Download The South African Economy and its Engine Room

WELCOME
FROM
THE MEC
GAUTENG
– The Smart
Province
THE SOUTH AFRICAN
ECONOMY AND ITS
ENGINE ROOM,
GAUTENG
Gauteng has the highest per capita income, the
highest disposable income and accounts for a
third of the country’s GDP
35
THE BIG PICTURE
S
outh Africa’s economy is the
largest, most sophisticated
and diverse in Africa – by far.
Over the longer term, the
economy has made a natural
Miners
transformation from one that
was essentially agricultural
based to one that, after the discovery of the mineral wealth in and
around Johannesburg, was largely dependent on minerals and the
extractive industries. Today, while the role of mining and minerals
remains important, the secondary and tertiary sectors generate the
largest part of GDP. Mining and agriculture together account for just
10% of GDP, while manufacturing accounts for just under 20% and
finance just over 20%.
% ECONOMIC GROWTH RATE - SA & GAUTENG
7
6
5
4
3
2
SA
Gauteng
1
0
2000
2001
2002
Source: Statistics SA, Gauteng Treasury
36
2003
2004
2005
2006*
* Estimate figures
The South African Economy – And Its Engine Room, Gauteng
SA ECONOMY AT A GLANCE
Area
Population
Currency
Time
Official Name
Capitals
Head of State
Main Languages
Religion
Form of State
Legal System
National Legislature
Electoral System
Total GDP 2006
GDP per capita 2006
Real GDP Growth 2006
Inflation (CPIX) 2006
Exports
Imports
Main Trading Partners
Public Holidays
Fixed:
Variable:
International Dialling Code
1.2 million sq km
47.8m
R1 = 100 cents
GMT + 2 hrs
Republic of South Africa
Cape Town (Legislative)
Pretoria (Administrative)
Bloemfontein (Judicial)
President Thabo M Mbeki
11 Official languages
English preferred language of business
Predominantly Christian. Freedom of worship
guaranteed by the Constitution
Federal, comprising a central government and nine
provincial governments
Based on Roman Dutch Law and 1996 Constitution
Bi-cameral parliament, elected every five years,
comprising a 400-seat National Assembly and a
90-seat Council of Provinces
List-system with proportional representation based
on universal adult suffrage
R1,755bn (at current prices)
R37,032
4.9%
5%
Gold, minerals, diamonds, metals and metal
products, foods, automotive components
Machinery, transport equipment, manufactured
goods, chemicals, oil
Germany, USA, UK, China, Japan, France
12
1 January, 21 March, 27 April, 1 May, 16 June, 9
August, 24 September, 16, 25 and 26 December
Good Friday & Easter Monday
27
37
The South African Economy – And Its Engine Room, Gauteng
And the overall economy has been doing very well. Since the
inauguration of democratic government in 1994, South Africa has
enjoyed a run of unprecedented economic growth. Over a period
of eight consecutive years of positive growth, all the key indicators
of economic health have improved. Budget deficits were reduced
dramatically, foreign debt and government debt have declined
significantly, inflation, once at double-digit rates, has since been
reduced to low single-digit levels, and economic growth has been
consistent and steady. Individual and corporate taxes have been
reduced. So has unemployment. Meanwhile, the stock market has
realized record growth in volume and value. Altogether, it is a record
any government would be pleased to claim credit for.
Uninterrupted growth has its downside. Inflationary pressures
emerge and the national infrastructure becomes overextended in an
economy demanding a modern, efficient road, rail and port system
with the capacity to handle higher levels of manufacturing, tourism
and trade. When the 2010 FIFA World Cup is added to the equation,
the country is challenged to step up performance to the next level.
Fortunately, South Africa
should be up to the challenge.
Commodity prices should
remain buoyant as global
demand for gold, platinum, coal
and other mineral resources
is expected to remain strong.
Continued rising consumer
spending, combined with
massive infrastructure spending
38
The South African Economy – And Its Engine Room, Gauteng
Rbn
2,000
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
GDP - SA & GAUTENG
At current prices
SA
Gauteng
2000
2001
2002
2003
2004 2005
2006
Source: Statistics SA
GDP PER CAPITA SA & GAUTENG
At current prices
Rands
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
SA
Gauteng
2000
2001
2002
2003
2004
2005
2006
Source: SA Reserve Bank, Stats SA, Budget Review
in preparation for 2010, will keep inflationary pressures alive.
However, the Reserve Bank has consistently responded quickly and
decisively to changing inflation scenarios and used interest rate
changes effectively to stem inflation or stimulate the economy.
