Sunday, March 16, 2008

Energy crisis means spike in gold price leaving South Africa behind

SOURCE: AFP—“South Africa unable to profit fully from gold price hike”

South Africa has been struggling through an economic slump recently, in part due to a nationwide energy crisis. The government has rationed energy consumption across the board as it works to expand infrastructure to increase production.

Gold mining, a mainstay of the South African economy has been hard-hit. Rations initially required the mining industry to operate at 90% and later 95% of typical consumption levels, but industry officials report that the move has led in production cuts of between 20% and 30%. As a result, the peak last week peak in the price of gold—which for the first time hit $1,000 per ounce—has not provided as big a boon to the South African economy as it would have were the mining industry operating at peak production levels. Paradoxically, even as the price of gold peaks, industry officials forecast having close mining shafts and cut as many as 7,000 jobs because of forced decreases in production resulting from the energy crisis.

South Africa is among the top gold producing countries in the world. It was only recently surpassed by China as top producer.

Inflation in South Africa is currently at 9%, well exceeding the country’s target of between 3 and six percent. The nation has also downgraded forecasted growth.


Should the South African government make special allowances to permit industry to operate at full capacity in efforts to pull the country out of its economic slump? Why or why not?

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