provincial economic review outlook 2012

PERO Cover Final_2012.indd 1 10/9/12 10:24:18 AM

PROVINCIAL TREASURY REPUBLIC OF SOUTH AFRICA

GAUTENG PROVINCEHotline: 0860 4288364

www.gautengonline.gov.za

Provincial Economic Review and Outlook 2012

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Provincial Economic Reviewand Outlook 2012

Gauteng Provincial Government

PROVINCIAL TREASURY REPUBLIC OF SOUTH AFRICA

GAUTENG PROVINCE

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The Provincial Economic Review and Outlook, 2012 is compiled using information from different sources. Some of this information is subject to revision.

To obtain additional copies of this document, please contact:The Head Official of TreasuryGauteng Provincial GovernmentPrivate Bag X091, Marshalltown, 2107

Tel: 011 227 9000 Fax: 011 227 9023

This document is also available on website: www.finance.gpg.gov.za

PR302/2012 ISBN: 978-0-621-41361-8

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Mandla Nkomfe

MEC for Finance

FOREWORDThe 2012 edition of the Provincial Economic Review and Outlook (PERO) for Gauteng is presented in a global environment that continues to be riddled with uncertainty. This is the sixth publication of the PERO and continues the tradition of providing economic analysis of many variables at the global, national, provincial and municipal levels so that there are some options for policy consideration that would help to improve the livelihood of citizens of the province.

The global economic outlook is defined largely by the European debt crisis, with slower growth expected in that region and around the world. The Euro-area is predicted to experience a decrease in Gross Domestic Product (GDP) for 2012. The Euro region is one of the major trading partners for South Africa and the resulting uncertainties would have major implications for the country and the province. Whilst forecasts for the global economy are certainly lower than previously estimated, they remain marginally positive overall. World output is estimated to have increased by 3.9 percent in 2011 and growth is expected to continue, reaching 4.4 percent by 2014.

Gauteng remains the powerhouse of the country’s economy. In 2011, the province contributed 35.6 percent of the GDP. Although unemployment remains a serious problem in the province, it has declined from 28.2 percent in the second quarter of 2011, to 25.4 percent in the second quarter of 2012. The Expanded Public Works Programme (EPWP) continues to contribute towards the goal of reducing unemployment throughout the country. The programme focuses on labour-intensive methods of building and maintaining infrastructure in order to provide unemployed South Africans with productive work opportunities. Infrastructure development will continue to be essential as it forms the backbone of any economic development. Thus in the 2012 State of the Nation Address, the President emphasised a focus on the infrastructure programmes for this year and beyond.

During the State of the Province Address (SoPA), the Honourable Premier, Nomvula Mokonyane stated that by December 2011 a total of 235,159 jobs had been created in the province through the EPWP. With economic benefits such as improved flow of economic activity, a focus on infrastructure is seen as a catalyst for the sustainable economic growth of the province. An improved infrastructure could position the province to remain a key asset and economic driver for the country. As such, in the SoPA the Premier also announced that plans are underway to roll out the Information Communication Technology (ICT) network infrastructure between 2012 and 2014 by partnering with the National Department of Communication and the City of Johannesburg. According to the 2009 to 2014 Programme of Action for the province, investment in the knowledge-based economy will be intensified. Amongst other initiatives, this would be through the promotion of the ICT sector. This initiative will provide an opportunity for the province to keep up with global technology trends. It would also enhance the competitive advantage of the province in the global arena, especially as the ICT infrastructure created during 2010 FIFA World Cup already exists at Nasrec, Johannesburg.

This year’s publication also focuses on the agriculture, forestry & fishing sub-sector of the economy. Agro-processing and food security are some of the key priorities in the province, led by the Gauteng Department of Agriculture and Rural Development (GDARD) in an effort to improve the productivity of both large-scale commercial and small-scale farming. A number of programmes, which include the Comprehensive Agricultural Support Programme, the Land Care Programme and the Household

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Food Security Programme, will provide smallholder farmers in the province with production inputs and facilities, thereby realising higher productivity and sustainability.

It is essential that the province takes cognizance of the prevailing economic climate in an effort towards improving the livelihood of the Gauteng citizenry, as evidenced by some of the initiatives being implemented in the province as outlined above.

In conclusion, I would like to thank the Head of Department, Ms Nomfundo Tshabalala for her role in the completion of this publication, as well as the core project team for their great efforts. Special gratitude is also extended to the research teams from departments that provided valuable contributions to this publication.

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Hon. Mandla NkomfeMEC: Finance

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Contents

FOREWORD iiiList OF FiguREs viiList OF tabLEs ixList OF abbREviatiOns xiExECutivE summaRy xiii

CHaPtER 1: gLObaL anD natiOnaL ECOnOmiC REviEW anD OutLOOk 11.1 Introduction 11.2 Global Economic Review and Outlook 11.3 South Africa in BRICS 31.4 Global Infrastructure Comparisons 41.4.1 Comparison to Selected OECD Countries 51.4.2 Comparison to SADC and SSA 61.4.3 Comparison to BRICS Countries 71.5 National Economic Review and Outlook 91.5.1 Sectoral Analysis 91.5.2 Purchasing Managers’ Index 101.5.3 Government Revenue and Expenditure 111.5.4 Prices 121.5.5 Savings, Investment and Consumption 131.6 Conclusion 17

CHaPtER 2: gautEng ECOnOmiC REviEW anD OutLOOk 192.1 Introduction 192.2 Developments in the Gauteng Economy 192.2.1 Economic Sector Performance 212.2.2 Opportunities and Challenges 232.3 Trade Analysis 242.3.1 Trade Position 262.4 Saving, Investment and Consumption 282.5 Gauteng Infrastructure Overview 312.6 Conclusion 33

