Download South Africa`s economic performance

Day Month Year
Overview of recent economic trends in
South Africa and the Northern Cape
Jorge Maia
Head: Research & Information Department
Investment breakfast with the Northern Cape Chamber of Commerce and Industry
Kimberley, 9 November 2007
Global economic conditions
• The global economy continued to expand strongly in
the first half of 2007.
Real GDP growth
7
Forecast
Advanced economies
6
Developing countries
• Combined, China, India, Brazil and Russia
contributed around half of global economic growth
over the past year.
5
4
3
• Robust economic growth was also reported in many
other emerging markets
2
• Africa is currently experiencing its strongest growth
and lowest inflation in over 30 years.
1
• Growth in sub-Saharan Africa is estimated at 6% in
2007 and rising to 6.8% in 2008.
Source: IMF, WEO
Advanced economies = 52.3% of World GDP
Developing economies = 47.7% of World GDP
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
0
1970
% Growth
• China’s economy gained further momentum, with
GDP growth of 11.5% in the first half of 2007.
• Robust global growth is forecast, averaging
approximately 5% p.a. over the next five years.
• Growth outlook for the US in 2007 is scaled down
further to 1.9%, compared to strong growth of 3% in
2006.
Global economic conditions
Real GDP growth: World & USA
8
USA
6
World
Influence of US
economy on global
growth less
significant than in
the past.
% Change
4
2
0
-2
Source: IMF, WEO
2008 f
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
-4
Shaded areas represent US recessions
• Trends in the US economy had a major influence on global growth in the past as indicated by the way in
which a recession in the world’s largest economy was reflected in an overall global slowdown.
• More recently, however, the influence of the US economy seems to be less significant in light of strong
growth in emerging economies such as China, India, Brazil and Russia.
Global economic conditions:
US economy
Drivers of economic growth
15
Consumption
Investment
Net Exports
GDP
Improved export
performance in light
of a weaker dollar
% Change (y-o-y)
10
5
0
-5
-10
-15
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2007
|
2006
|
2005
|
2004
|
2003
|
2002
|
2001
|
2000
Source: OECD
• Domestic demand, and more specifically consumer spending, has been the main driver behind GDP growth in
the US economy, but an improved export performance is supporting growth more recently.
Global economic conditions:
Risks factors
Situation has deteriorated
since the release of the
WEO report
Global Risk Factors
0.04
% of World GDP growth
0.02
• Due to turbulent global financial conditions,
world growth has been revised downwards.
• Although overall global growth is still fairly
robust, downside risks have risen.
Upside risk to
global growth
• Deteriorating financial market conditions
emanate from the mortgage crisis in the US
housing market.
0.00
-0.02
• US and European markets mostly affected,
but the impact is extending much wider due
to linkages across global financial systems.
-0.04
-0.06
April 2007 WEO
Downside risk to
global growth
-0.08
July 2007 update
Oct 2007 WEO
-0.10
Financial
conditions
Domestic
demand in
the U.S.
Source: IMF, WEO - Oct 07
Domestic
demand in
Europe and
Japan
Emerging
markets
Inflation risks
Oil market
Global
imbalances
• Domestic demand in the US is expected to
be curtailed due to tighter credit control.
• Western Europe has been directly affected
by the US sub-prime crisis through the
involvement of a number its banks in the
US housing sector.
• Rising oil, metal and food prices remain of
concern on the inflationary front.
South Africa’s economic performance:
GDP and investment growth
SA economy has posted a solid growth performance in recent years, mainly due to strong domestic demand
(exports and imports remained a drag on what could have been an even better growth performance).
Contribution to real GDP growth
10
8
Other (e.g.
Govt, &
Inventories)
6
Percentage
Net exports
4
2
Fixed
investment
0
Consumer
spending
Total GDP
-2
-4
-6
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: SARB
South Africa’s economic performance:
Sectoral growth
• Solid growth performance of the SA
economy continued throughout 2006, with
some moderation in the first half of 2007.
Average annual real GDP growth : 2004 - 2006
14
12
• Construction sector reported the strongest
growth, underpinned by increased building
construction activity and high levels of fixed
investment across most economic sectors.
Total GDP growth
(5% p.a.)
10
6
4
• The strong consumer boom was reflected in
high growth rates in the trade and financial
service sectors.
2
0
-2
Source: Stats SA
Other services
Government
Finance
Transport
Trade
Construction
Electricity
Manufacturing
Mining
-4
Agriculture
% Change
8
• The brisk growth in the manufacturing
sector was mainly due to strong domestic
demand as exporters faced a challenging
global trading environment.
