ENGLISH ABSTRACT: This research studies the relationship between economic growth and commodity-market volatility in South Africa. The mining industry, largely supported by gold, diamonds, coal, iron ore and platinum-group metals, has played a central role in South Africa's economic development. The commodities that were selected for the study are the five major minerals, namely gold, coal, iron are, platinum-group metals and diamonds. It investigates two central questions, the first of which is whether the mining of the above commodities still makes a significant contribution to the South African economy in terms of employment, revenue and foreign-currency earning. The second is whether there is a link that reflects a statistically and economically significant association between commodity-price volatility and economic growth in South Africa. The economic environment in South Africa has been extremely positive, with a growth averaging around 5% for the period 2004-2006. An important contributing factor to this favourable environment has been the behaviour of mineral commodity prices. Mining makes a direct and indirect contribution of approximately 15% to GOP, accounts for around 50% of merchandise exports (including primary and beneficiated mineral exports), 12% of fixed investment, 30% of the market value of the JSE limited and 20% of formal-sector employment. Therefore, mining remains a key foundation of the South African economy. Time series data analysis confirms that the volatility of the major foreign currency-earning commodities - gold, platinum, coal, diamonds and iron ore - are negatively or weakly related. This relationship actually reflects the harmful effect of the volatility of these commodities on economic growth. Until recently, South Africa was heavily dependent on exports of primary commodities. Since the commodity prices are highly volatile, South Africa has to cope with large shocks, both positive and negative. Commodity cycles used to be determined by the growth cycle in the United States, but more recently, with the emergence of the Asian economies and China, in particular, the dominant influence of the United States economy on the commodity cycle has waned. The continuing instability in commodity prices and export earnings of South Africa has to be addressed by diversifying the exports towards more dynamic products; particularly manufactured goods and services.