CHaPtER 3: ECOnOmiC OvERviEW OF tHE agRiCuLtuRaL sECtOR 353.1 Introduction 353.2 Overview of Agriculture 353.3 Agriculture in South Africa 363.3.1 Sectoral Analysis 363.3.2. Economic Contribution 373.3.3. Employment in Agriculture 383.3.4. Employment in Agro-processing 383.3.5 Comparison to Other Provinces 403.4 Agriculture in Gauteng 413.4.1 Spatial Distribution of Agriculture 413.4.2. Sectoral Economic Contribution 423.4.3 Employment in Agriculture 433.4.4. Employment in Agro-processing 443.5 Challenges and Opportunities in Agriculture 453.5.1 Challenges 453.5.2 Opportunities 463.6 Development Programmes for Farmers 463.6.1 CASP 473.6.2 Land Care Programme 47

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3.6.3 MAFISA 473.6.4 Land Reform 473.6.5 HHFSP 473.6.6 Development of Flower Agri-Parks within Agriculture Hubs 473.6.7 Agricultural Cooperatives Development Programme 483.6.8 Agricultural Farm Mechanisation Programme 483.6.9 Infrastructure Development 483.7 Conclusion 48

CHaPtER 4: LabOuR OvERviEW 494.1 Introduction 494.2 Global Labour Review 494.2.1 Labour Statistics of Selected Countries 494.3 National Labour Review 504.3.1 Employment 524.3.2 Unemployment 554.4 Gauteng Labour Market 574.4.1 Labour Force Overview 584.4.2 Employment 584.4.3 Unemployment 614.4.4 Not Economically Active Population 634.5 Conclusion 64

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List of Figures

CHaPtER 1: gLObaL anD natiOnaL ECOnOmiC REviEW anD OutLOOk 1Figure 1.1: Comparative Infrastructure Indicators, SA & SSA, 2011 7Figure 1.2: Comparative Infrastructure Indicators for BRICS Countries, 2008 8Figure 1.3: GDP Growth, 2007-2015 9Figure 1.4: National Tax Revenue, 2002-2011 11Figure 1.5: Government Surplus/Deficit as a % of GDP, 2002-2011 12Figure 1.6: Inflation, CPI and PPI, SA & GP, 2002-2011 12Figure 1.7: Gross National Savings, % of GDP, Selected Countries, 2002-2015 13Figure 1.8: Total Investment, % of GDP, Selected Countries, 2002-2015 14Figure 1.9: Household Consumption and Debt as % of Income, 2002-2011 15Figure 1.10: Household Expenditure by Product, 2009-2011 16Figure 1.11: Household Disposable Income, 2002-2011 16

CHaPtER 2: gautEng ECOnOmiC REviEW anD OutLOOk 19Figure 2.1 Provincial Contributions to SA Economy, 2002 & 2011 20Figure 2.2: GDP-R & Average Growth Rates, Municipalities, 2011 21Figure 2.3: GVA-R Average Annual Growth by Sub-sector, 2008-2011 22Figure 2.4: Provincial Contribution to Imports and Exports, 2011 25Figure 2.5: Share of Imports and Exports, Provinces & SA, 2011 25Figure 2.6: Share of Total Imports & Exports, 2002-2011 26Figure 2.7: Import Share by Key Countries, 2010 & 2011 26Figure 2.8: Export Share by Key Destination, 2010 & 2011 27Figure 2.9: Balance of Trade Account, 2002-2011 27Figure 2.10: APS, Gauteng, 2002-2011 28Figure 2.11: Investment as % of GDP-R, 2002-2011 29Figure 2.12: Gross Domestic Fixed Investment, Gauteng & SA, 2002-2011 30Figure 2.13: Consumption Expenditure, 2002-2011 31Figure 2.14: Nominal Value of Contracts Awarded, Provinces, April 2011-March 2012 32

CHaPtER 3: ECOnOmiC OvERviEW OF tHE agRiCuLtuRaL sECtOR 35Figure 3.1: Contribution Share of Agriculture to GDP, 2002-2011 37Figure 3.2: Agricultural Employment, 2002-2011 38Figure 3.3: Employment in Agro-processing, 2002-2011 39Figure 3.4: Contribution of Agro-processing towards Manufacturing Employment, 2002-2011 40Figure 3.5: Contribution of Provinces to Agriculture, 2011 40Map 1: Distribution of Grains and Oil Seeds, Gauteng, 2009 42Figure 3.6: Contribution of Agriculture towards GVA, 2002-2011 43Figure 3.7: Agricultural Employment, 2002-2011 44Figure 3.8: Employment in Agro-Processing, 2002-2011 44Figure 3.9: Employment Contribution of Agro-processing towards Manufacturing, 2002-2011 45

CHaPtER 4: LabOuR OvERviEW 49Figure 4.1: Unemployment Rate, Selected Countries, 2002-2014 50Figure 4.2: Total Employment, 2008Q1-2012Q2 52Figure 4.3: Sectoral Share of Employment, 2002 & 2011 53Figure 4.4: Share of EPWP Work Opportunities, Provinces, 2011/12 55Figure 4.5: Total Unemployment, SA 2008Q1-2012Q2 55Figure 4.6: Unemployment Rate by Province, 2011Q2 and 2012Q2 56Figure 4.7: Youth Labour Force Status, 2012Q2 57Figure 4.8: Formal and Informal Employment, 1997-2011 58Figure 4.9: Employment Growth vs. GDP-R Growth, 1997-2011 59Figure 4.10: Employment by Broad Sectors, 2011Q1-2012Q2 60

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Figure 4.11: Employment by Sector, 2012Q2 60Figure 4.12: Unemployment Rates, Gauteng & SA, 2008Q1-2012Q2 61Figure 4.13: Unemployment Rates, 2008Q2-2012Q2 62Figure 4.14: Profile of the Unemployed, 2011Q1-2012Q2 62Figure 4.15: Unemployment Duration, 2011Q1-2012Q2 62Figure 4.16: Not Economically Active Population, 2011Q2 & 2012Q2 63