• Mining activity has been adversely affected
by a continued decline in gold production,
although partially offset by the excellent
performance of the platinum sub-sector.
South Africa’s economic performance:
Investment in manufacturing
Fixed investment in Manufacturing and Total economy
24
20
Total
Manufacturing
• Most of the investment was of a
replacement nature, thereby not
expanding significantly the productive
capacity of the manufacturing sector.
16
12
% Growth
• Rapid increase in fixed investment
activity in the manufacturing sector
recorded since 2004.
8
4
• However, for the first time since 2003,
manufacturers indicated in Q1 of 2007
a substantially improved outlook for
investments in additional production
capacity.
0
-4
-8
-12
-16
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: SARB
• New investment is being mainly driven
by the lucrative domestic market.
South Africa’s economic performance:
Investment in manufacturing
Fixed investment and utilisation of production capacity
in the Manufacturing sector
84
60
82
40
80
20
78
0
Fixed investment
76
• This has been reflected in a widening
domestic demand-supply gap, with the
shortfall being imported.
80
Capacity
utilisation
-20
Source: Stats SA, SARB
Downturn : shaded area
Quarterly data
2007
2006
2004
2003
2002
2001
1999
1998
1997
1996
1994
1993
1992
1991
1989
1988
1987
1986
1984
1983
1982
1981
1979
1978
1977
1976
-60
1974
72
1973
-40
1972
74
1971
Capacity utilisation (%)
86
100
Fixed investment
(% Change y-o-y)
88
• Supply constraints are being experienced
in various sub-sectors of manufacturing.
• Capacity utilisation in the manufacturing
sector stands at a 35-year high.
• However, current investment levels are
not rising to the occasion.
South Africa’s economic performance:
Domestic demand vs supply trends
Domestic demand and supply trends
1,400
1,300
Domestic supply (GDP)
Domestic demand (GDE)
1,200
R billion
1,100
Domestic demand
increasingly exceeds
domestic supply
• The sharp increase in domestic
demand,
including
consumer
spending and fixed investment,
resulted in a widening output gap.
• Situation has also been aggravated by
production
capacity
constraints
experienced in various sectors of our
economy.
2003 Q3
1,000
900
800
Domestic supply
(GDP)
700
600
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: SARB
Note : GDP = Gross Domestic Product
||
GDE = Gross Domestic Expenditure
• This is illustrating that SA is
consuming increasingly more than it
is able to produce
• Hence, a rapid rise in import demand
for both consumer and capital goods
has emerged.
South Africa’s economic performance:
Imports
• Strong rise in import levels associated with fixed
investment activity and domestic consumption.
SA imports by country of origin in 2006
United States
• Trade deficit measured R55.1 billion in the first 9
months of 2007, compared to a deficit of R42.5 billion
over the same period in 2006.
7.6%
Other
Australia
19.6%
2.1%
• Strong import demand over the Jan. to Sept. 2007:
South Korea
2.6%
– Imports of base metals and metal products increased
by 49%
South-eastern
Asia: 5.2%
European
Union
SADC
35.1%
3.3%
(incl.
vehicles)
– Machinery and equipment imports up 24%
Japan
6.7%
India
2.3%
China
10.1%
Source: SARS
imports
– Imports of mineral products (oil and fuel) up by 40%
Taiwan
1.7%
– Transport equipment
increased by 34%
South America
3.7%
– Prepared food products, beverages and tobacco
imports up by 41%
• China is becoming a progressively larger source of
imports, with its share in the import basket rising from
1.7% in 1994 to just over 10% last year.
South Africa’s economic performance:
Exports
SA exports by country of destination in 2006
Other
21.3%
United States
10.6%
Australia
2.4%
• The SADC region also accounts for a significant share
of SA’s exports.
• Considerable headway has been made in the
diversification of the export basket over the past
decade.
Rest of Africa (excl.
SADC): 4.2%
South-eastern
Asia: 2.3%
European Union
32.2%
SADC
8.6%
Taiwan
1.8%
Source: SARS
• SA’s exports are destined mainly to the EU, followed by
Japan and the US (combined 54% share of exports in
2006).
Japan
China
10.9% India
3.3%
1.3%
South America
1.1%
• SA’s export propensity (i.e. exports-to-GDP ratio)
increased sharply from 22% in 1994 to 33% by 2002, but
declined thereafter as a strengthening rand took its toll
on the price competitiveness of export-oriented
business enterprises.
