The Impact of Mining Commodity Price Booms and Sharp Exchange Rate Depreciation Episodes on Mining Output and Employment Growth

Abstract

What is the impact of asset and commodity prices booms and busts on the mining sector? We establish that mining asset and commodity prices had a number of boom episodes. Although the boom episodes tend to be highly synchronised, their duration and amplitudes differ. Periods of capital flow surges (capital flow sudden stops) coincide with the R/US$ exchange rate appreciation (depreciation). Similarly, mining share price booms coincide with the capital flow episodes. Evidence in this chapter leads us to conclude that South Africa did not miss out on the commodity price booms contrary to the popular narrative. South Africa participated and benefitted from the recent commodity price booms. Nonetheless, South Africa could have performed even better in taking advantage and managing its commodities given the diverse basket of its mineral resources that are exported. We establish that mining commodity price busts exert disproportionate effects. Mining investment growth and employment growth bears the brunt of the commodity price busts. This is because sharp R/US$ exchange rate depreciations shock do not incentivise the mining sector to improve gross value add (output growth). Sharp exchange rate depreciation episodes are not good for the mining sector output growth. We fail to find significant evidence of the exchange rate depreciation dividend on the mining sector output growth. Sharp exchange rate depreciation episodes are not good for the mining sector output growth.