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List of tables

CHaPtER 1: gLObaL anD natiOnaL ECOnOmiC REviEW anD OutLOOk 1Table 1.1: GDP, Selected Regions, 2011-2014 2Table 1.2: CPI Inflation, Selected Regions, 2011-2014 2Table 1.3: Other World Economic Indicators, 2011-2014 3Table 1.4: GDP, Population and Current Account Balance, BRICS, 2009-2011 3Table 1.5: Infrastructure Rankings, SA & Selected OECD Countries, 2011-2012 5Table 1.6: Infrastructure Rankings by SADC Region Countries, 2011-12 6Table 1.7: BRICS Infrastructure Rankings, 2011-12 7Table 1.8: Sectoral Contributions to GVA, 2007-2015 9

CHaPtER 2: gautEng ECOnOmiC REviEW anD OutLOOk 19Table 2.1: GDP-R and Growth Rates, Gauteng & SA, 2007-2015 20Table 2.2: Sectoral Composition of the Economy, Gauteng, 2007-2015 21Table 2.3: Sectoral Contribution of GVA-R, Municipalities, Gauteng, 2011 23Table 2.4: Economic Opportunities by Municipalities 23

CHaPtER 3: ECOnOmiC OvERviEW OF tHE agRiCuLtuRaL sECtOR 35Table 3.1: GVA-R Contribution, 2011 43

CHaPtER 4: LabOuR OvERviEW 49Table 4.1: Key Labour Market Indicators, SA, 2011Q2 and 2012 (Q1 & Q2) 51Table 4.2: Change in Formal, Non-agricultural Employment by Sub-sector, 2011Q2 & 2012Q2 53Table 4.3: Labour Statistics, Gauteng, 2011Q2 and 2012 (Q1 & Q2) 58

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List of abbreviations ABC Agricultural Business ChamberAEI Adcorp Employment IndexAgri-BBBEE Agricultural Economic EmpowermentANC African National Congress APS Average Propensity to SaveASGISA Accelerated and Shared Growth Initiative for South Africa BBBEE Broad Based Black Economic EmpowermentBLS Bureau of Labour StatisticsBRIC Brazil, Russia, India and ChinaBRICS Brazil, Russia, India, China and South AfricaBRT Bus Rapid Transit SystemBUSA Business Unity South AfricaCASP Comprehensive Agricultural Support ProgrammeCPI Consumer Price IndexCoJ City of JohannesburgCoT City of TshwaneCWP Community Works ProgrammeDAFF Department of Agriculture, Forestry and FisheriesEC Eastern CapeEPWP Expanded Public Works ProgrammeFIFA Fédération Internationale de Football AssociationFS Free StateGCR Gauteng City-RegionGDARD Gauteng Department of Agriculture and Rural DevelopmentGDFI Gross Domestic Fixed InvestmentGDP Gross Domestic ProductGDP-R Gross Domestic Product by RegionGNS Gross National SavingsGP GautengGVA Gross Value AddedGVA-R Gross Value Added by RegionHIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency SyndromeHHFSP Household Food Security programmeHPAL High Potential Agricultural LandICT Information Communication Technology IDC Industrial Development CorporationIDP Integrated Development Plan IMF International Monetary FundKZN KwaZulu-NatalLP LimpopoMAFISA Micro Agricultural Finance Institution of South Africaa MDGs Millennium Development GoalsMEC Member of the Executive CouncilMP MpumalangaMTEF Medium Term Expenditure FrameworkNC Northern CapeNW North WestNCA National Credit Act, No 34 of 2005NCR National Credit RegulatorNCT National Consumer TribunalNDA National Department of AgricultureNEA Not Economically ActiveNGP New Growth Path NYP National Youth PolicyOECD Organisation for Economic Co-operation and Development

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PMI Purchasing Managers’ IndexPPI Producer Price Indexq-o-q quarter-on-quarterQLFS Quarterly Labour Force SurveySADC Southern African Development CommunitySADCC Southern African Development Coordination ConferenceSAICE South African Institution of Civil EngineeringSARB South African Reserve BankSIC Standard Industrial ClassificationSMME’s Small Medium and Micro EnterprisesSoNA State of the Nation AddressSPFS Special Programme for Food Security ProjectsSSA Sub-Saharan AfricaStats SA Statistics South AfricaUK United KingdomUS$ United States DollarsUSA United States of AmericaWC Western CapeWEF World Economic ForumWEO World Economic OutlookWTO World Trade Organisationy-o-y year-on-year

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Executive summaryThe Gauteng Provincial Treasury (GPT) is pleased to present the 2012 Provincial Economic Review and Outlook (PERO). The publication aims to provide an overview and outlook for the global, national and provincial economy. During this time last year, the economy of South Africa was on some optimistic recovery trajectory. The impact of global economic events, such as the Euro-area debt crisis, has resulted in sluggish recovery. As a result, the economic growth forecasts for the country and the rest of the world remain gloomy. Considering the fact that Gauteng contributes significantly to the economic activities of the country, the slowdown of global demand would have a noticeable impact on the province. The PERO 2012 has four chapters. The first chapter provides the Global and National Economic Review and Outlook. It is followed by the Gauteng Economic Review and Outlook, then the Economic Overview of the Agricultural Sector. The last chapter is the Labour Overview.

Chapter One examines the economies both of South Africa specifically and more broadly, of the world. Some uncertainty exists regarding the world’s recovery from recession as evidenced by lower than previously forecast, remaining moderately positive overall. In 2011, world output increased by an estimated 3.9 percent and growth is expected to remain slightly above zero. The Euro-area is predicted to experience a decrease in Gross Domestic Product (GDP) in 2012, at 0.3 percent due to the debt crises currently affecting several member countries. The Euro-region is, however, forecast to return to positive growth beyond 2012. Emerging & developing economies, such as those in Sub-Saharan Africa (SSA) have grown more rapidly than their advanced counterparts, at 5.2 percent and 1.6 percent respectively in 2011, and are expected to remain on this trend. World trade growth levels is also predicted to slow to 3.8 percent in 2012, and then expected to show an upward trend, reaching 6.1 percent in 2014.