• The exports-to-GDP ratio stood at 32.6% in Q2 2007.
South Africa’s economic performance:
Balance of payments
R billion
60
6
50
5
40
4
30
3
20
2
10
1
0
0
-10
-1
-20
-2
-30
-3
-40
-4
-50
Trade balance
-5
-60
Services Balance
-6
-70
Current account as % of GDP
-7
-80
-8
Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2 Q4 Q2
| 1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007
Source: SARB
• Exports of manufactured goods remain
under pressure due to a fairly strong
currency.
BoP as % of GDP
The Trade and Services balances
• A widening trade deficit emerged since
2004 as domestic demand exceeded
domestic supply by an increasing
margin.
• This has been accompanied by a
persistently large deficit on the
services account (payments of income
and dividends to non-residents).
South Africa’s economic performance:
Employment
GDP and Employment growth in South Africa
7
6
GDP growth
• Since 2004, roughly 1.4 million new jobs
have been created in both the formal and
informal sectors.
Employment
• The majority of jobs have been created in
the services-oriented sectors economy
(trade, financial and business services as
well as in construction).
5
% Change (y-o-y)
4
3
2
• Despite this welcomed improvement,
unemployment remains unacceptably high
(25.5% in March 2007, or 4.3 million
unemployed people).
1
0
-1
-2
Average annual growth : 2000 - 2006
GDP
: 4.1%
Employment : 1.8%
-3
-4
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: SARB, Stats SA, Quantec
• The challenge is to elevate the current high
rates of GDP growth and to broaden the
developmental impact thereof.
Northern Cape Province:
Economic growth
Real GDP growth
6
5
4
% Change
3
2
1
0
-1
Northern Cape
-2
South Africa
-3
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Source: Stats SA
• Economic growth in the Northern Cape averaged 2.0% p.a. over the period 2000 to 2005, compared to the
national average of 3.9% p.a.
• Sharp contractions in mining production, the trade sector and transport services contributed to the negative
growth performance recorded in 2001.
Northern Cape Province:
Structure of the economy
Provincial shares of SA GDP
(current prices, 2005)
Limpopo
6.7%
Mpumalanga
6.7%
Sectoral composition of GDP in the Northern Cape
Western Cape
14.7%
Eastern Cape
7.9%
Government
services
12.4%
Other services
9.1%
Northern Cape
2.2%
Free State
5.5%
Gauteng
33.7%
KwaZulu-Natal
16.3%
North West
6.3%
Source: Stats SA
Financial services
14.7%
Agriculture, forestry
and fishing
7.8%
Mining and
quarrying
27.0%
Manufacturing
3.9%
Electricity, gas and
water
Transport &
2.4%
communication
Trade &
Construction
8.8%
accommodation
1.1%
12.7%
Source: Stats SA
Northern Cape Province:
Relative importance of sectors from a national perspective
Sectoral contribution of the Northern Cape
to National totals in 2005
9
8
% Share of SA sector
7
6
Contribution by the
Northern Cape to SA
GDP = 2.2%
5
4
3
2
1
0
Agriculture, Mining
forestry and and
fishing
quarrying
Manufac- Electricity, Constructuring
gas and
tion
water
Trade & Transport & Financial
accomcommuservices
modation
nication
Other
Government
services
services
Source: Stats SA
• The Northern Cape’s agricultural sector, as well as its mining & quarrying sector, make above average contributions
to overall sectoral output from a national perspective.
Northern Cape Province:
Sectoral growth
• Above average growth has
been recorded by the following
sectors (relative
to the
provincial average over the
period 2000-2005):
Average annual real GDP growth by sector : 2000 to 2005
Total: Northern Cape
Trade & accommodation
Transport & communication
Other services
– Trade & accommodation
Financial services
– Transport & communication
Agriculture, forestry and fishing
– Other services
Construction
– Financial services
Government services
Manufacturing
Mining and quarrying
Electricity, gas and water
-4.0
-3.0
Source: Stats SA
-2.0
-1.0
0.0
1.0
2.0
% Change p.a.
3.0
4.0
5.0
6.0
• Relatively high growth rates
were recorded more recently in
construction, financial services,
retail & wholesale trade, as well
as in transport services.
South Africa’s growth prospects
Real GDP growth and Gross Fixed Capital Formation (GFCF)
7.0
27
6.0
24
5.0
21
4.0
18
3.0
15
2.0
12
1.0
9
0.0
GFCF as % of GDP
GDP growth: % change
Forecast
6
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
GDP growth
GFCF as % of GDP
Source: SARB, IDC
• Although SA’s economic growth is likely to moderate to 4.5% in 2008, the outlook remains positive, with growth
expected to average 5% p.a. over the next five years.