39
The South African Economy – And Its Engine Room, Gauteng
MACROECONOMIC POLICY
With a stable political and economic
environment in place, government in 2006
introduced the Accelerated and Shared
Growth Initiative - South Africa (ASGISA)
as a blueprint for reducing constraints to
investment. Among the constraints that could
discourage the levels of investment needed
to reduce unemployment and poverty are:
- infrastructure bottlenecks
- lack of capacity, especially at the local level
- skills shortages, especially in the public sector
- labour market rigidity
- currency stability
- over-regulation
These constraints are already being addressed. Infrastructure
spending is rising rapidly. Business and labour legislation is under
review. Black Economic Empowerment (BEE) codes have been
revised. Restrictions on foreign workers have been eased. Through
sound monetary and fiscal policies, currency fluctuations have been
substantially reduced. Skills shortages and lack of delivery capacity
are longer term problems but are being addressed.
It has long been government’s stated official policy to welcome and
encourage foreign direct investment. Its record on monetary and
fiscal policy, the ASGISA initiative and the revision of the BEE codes,
among other actions, validate government’s policy statements. All
the actions were designed to create a more favourable business
environment in South Africa.
40
The South African Economy – And Its Engine Room, Gauteng
FOREIGN TRADE
Foreign trade is an important part of
the South African economy, normally
amounting to about 50% of GDP. Total
trade has been expanding steadily with
economic growth over the past decade.
For the past few years the country has
run a trade deficit. Economic growth,
infrastructure spending and a stronger currency have contributed
to greater demand for imports and made exports more expensive.
Fortunately, record levels of foreign investment in the equity markets
have kept the current account deficit within acceptable levels. With
continued heavy spending on infrastructure, the trade and current
accounts are likely to remain in deficit for the next several years.
Continued global economic growth is expected to keep commodity
prices high which will ameliorate the expected deficit.
South Africa’s main trading bloc is the European Union. On country
terms the main trading partners are Germany, USA, UK, China
and Japan. Since the demise of apartheid, trade with other African
countries has burgeoned, with South Africa enjoying a huge surplus
of about six to one.
Manufacturing accounts for over 60% of exports while minerals have
declined to about 30%. Exports consist mainly of minerals (platinum,
gold and coal), base metals, other precious metals and diamonds,
intermediate commodities and, increasingly, fully assembled
automobiles and components. Imports are dominated by petroleum
products, machinery, raw materials, chemicals and consumer
goods.
41
The South African Economy – And Its Engine Room, Gauteng
THE BUDGET
South Africa’s budget process has been rated as the third most
transparent in the world, just after France and Britain and ahead
of the US. Over the past dozen years, budget deficits have been
reduced steadily and substantially. In 2006 and 2007, the South
African Minister of Finance, blessed with substantial revenue
overruns, was able to present a budget surplus.
Over 80% of South Africa’s tax revenue comes from personal
and corporate income tax and a 14% value added tax (VAT).
The biggest allocations for spending go to education and social
welfare and most of that is distributed through the provinces.
Capital expenditure, now at about 6% of GDP, will increase over the
near term to address infrastructure bottlenecks and to meet the
requirements for the 2010 FIFA World Cup.
PROVINCIAL BUDGET ALLOCATIONS 2007/8
Total: R202.1bn
Eastern Cape
Free State
Gauteng
KwaZulu-Natal
Limpopo
Mpumalanga
North West
Northern Cape
Western Cape
0.0
10.0
20.0
30.0
Rbn
Source: Budget Review 2007/8
42
40.0
50.0
The South African Economy – And Its Engine Room, Gauteng
METROS AT A GLANCE 2005
Population
Millions
2.7
Operating
Budget
Rbn
17.5
Capital
Budget
Rbn
3.5
Ekurhuleni
(East Rand)
eThekwini
(Durban)
2.3
10.0
1.0
3.6
9.6
2.7
City of
Johannesburg
Nelson Mandela
(PE)
3.9
14.5
2.0
1.1
3.0
7.3
2.4
7.2
1.6
City of Cape Town
City of Tshwane
(Pretoria)
Main Economic
Activity
Tourism, trade,
manufacturing
Manufacturing,
mining, metals
Tourism,
manufacturing,
transport
Finance, trade,
manufacturing
Manufacturing,
automotives,
metals
Gevernment,
research,
automotives
Source: SA Cities
GAUTENG – SOUTH AFRICA’S ECONOMIC HUB
A Diverse, Modern Economy
Although the stated vision is to make Gauteng the ‘smart province’,
it might be more accurate to say the vision is to make the smart
province even smarter. Here are a few of the reasons that Gauteng
already is the preferred investment destination for both foreign and
domestic businesses:
- Provincial GDP accounts for one third of South Africa’s GDP,
- Gauteng’s GDP is greater than any other country in SADC
(Southern Africa Development Community) and is the fourth
largest in Africa.