Infrastructure development as a catalyst for economic growth has enabled South Africa to advance in infrastructure development much better than most of the SSA counterparts, though not to a similar magnitude in comparison with most developed nations. Compared to the other (BRICS) members, Brazil, Russia, India, and China, infrastructure in South Africa is ranked third. The country was ranked 62nd out of 142 countries in the infrastructure rankings of the 2011/12 Global Competitiveness Report. This was a better ranking than Brazil and India, which were at 64th and 89th place, respectively. China had the best ranking of the BRICS members, at 44th position.

Since the economy of South Africa is connected to the rest of the world through trade and financial linkages, it is expected to follow global economic trends. Domestic economic growth is forecast to slow down to 2.7 percent in 2012, from 3.1 percent in 2011. Then growth is predicted to begin increasing again, reaching 4.5 percent by 2015. The economy of the country is also likely to continue on a moderate growth trajectory. This will be supported by an increased focus on modern tertiary sector activities, the prudent management of the budget deficit by the government, falling household debt, moderate inflation levels and a forecast rise in investment.

The tertiary sector continues to dominate the South Africa economy. In 2011, it contributed an estimated 66.8 percent to the Gross Value Added (GVA) of the country in 2011, with a forecast increase to 67.9 percent by 2015. By prudent management, the South African government deficit was reduced to 4.1 percent in 2011, from 5 percent in 2009. Similarly, the household debt-to-income ratio has fallen from 82.3 percent in 2008 to 75.8 percent in 2011, though still high displaying fiscal responsibility from households partially driven by the National Credit Act, No. 34 of 2005 (NCA). The Consumer Price Index inflation of the country was 5 percent in 2011, 3.2 percentage points lower than the 8.2 percent average for SSA. The investment level is predicted to rise from 19.8 percent of GDP in 2011, to 21.1 percent by 2014. While unexpected events may change forecasts at any time, the economy appears to be recovering, though slowly.

Chapter Two examines in detail the economy of Gauteng, the province that contributed the largest share of GDP in South Africa, at 35.6 percent in 2011. The Gross Domestic Product by Region (GDP-R) of the province was R674.9 billion in 2011 with a growth rate of 3.2 percent. The three metropolitan municipalities in the province are the City of Johannesburg (CoJ), the City of Tshwane (CoT) and Ekurhuleni. The CoJ has the largest economy of the Gauteng municipalities; its GDP-R was R313 billion in 2011 and was growing at 4 percent. It is also home to the head offices of many banks and other financial institutions. In 2011, the CoT had the fastest growing economy of the municipalities, at 4.4 percent growth with a total GDP-R of R184 billion. Ekurhuleni had a GDP-R of R128 billion, with a growth of 3 percent, in 2011. The two district municipalities in the province, the West Rand and Sedibeng, respectively contributed 3.7 and 3.5 percent to GDP-R in 2011.

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In 2011, the tertiary sector contributed 71.1 percent to the Gross Value Added by Region (GVA-R) of Gauteng. This made it by far the largest sector of the provincial economy. The secondary sector contributed 24.3 percent and the primary sector, 4.7 percent. The tertiary sector is predicted to further its dominance of the economy, while the share of the primary sector continues to dwindle. By 2015, the tertiary sector is expected to contribute 71.9 percent and the primary sector 3.9 percent. Within the tertiary sector, the finance & business services sub-sector was the largest contributor at 24.9 percent, closely followed by government, social & personal services with 23.2 percent. These were the two largest overall sub-sector contributions. Manufacturing, which belongs to the secondary sector, had the third largest economic contribution of 16.3 percent. The province has also enjoyed upgrades of much of its economic infrastructure due to preparations for the 2010 Fédération Internationale de Football Association (FIFA) World Cup. These developments included the construction of the Gautrain, extensions made to O.R. Tambo International Airport, improvements to freeways, and the construction of the Bus Rapid Transit (BRT) System in CoJ.

An analysis of the sectoral contributions by municipalities showed that the CoJ contributed the largest share to the GVA-R of the province in every sub-sector except for mining & quarrying. The West Rand was the highest GVA-R contributor in mining & quarrying at 42.9 percent. The highest single share from the CoJ was in finance & business services, at 54.6 percent. The largest share of GVA-R contributed by the Ekurhuleni municipality was the 25.8 percent in manufacturing. The largest share contributed by the CoT was in transport & communication, where it accounted for 36.5 percent of the GVA-R.

The examination of trade shows that Gauteng accounts for 68 percent of all exports from the country and 61.4 percent of imports. The province experienced a surplus in the trade account from 2009 to 2011; this surplus amounted to R24.3 billion in 2011. China was the biggest trading partner of the province; it was the destination for just under 15 percent of exports from Gauteng and the source of just over 15 percent of imports to the province.

The economy of Gauteng is driven by consumption; households in the province spend the majority of their final consumption expenditure at 78 percent on services and non-durable goods. This consumption leaves little room for saving; households saved 0.3 percent of their disposable income in 2011. The average propensity to save was highest in the CoJ, at 2.7 percent and lowest in Sedibeng, at negative 6 percent. Of all the provinces, Gauteng benefits from the largest amount of investment in the construction of buildings, at R12.1 billion in the 2011/12 financial year. Investment in public works construction projects in the province was more modest, at R5.2 billion. Many of the public works projects are aimed at creating jobs and improving the competitiveness of the economy.

Chapter Three focuses on the agriculture sub-sector that has the potential to create jobs and alleviate poverty. The sub-sector is composed of animal production, field crops, horticulture and floriculture. South Africa is a net exporter of agricultural products. Products that account for a large share of agricultural exports include citrus fruits and grapes. The Netherlands, United Kingdom (UK) and Mexico are the major agricultural export destinations of the country.

The share of GDP contributed by this sub-sector has been declining. In 2002, agriculture contributed 4.2 percent to GDP and by 2011, this had shrunk to 2.6 percent. The actual value contributed by the sub-sector has, however, not decreased; rather, the GVA by other sub-sectors has been increasing faster than that of agriculture. Agricultural employment has also been gradually declining. In 2002, the sub-sector employed 934,015 people. This had declined to 726,172 people in 2011. The reduction in employment numbers could be explained by the sub-sector having modernised and becoming capital-intensive, thereby shedding jobs.

