors

By Justine Gerardy
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By Justine Gerardy

8/17/2012 6:30:05 PM -

CAPE TOWN (AFP) - The fatal police shooting of 34 striking miners sends a negative message to investors in Africa's biggest economy, as it tries to fight widespread joblessness and poverty, analysts said Friday.

Violent protests and strikes led by powerful labour unions are customary in South Africa but Thursday's bloodbath at Lonmin, the world's third-largest platinum producer, is the worst since the fall of apartheid in 1994.

"The message is pure and simple: it's a negative message," said Iraj Abedian, CEO of Pan African Investments, who said it reflected badly on the company and unions but also political leaders.

"It does not augur well nor does it indicate a type of foresightedenss to avoid a crisis of this nature and avoid preventable complexities in very tough times in global economic and financial conditions."

Chilling scenes of police firing live ammunition at armed and angry mobs, reminiscent of apartheid brutality, is an image South Africa can ill afford to send into a world that it is wooing for desperately needed foreign capital.

The latest deaths, on the back of 10 people already killed at the mine this week in union rivalry, have rallied the platinum price but seen Lonmin's shares slump by almost six percent in Friday morning deals on London's second tier FTSE 250 index.

"It is very negative for shareholders and it's putting South Africa in a bad light in the eyes of foreign investors," said Owen Nkomo, executive partner at Inkunzi Investments.

The violence flared in a deadly turf war between rival unions which had already claimed 10 lives and shut down the Marikana mine near Johannesburg.

"The unions are very powerful in the country. There's no doubt about that," said Nkomo.

"It's not just about going to a boardroom and sitting and talking, people go to the streets and sometimes unfortunately it gets violent."

With its growth rate lagging behind the continent's booming emerging markets, South Africa's economy is failing to grow fast enough to tackle runaway joblessness and poverty which frequently boils over into violent protests.

Strikes are annual events with more than 2.8 million working days lost to stayways last year.

"Foreign investors are now used to this kind of thing happening in South Africa," added Nkomo, saying companies probably "priced them in" when doing evaluations.

While setting a negative tone for foreign investors, the stoppage could see the platinum price continue to rally amid an oversupply, he said.

South Africa has the world's richest platinum reserves but the industry has been battered by dimming prices, higher costs and the mining sector's jitters over recent uncertainty over radical calls for nationalisation.

The violence is the second to hit the sector this year after three workers were beaten to death in a six-week wage protest at an Impala Platinum mine.

"The environment hasn't been great but now I think this might just put a further sort of dampener on potential foreign investment into the mining sector," said Hugo Pienaar of the Bureau for Economic Research at Stellenbosch University.

"It's really tragic what has happened in the past week but it's not in isolation. Even before this, we've heard some of the major platinum players in South Africa curtailing their investment plans just because of the weak fundamentals in the platinum market," he added.

While investors are well versed with a complex operating environment, the scale of the violence has rattled.

"It puts a new question mark in front of the country's industrial relation environment as far as investment destination is concerned," said Abedian.

"It's one thing to have strong unions," he added.

"It's a totally different thing when 30 workers are shot dead, which means neither business leadership nor union leadership nor political leadership have come to the party in time to anticipate and to avoid this type of thing. That is the new question mark."

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