43
The South African Economy – And Its Engine Room, Gauteng
- Gauteng has the highest per capita
income, the highest disposable
income and the highest literacy rate
in the country.
- Gauteng is the centre of finance and
industry with a highly sophisticated
and diverse economy including
transport and communications,
business services, call centres, manufacturing, mining, ICT.
- Gauteng has the most literate and skilled labour pool in South
Africa.
- Three of the country’s metropolitan municipalities are located
in Gauteng: City of Johannesburg, the provincial capital and
largest city in the country, is the most advanced financial centre
in Africa and home to the Johannesburg Securities Exchange
(JSE). Ekurhuleni is Africa’s leading manufacturing centre. City of
Tshwane is the administrative capital of South Africa.
- Gauteng is home to outstanding universities, technical colleges
and research institutions.
Since 1994, Gauteng’s average annual economic growth rate has
exceeded that of the country as a whole. In 2005 the Gauteng
economy grew at a 5.4% rate compared to 5.1% for South Africa.
The provincial economy is expected to grow by 6% in 2007 and to
reach its objective of achieving an 8% growth rate by 2014.
Given Gauteng’s dominance in the South African economy, it is
not surprising that the two economies are similarly structured.
Finance (21%) and manufacturing (19.7%), along with trade (12.8%)
and government services (15.7%), account for over two-thirds of
44
The South African Economy – And Its Engine Room, Gauteng
% UNEMPLOYMENT BY PROVINCE 2006
SA Total Unemployed: 4.4m, 25.5% (official definition)
Eastern Cape
Free State
Gauteng
KwaZulu-Natal
Limpopo
Mpumalanga
North West
Northern Cape
Western Cape
0
10.0
20.0
30.0
40.0
Source: Statistics SA/ Labour Force Survey March 2006
Gauteng’s GDP. Nationally, those four sub-sectors also account
for just over two-thirds of GDP. The province’s primary sector
– agriculture and mining – contributes less than 4% to GDP whereas
the primary sector nationally contributes about 10%. Like the national
economy, Gauteng’s economy has evolved over time from a heavy
dependence on agriculture and mining to one dominated by finance,
trade and services.
ECONOMIC SECTORS
Just about every conceivable economic activity can be found in
Gauteng’s modern, integrated economy. And the economy is
broad based, spread throughout the various regions. For example,
Johannesburg is dominated by finance and business services.
Mining dominates the western areas and manufacturing the eastern.
Coal, iron and steel are predominant in the Vaal region in the
southern part of the province and Pretoria’s economy is based on
government services, motor vehicle industries and transport.
45
The South African Economy – And Its Engine Room, Gauteng
% CONTRIBUTION TO GDP BY MAIN SECTORS - SA
At Current Prices - Total GDP: R1,755bn
Primary
10.1%
Secondary
23.4%
Tertiary
66.5%
Source: Statistics SA
% CONTRIBUTION TO GDP BY MAIN SECTORS- GAUTENG
At Current Prices - Total GDP: R579bn
Primary
Secondary
3.2%
24.3%
Tertiary
61.4%
Other
11.1%
Source: Statistics SA
MINING
Once the heart and soul of the ‘City of Gold’, mining, while still an
important component of the provincial economy, makes up only a
small part of GDP, less than 3%. Nevertheless, most of South Africa’s
gold production comes from Gauteng and diamonds and coal are
also still mined there.
46
The South African Economy – And Its Engine Room, Gauteng
% EMPLOYMENT IN THE MINING SECTOR
SA: 450,998; GAUTENG 92,951
Eastern Cape
Free State
Gauteng
KwaZulu-Natal
Limpopo
Mpumalanga
North West
Northern Cape
Western Cape
N. of Employees
1,234
53,013
92,951
7,692
61,014
57,236
148,260
26,434
3,164
%
0.3
11.8
20.6
1.7
13.5
12.7
32.9
5.9
0.7
Source: Department of Minerals & Energy
WORLD GOLD PRODUCTION 2005
South Africa
Australia
Canada
China
Russia
USA
Indonesia
Peru
Rest of the World
%
11.7%
10.4%
4.7%
8.9%
7.0%
10.4%
6.6%
8.3%
32.0%
Source: Department of Minerals & Energy
47
The South African Economy – And Its Engine Room, Gauteng
SA’S MINERAL RESERVES 2005
% of World Reserves Numbers: World Ranking
Chrome
Coal
Gold
Lead
Manganese
Platinum Group Metals
Titanium Minerals
Uranium
Vanadium
Vermiculite
Zirconium
1
8
1
7
1
1
2
5
1
2
2
0
20
60
40
80
100
%
AGRICULTURE
Because it is the smallest of the nine provinces, Gauteng’s
agriculture sector is limited in size and geared primarily toward
supplying the province’s dense population. Maize is the main
agricultural product of the province.