The agriculture sub-sector has backward and forward linkages with all sectors of the economy. The linkage is particularly strong between agriculture and manufacturing, especially the agro-processing (agriculture value adding) industry. Agricultural products are inputs to agro-processing, therefore poor performance of agriculture due to droughts and floods would undoubtedly affect agro-processing. Although the employment numbers in agriculture have been declining, those of agro-processing have been increasing.

The province, which contributes the most to the total agriculture sub-sector, is KwaZulu-Natal with a 27.7 percent share, followed by the Western Cape, at 21.4 percent. Gauteng is the third smallest contributor, with a 5.8 percent share. Maize is the most widely grown crop in the country, with the Free State being the largest producer. In Gauteng, maize production is concentrated around Sedibeng, West Rand and CoT.

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The contribution of agriculture towards the economy of Gauteng is smaller even than the contribution of agriculture to the South African economy. In 2011, the contribution of agriculture towards the provincial GVA-R was 0.4 percent; this was a decline from 0.9 percent in 2002. This sharp decline is expected since the GVA-R contribution of other sub-sectors, such as finance & business services, has significantly increased in the province. Agricultural employment in the province has also shrunk. Between 2002 and 2010, employment decreased by 35 percent. In 2011, employment numbers increased to 42,750 from 34,624 the previous year. Between 2002 and 2011, employment in agro-processing in the province increased by an average annual rate of 4.2 percent.

Although there are a number of opportunities in agriculture, there are also challenges. Amongst others, there is low investor confidence in this sub-sector due to low returns and other socio-economic impacts. Opportunities exist for greater investment in value-adding agricultural products. The Gauteng Department of Agriculture and Rural Development (GDARD) has introduced various programmes, such as the Cooperative Development Programme to further develop agriculture in the province by providing needed government support.

Chapter Four analyses the labour market indicators in South Africa and compares them to selected countries and those of the province. A glimpse of the unemployment rate in South Africa, benchmarked against the rates in several developed world countries, reveals that the country has a comparatively high unemployment rate. South Africa faces a severe challenge in high unemployment. In the second quarter of 2012, the unemployment rate had decreased to 24.9 percent, from 25.2 percent in the first quarter. In the same period, the number of people who were employed grew by 0.2 percent.

The formal sector contributed the most to employment levels, accounting for 9.6 million of the total of 13.4 million people employed in the second quarter of 2012. With a 22 percent share, government, social & personal services was the largest employer in the country, followed closely by wholesale & retail sales. Despite the number of the unemployed in the country decreasing, in the second quarter of 2012 the not economically active population increased by 1.5 percent year-on-year (y-o-y). This suggests that fewer people are participating in the economy. Specifically, the number of discouraged work-seekers rose by 4.7 percent y-o-y, suggesting that more people have lost hope of ever finding employment.

The Expanded Public Works Programme (EPWP) is one of the projects undertaken by government to create employment opportunities throughout the country, with priority given to provinces that are less economically sound. The Eastern Cape benefited the most from the programme, with a share of 19 percent of the jobs created by the EPWP in the 2011/12 financial year, followed by KwaZulu-Natal and Limpopo, at 17 percent and 15 percent, respectively. During this period, Gauteng had a 14 percent share of the jobs created through this programme.

As the Gauteng province contributes the largest share to GDP, the economy most often follows similar trends to that of the country. This is evident as the unemployment rate of the province decreased at the same time as that of the country. Although in the second quarter of 2012, the rate was slightly higher in the province, at 25.4 percent, compared to 24.9 percent nationally. A massive share, at 71 percent, of the unemployed in the country, at 71 percent, is the youth between the ages of 14 to 35 years. Because they do not have the skills and qualifications needed to get employment in the job market, employers have become inflexible and will not hire them.

In spite of the province experiencing economic growth, this has not fully translated into job creation; jobless growth is still very prevalent. In the review period, 1997 to 2011, formal sector employment has been increasing. However, the recession led to a dip, as jobs were lost at the beginning of 2009. Though not vigorously so, gradual recovery from the job losses is happening, as formal employment increased to reach 3.9 million in 2011 from 3.8 million in 2010. The tertiary sector has been driving employment in the province, with government, social & personal services, finance & business services and wholesale & retail trade contributing 24 percent, 21 percent and 22 percent, respectively. The new entrant category to the labour market constitutes the highest share in the profile of the unemployed. This constituted 45.1 percent in the second quarter of 2012, from 47.9 percent in the first quarter of 2011. More than a million unemployed persons had been without work for a year or for even longer periods. Only about 350,000 people had been unemployed for less than a year. Students constituted the highest share of the not economically active population, at 47.5 percent in the second quarter of 2012.

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1

Chapter 1: Global and National Economic Review and Outlook

CHaPtER 1: global and national Economic Review and Outlook1.1 Introduction

Signs of economic recovery from the recent global recession are becoming evident with forecasts of economic growth remaining largely positive, though lower than in previous predictions, with some downside risks remaining on the radar. If the recovery is to be sustained, infrastructure development will be essential as it forms the backbone of any economic development. Later in this chapter, an assessment of the infrastructure development of South Africa will be made compared to the OECD, SADC and BRICS countries.

It is expected that South Africa will be affected by global economic trends, since it is economically integrated into global markets. The economy of the country is connected to the rest of the world through trade and financial linkages. The economy is also likely to continue to grow because it is supported by an increasing focus on modern tertiary sector activities, the prudent management of the budget deficit by government, moderate inflation levels, a forecast rise in investment and falling household debt. A small government deficit provides the country with some fiscal flexibility to respond to future shocks and provides some cushioning from potential contagion effects of the massive debt burdens experienced by several Euro-area members, amongst other countries. Falling household debt also eases the burden on the economy, allowing conditions to lean more towards growth.

The immediate outlook of the global economy is defined largely by the European debt crisis, with slower growth expected in that region and around the world. Even though the economy of South Africa is the smallest amongst the BRICS, it may still be able to leverage its strengths to benefit from the membership. The rest of the chapter focuses on the national economy in more detail. The economy of the country has recovered from recession and in 2011 reached a 3.1 percent growth rate. Also, the national savings improved in 2011 because a new credit culture was prompted by the recession and National Credit Act, No. 34 of 2005 (NCA). South Africa has the fundamental factors required for faster economic growth and poverty alleviation. It remains to be seen if the country can successfully turn these advantages into real benefits.