• Fixed investment is forecast to expand rapidly by 10% p.a., with the investment-to-GDP ratio expected to
measure 25% by 2011.
South Africa’s growth prospects:
Gross domestic product
Average annual real GDP growth
SA economy
2007-2011
Agriculture, forestry and fishing
2000-2006
Mining and quarrying
1994-1999
Manufacturing
Electricity, gas and water
Construction
Trade and accommodation
Transport and communication
Financial and business services
SA economy
average
2007-11
Other services (Medical, etc.)
Other producers
Government services
-2
Source: Quantec, IDC
0
2
4
6
8
10
% Growth
• A substantial improvement in overall economic activity is forecast for the manufacturing sector, which will benefit
from strong domestic demand and fairly strong global economic growth.
• The construction sector will expand rapidly due to increased activity linked to the public and private sector
investment plans.
• The transport and electricity sectors are also likely to expand faster than the national average.
South Africa’s growth prospects:
Investment activity
Average annual real growth in Fixed Investment
SA economy
2007-2011
Agriculture, forestry and fishing
2000-2006
1994-1999
Mining and quarrying
SA economy
average
2007-11
Manufacturing
Electricity, gas and water
Construction
Trade and accommodation
Transport and communication
Financial and business services
Other services (Medical, etc.)
Other producers
Government services
-2
Source: Quantec, IDC
0
2
4
6
8
10
12
14
16
18
% Growth
• Fixed investment in manufacturing is set to increase rapidly over the next 5 years, as many sub-sectors are operating
close to, or at full capacity.
• Government’s multi-billion rand spending on public infrastructure over the next 5 years, the SOE capex programme, the
2010 World Cup and Gautrain will all provide a major stimulus to fixed investment.
South Africa’s growth prospects:
Investment activity
Real growth in fixed investment
15.0
• Manufacturing sector
12.5
 Iron and steel industry
10.0
% Growth
Planned private sector fixed investment activity
includes:
 Base metals
7.5
 Cement industry
5.0
 Automotive industry
2.5
• Mining industry, 28 new projects
(R27 billion)
0.0
-2.5
 Platinum mining
-5.0
 Coal mining
 Gold mining
-7.5
• Property development
-10.0
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Source: SARB, IDC
 Real estate
 Hotels and flats
 Shopping centres
 Office blocks
Concluding remarks
Longest upswing phases in the Business cycle
160
•
South Africa is currently enjoying the longest
sustained period of economic growth on
record (95 consecutive months).
•
SA is partaking in many of the challenges of
the globalisation process, facing an
increasingly competitive environment that
calls for:
95
Index: Base = 100
150
140
44
1978 - 81
 productivity growth
44
130
 lower production costs
 technological innovation
120
1961 - 65
 capital deepening and job losses in
1999 Q3
many instances
 as
well as the identification of
increasingly difficult to find niches in
the marketplace .
110
100
5
10
Source: SARB
15
20
25
30
35
40
45
50
55
Months in upswing phase
60
65
70
75
80
85
90
95
•
Competitive forces pose opportunities for
technological
upgrading,
innovation,
expansion (economies of scale), global joint
ventures or partnerships, and identification of
niche markets and sectors.
Concluding remarks
•
SA’s general economic stability and sound macro-economic management and fundamentals are widely
acknowledged.
•
The inflation environment has deteriorated more recently on the back of a sharp rise in food and fuel
prices, thereby resulting in rising interest rates.
•
•
•
•
•
A developmental approach to fiscal expenditure going forward.
•
The resolution of the unemployment crisis is key to alleviating many of South Africa’s ills. Global
competitive forces have played their role in this regard, but domestic factors should not be downplayed.
•
South Africa has a substantial range of comparative advantages that, if fully exploited, would lead to a
higher growth trajectory.
The rand is likely to come under pressure.
Business and consumer confidence levels dipped to some extent from their all-time highs.
The efficiency and affordability of physical support infrastructure are critical to economic efficiencies.
Skills shortages are developing in a variety of sectors, posing major constraints on the country’s
development and growth potential.
Day Month Year
Thank you
The Industrial Development Corporation
19 Fredman Drive, Sandown
PO Box 784055, Sandton, 2146
South Africa
Telephone (011) 269 3000
Facsimile (011) 269 2116
E-mail [email protected]