MANUFACTURING
Gauteng has the largest manufacturing base in the country with
almost half of all factories located there. As with the national
economy, manufacturing has not grown as fast as the tertiary
sector and now is the second largest contributor to the province’s
GDP, after financial services. Still, manufacturing provides more
employment than any other economic sector.
48
The South African Economy – And Its Engine Room, Gauteng
Food products, automotive
components and assembly,
industrial chemicals, iron
and steel production, metal
fabrication and refined
petroleum products have been
the mainstay of the Gauteng
manufacturing sector but, as
the ‘smart’ province evolves into a Global City Region (GCR), hi-tech
manufacturing, along with ICT products and transport equipment,
look to be the fastest growing sub-sectors.
The main destinations of goods manufactured in Gauteng are
Europe, the Far East, the US and other African countries. South
Africa’s largest international airport – OR Tambo Internatinal Airport
- is located in Gauteng and the province is also the hub of both
the national road and railroad systems. Gauteng is therefore the
gateway for trade to Africa and provides direct transportation links to
the major ports in South Africa and Mozambique.
SERVICES
Like the national economy, services now dominate the
Gauteng economy. Building, construction, trade, catering and
accommodation and especially financial services are the major subsectors and are growing steadily to accommodate an expanding
economy and a growing tourism industry. As described in the
section on Business Services in Doing Business in Gauteng, the
financial services sector in South Africa is of world class standards
and one of the great strengths of the national economy. That sector
is centred mainly in Gauteng and provides the investor traditional
49
The South African Economy – And Its Engine Room, Gauteng
banking services as well as ready sources for
raising finance for business expansion.
THE GAUTENG BUDGET
Like the rest of the provinces, Gauteng depends
heavily on the central budget for its revenue. Of net
provincial revenue, 95% comes from the central
government in the form of equitable share (75%) or
conditional (25%) grants. Gauteng is the second
largest recipient of central government transfers
after KwaZulu-Natal. A large portion of Gauteng’s
conditional grant funds are earmarked for the
Gautrain Rapid Rail Link.
Five percent of the Gauteng budget revenue comes from provincial
sources such as gambling taxes, vehicle licenses and hospital fees.
On the expenditure side, two-thirds of the budget is devoted to
education (36%) and health (30%). The province also makes
transfers to local governments within the province. Some 80% of
infrastructure spending goes to public transport, roads and works
(60%) and housing (20%).
Overall, the Gauteng budget is geared to support the basic strategic
objectives of the province:
- to reduce high levels of unemployment and poverty.
- to enhance broadbased economic growth
- to invest in strategic infrastructure
- to promote Gauteng as a preferred destination for investment,
tourism, business and sport.
50
The South African Economy – And Its Engine Room, Gauteng
- to consolidate Gauteng as a major economic hub of Africa and as
an internationally recognized global city region.
GAUTENG BUDGET 2007/8
Sources of revenue
Total Revenue: R 39.98bn
National Allocation
94.6% - 37.84 Rbn
Gambling & Betting Taxes
1.3% - 0.50 Rbn
Vehicle Licenses
2.9% - 1.17 Rbn
Other Sources
1.2% - 0.47 Rbn
Source: Gauteng Provincial Government
GAUTENG BUDGET 2007/8
Spending Breakdown
Total Expenditure: R40,3bn
Education 36.1% - 14.5 Rbn
Health 29.9% - 12.1 Rbn
Housing 6.5% - 2.6 Rbn
Public Transport,
Roads & Works 16% - 6.5 Rbn
Social Development
3.5% - 1.4 Rbn
Other 8% - 3.2 Rbn
Source: Gauteng Provincial Government
51
The South African Economy – And Its Engine Room, Gauteng
GAUTENG BUDGET 2007/8
Spending on special projects
Total Spending: R5.17bn
Rm
GPG Precinct
44
Cradle of Humankind
32
Gauteng Online
200
Provincial IT Infrastructure
100
Blue IQ
Gautrain
93
4.500
Alexander Renewal Project
38
Dinokeng
40
Source: Gauteng Provincial Government
52
125
Road Safety Projects