1.2 Global Economic Review and Outlook

While some nations are geographic islands, few countries can truly be considered economic islands. The economy of South Africa has to be analysed in a global context because the future performance of the country cannot be analysed without considering the expected future scenarios of its trading partners.

In his 2012/13 National Budget speech, the Honourable Pravin Gordhan, Minister of Finance, highlighted that the debt crisis in the Euro-area adds further uncertainty to the global economy. The debt was incurred by European countries with weaker economies, such as Portugal and Greece, and it hindered their ability to respond when the global recession struck. The governments of other countries were to some extent able to offset recessionary pressures to varying degrees by increasing government spending despite the recessionary effects, which were retarding their economic activity and thus lowering tax revenue. Governments which had incurred unsustainable debt levels lacked the fiscal room to respond effectively. The confidence of financial markets in the Euro-area was adversely affected, as investors feared that these countries would default on their debts. Since Euro-area banks held much of the debt of their governments, they were distrusted. This caused runs1 on banks in exposed countries such as Greece and Italy. As faith in the region declined, sources of foreign credit began to dry up. Measures began to be put in place to move the region toward recovery, but the austerity required by these measures sparked protest actions. The linkages between Europe and many other countries, including South Africa, mean that the economic difficulties of Europe have influenced the rest of the world and will continue to do so for some time to come. A comparison of Gross Domestic Product (GDP) for selected regions is therefore provided in Table 1.1.

1 According to www.investopedia.com, a run is, “[a] situation in which numerous bank customers try to withdraw their bank deposits simultaneously and the bank’s reserves are not sufficient to cover the withdrawals”.

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table 1.1: gDP, selected Regions, 2011-20142011 2012 2013 2014

GDP growth (%)

World output 3.9 3.5 3.9 4.4

Euro-area 1.5 -0.3 0.7 1.4

Advanced economies 1.6 1.4 1.9 2.4

Sub-Saharan Africa 5.2 5.4 5.3 5.5

Emerging & developing economies 6.2 5.6 5.9 6.2

Source: WEO, 2012Note: ■ indicates estimates and ■ indicates forecasts.

The table shows GDP growth data provided in the July 2012 update of the International Monetary Fund’s (IMF) World Economic Outlook (WEO). In 2011, the recovery of the world from the recession induced by the global financial crisis was already well underway; world output grew by 3.9 percent. The world’s output growth is expected to slow slightly in 2012 to 3.5 percent, before rising again and reaching 4.4 percent by 2014. A dip in global growth in 2012 is expected by the IMF because of economic and political turmoil in the Euro-area. This supposition is supported by the expectation of a 0.3 percent contraction in the GDP of the Euro-area in 2012. The area is forecast to grow by less than a percent in 2013 and then, in 2014 to return to just below its 2011 growth rate of 1.5 percent.

The advanced economies as a whole are expected to experience stronger growth than the Euro-area alone, but still weaker growth than the global average. The GDP of the advanced economies is estimated to have grown by 1.6 percent in 2011. This is forecast to fall to 1.4 percent and then rise after that, reaching 2.4 percent growth in 2014. Higher forecasts for advanced economies, despite the Euro-area being part of the advanced economies group, suggests greater confidence in the economies of countries such as Australia and/or the United States of America (USA).

The table also shows that economic growth in Sub-Saharan Africa (SSA) was twice as quick as in advanced economies. SSA’s GDP is estimated to have grown by 5.2 percent in 2011. Aside from a slight slow down in 2013, the area is forecast to grow increasingly rapidly and to record growth of 5.5 percent in 2014. The IMF argues that oil-exporting and lower-income countries in the region have done the most to sustain this growth due to their economies being boosted by high commodity prices.2 Commodity prices rose because investors were seeking safe investments during the crisis and they are sustained by continued uncertainty. Middle-income SSA countries without significant oil reserves, such as South Africa, are experiencing growth that is more in line with the rest of the world. Emerging & developing economies are on average expected to grow more quickly than SSA, buoyed no doubt by extremely fast growth in countries such as China and India. GDP growth in the emerging & developing economies is estimated at 6.2 percent in 2011. It is expected to slow slightly in 2012 and 2013, before returning to 6.2 percent by 2014.

table 1.2: CPi inflation, selected Regions, 2011-20142011 2012 2013 2014

CPI (%)

World 4.8 4.0 3.7 3.4

Euro-area 2.7 2.0 1.6 1.7

Advanced economies 2.7 1.9 1.7 1.7

Sub-Saharan Africa 8.2 9.6 7.5 6.2

Emerging & developing economies 7.1 6.2 5.6 5.1Source: WEO, 2012Note: ■ indicates estimates and ■ indicates forecasts.

Table 1.2 shows Consumer Price Index (CPI) inflation rates for a number of regions, estimated for the year 2011 and forecast for 2012 to 2014. While the higher commodity prices mentioned above were beneficial for countries exporting the affected commodities, the table shows that the higher prices also lead to a general rise in inflation. Now, however, the global economy is beginning to normalise and prices are following suit. The global average for inflation is estimated at 4.8 percent for 2011. This inflation is forecast to fall for the next three years, reaching 3.4 percent in 2014. Despite slower growth, the Euro-area’s inflation is largely the same as that of other advanced economies. Prices in advanced economies are estimated to have risen by an average

2 Information sourced from the Regional Economic Outlook, Sub-Saharan Africa, Sustaining Growth amid Global Uncertainty. IMF. April 2012.

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of 2.7 percent in 2011. Their inflation is expected to slow to 1.9 percent in 2012 and then 1.7 percent in 2013, remaining steady in 2014. Inflation in SSA is significantly higher than the global average, at an estimated 8.2 percent in 2011. It is forecast to rise to 9.6 percent in 2012. While it is expected to slow in 2013 and 2014 to 7.5 percent and 6.2 percent respectively, these figures remain higher than average. SSA’s high inflation is related to rising global prices of food and fuel, according to the Regional Economic Outlook (2012). While these are worldwide increases, the population of the region is poorer on average than in many other areas and thus a larger percentage of their income is spent on such essentials. Also, the governments of several SSA countries do not engage in inflation targeting with no measures being taken to control price increases. Thus, inflationary pressures in those countries are not mitigated as they are in the rest of the world. The inflation in SSA is also higher than the average for emerging & developing economies. Inflation in the emerging & developing economies is forecast to fall to 5.1 percent in 2014 from an estimated 7.1 percent in 2011.

table 1.3: Other World Economic indicators, 2011-20142011 2012 2013 2014

Trade volume of goods and services (% change) 5.9 3.8 5.1 6.1

Commodity Non-Fuel Price Index (2005 = 100) 189.6 170.1 166.5 -

Oil Price (US$ per barrel) 104.0 101.8 94.2 -


Table 1.3 shows several global economic indicators with which to examine the world’s economy from a few other angles. The recovery from global recession has been accompanied by growth in world trade volumes. Global trade is estimated to have grown by 5.9 percent in 2011. After slowing in 2012, growth in trade is forecast to quicken, reaching an expected 6.1 percent in 2014. As confidence in the recovery slowly strengthens, commodity prices are losing the premium they previously enjoyed due to investors’ fears of riskier options such as shares. In 2011, non-fuel commodity prices were estimated to be close to double, on average, their 2005 levels, at an index value of 189.6 points. Average global prices are expected to moderate in 2012 and 2013, as the world economy stabilises. The price of oil is expected to join non-fuel prices in moderating, falling below 100 United States Dollars (US$) in 2013.

1.3 South Africa in BRICS

BRIC is an acronym for Brazil, Russia, India and China, which is a group of emerging economies. With the inclusion of South Africa, the acronym was changed to BRICS. South Africa was officially accepted into the BRICS group of countries in April 2011.3 The first four members of BRICS were grouped together for their economic might. With South Africa’s inclusion, Africa now has the opportunity to improve its standing in the global marketplace. However, South Africa will not maximise the benefits of membership without carefully considering how it positions itself within BRICS and the African continent.

table 1.4: gDP, Population and Current account balance, bRiCs, 2009-2011

gDP (% change) Population (millions) Current account balance (us$ billions)

2009 2010 2011 2009 2010 2011 2009 2010 2011

brazil -0.3 7.5 2.7 191 193 194* -24.3 -47.3 -52.6

Russia -7.8 4.3 4.3 142 143 142 49.5 70.0 101.1

india 6.6 10.6 7.2 1,174 1,191 1,206* -25.9 -52.2 -47.2*

China 9.2 10.4 9.2 1,335 1,341 1,348 261.0 305.3 201*

South Africa -1.5 2.9 3.1* 49.5* 50* 50.6* -11.5 -10.2 -13.5*Source: WEO, 2012Note: * indicates estimates.

Table 1.4 shows the GDP, population and current account figures of the BRICS economies, for 2009, 2010 and 2011. In 2009, South Africa recorded negative 1.5 percent GDP growth. The only other BRICS member to experience worse growth was Russia, at negative 7.8 percent. Russia was particularly vulnerable to the recession because its growth is largely based on oil prices and large inflows of foreign capital, both of which reversed sharply during the recession. India and China both retained positive economic growth despite a general global recession that year. The IMF has stated that strong growth in China and India can be at least partly explained by

3 Reference can be made to the 2011 PERO.

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robust retail sales and industrial production. In 2010, South Africa emerged from recession but had the lowest growth rate in BRICS, at 2.9 percent. India’s growth rate was highest, at 10.8 percent, followed closely by China, at 10.4 percent. In 2011, South Africa is estimated to have enjoyed 3.1 percent growth. It therefore grew more quickly than Brazil that year, as Brazil’s growth rate fell from 7.5 percent in 2010 to 2.7 percent in 2011. Also in 2011, China returned to 9.2 percent growth, regaining its position as the fastest growing economy in BRICS, as India’s growth slid to 7.2 percent. South Africa’s population is also smaller than that of any of the other BRICS countries.

While being part of a large population usually has little direct effect on an individual country’s prosperity, it can have some positive impact by providing a large domestic market. In general, however, a large population is important for its effect on a country’s external power. A large country has the potential to field a large military and a country whose population is poor but large can still have a collective economy of significant size. India, for example, has a lower GDP per capita than South Africa but more economic power because its total economy is larger.

At an estimate of approximately 50 million people, the population of South Africa is just over one-third the size of Russia’s population. Russia has the second smallest population in the group. The population of China is the largest of any country in BRICS and the rest of the world, at 1.3 billion persons. China also enjoys a very large surplus on its current account, at over US$200 billion. South Africa has a current account deficit, but it is smaller than the deficits of Brazil or India. The country also has a smaller economy and population than the other BRICS members, which negatively affects its power within the group. However, it has advantages such as its location on the resource-rich African continent. Time will tell how successful South Africa is in leveraging its strengths and mitigating its weaknesses.

According to information by Consultancy Africa Intelligence4, all the BRICS member states have joined the group with their own best interests at heart, and as a result, the fear is that South Africa will be exploited by BRICS members for their own benefit. South Africa could be considered the least powerful of the BRICS for a number of reasons, such as having the lowest GDP growth rate and smallest population in the group. Another argument was that South Africa’s trade surplus with Africa could potentially be lost due to competition from the other BRICS countries. This is a potential downside of the country’s position as the gateway to Africa.

Consultancy Africa also emphasised that in order to accrue more benefit than detriment from being a BRICS member, South Africa needs to ensure that its trade negotiations with the rest of the group result in deals that will create employment in the country. It is argued that the country needs to take cognisance of the malpractices of some foreign investors in terms of labour practice. Amongst others mentioned, opportunities that present themselves to South Africa in joining BRICS include attracting increased foreign direct investment and allowing domestic companies to invest abroad, particularly in the original BRIC economies. South Africa’s membership could also assist other African countries and the BRIC economies to discover market opportunities between each other, thereby increasing international trade, investment and infrastructure development.

1.4 Global Infrastructure Comparisons

Infrastructure, whether in the form of public buildings, roads or shared services, comprises a major part of a nation’s wealth. Infrastructure is shared amongst citizens and can therefore be referred to as a public good. According to the South African Institution of Civil Engineering (SAICE)5, the state of a nation’s physical infrastructure provides an indication of the country’s probability of prospering, as lucrative economic activity requires efficient, functioning and beneficial systems of transport, energy, water, waste management and social infrastructural services.6 Infrastructure can thus be separated into two broad categories, namely economic and social infrastructure. Economic infrastructure includes transport, communications, power generation, water supply and sanitation facilities, whereas social infrastructure involves mainly education and health facilities.7

According to an article by Gateway House8, South Africa possesses excellent infrastructure, a culture of

4 The information was presented by Mr. Mhlanga, who was speaking at the BRICS Economic Outlook Conference held at the Cape Town International Convention Centre on the 26th and 27th of June 2012. For more information on Consultancy Africa Intelligence, see: http://www.consultancyafrica.com5 SAICE was established in 1903 to help develop technology and to share knowledge of the developments. SAICE has since grown to contribute greatly in the building of dams, railways, highways, bridges and all civil engineering-related work. SAICE ensures that society is well served in its civil engineering needs. Particular emphasis is placed on improvement to quality of life, protection of the environment and conservation of resources. Information according to http://www.saice.org.za/about/saice-constitution. Also see http://www.saice.org.za/downloads/civils_rate_card.pdf6 This is according to http://www.civils.org.za/Portals/0/pdf/publications/IRC2011-landscape-1-final-lr.pdf7 This is according to http://www.dbsa.org/feature/Documents/Section%2001%20Infrastructure.pdf8 This publication is by the Indian Council on Global Relations and can be accessed from http://www.gatewayhouse.in/publication/gateway-house/features/why-south-africa-bric

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innovation, a stable macro and micro financial climate and an advanced banking system. This sub-section compares South Africa’s infrastructure to that of several other regions. South Africa is the most developed country in SSA but despite its excellence within Africa, the country is less exceptional outside of the continent. First, to provide comparisons to countries on other continents, South Africa’s level of infrastructure is compared to certain Organisation for Economic Co-operation and Development (OECD) countries, even though the country is not a member of the OECD.

Box 1.1: The OECDThe OECD was originally formed on the 14th of December 1960 with 20 countries. Currently, the organisation has 34 member countries that

joined to create an organisation dedicated to global development. These countries include the most advanced countries in the world, but also

emerging countries like Mexico, Chile and Turkey.

Information according to:

http://www.oecd.org/pages/0,3417,en_36734052_36761800_1_1_1_1_1,00.html. See also:

http://www.oecd.org/document/58/0,3746,en_2649_201185_1889402_1_1_1_1,00.html

The infrastructure of the country is then compared to that of the Southern African Development Community (SADC), which is made up of 15 member states, including South Africa. These countries are at different stages of individual development. They are predominantly underdeveloped, with South Africa having the best and most extensive infrastructure.9 Lastly, South Africa is compared to the BRICS countries.

1.4.1 Comparison to Selected OECD CountriesThe 2010 World Cup led to massive infrastructure development in South Africa, however as a developing nation, the infrastructure of the country is far behind that of the advanced economies. According to the 2011-2012 Global Competitiveness Report, extensive and efficient infrastructure is critical for ensuring the effective functioning of an economy.

Well-developed infrastructure also reduces the effect of distance between regions and reduces income inequality and poverty. According to the report, effective modes of transport,10 an electricity supply that is free of interruptions and shortages, as well as an extensive telecommunications network that allows rapid and free flow of information were amongst the variables considered when ranking the infrastructure level of these countries.

table 1.5: infrastructure Rankings, sa & selected OECD Countries, 2011-2012 Rank Rank

Germany 2 Portugal 23France 4 New Zealand 34Switzerland 5 Uruguay 49Netherlands 7 South Africa 62USA 16 Mexico 66

Source: WEF, Global Competitiveness Report, 2012

Table 1.5 shows the infrastructure rankings for South Africa and several OECD countries according to the 2011-2012 Global Competitiveness Report. The countries presented in Table 1.5 provide a wide variety of infrastructure levels within the OECD. South Africa’s infrastructure ranking, at 62nd, is much worse than that of most OECD countries. It is not surprising that the infrastructure of most of these countries is ranked higher than that of South Africa, since the country is at a stage of development different to these economies. According to the report, South Africa is at stage two of development, which makes it an efficiency-driven economy. This is a developmental stage that is determined by, amongst others, factors such as market size, labour market efficiency and the development of the financial market. All OECD countries, except Uruguay and Mexico, are innovation-

9 Information is according to http://www.sarua.org/files/publications/ICT_Part4_ICTs_SADC.pdf10 Effective modes of transport included quality roads, railroads, ports, and air transport.

Box 1.2: The Global Competitiveness ReportThe World Economic Forum (WEF) publishes a series of

reports that examine in detail the broad range of global

issues that it seeks to address in its mission of improving the

state of the world. Amongst these reports is the 2011–2012

Global Competitiveness Report which features a detailed

index that ranks 142 countries and analyses broader trends in

the global economy. The report gives background on the key

factors that determine economic growth. It also gives insight

into why some countries are more developed than others.

Such information offers policy makers and business leaders a

tool for the formulation of improved economic policies.

This is according to http://www.cfr.org/economics/world-

economic-forum-global-competitiveness-report-2011-2012/

p25820, http://www.weforum.org/reports and www.

weforum.org/issues/global-competitiveness

6


driven economies and are defined by their business sophistication. Uruguay and Mexico are economies that are in a transitional phase. Of the selected innovation-driven countries, New Zealand and Portugal were the next worst, at 34th and 23rd respectively. Germany and France had the best rankings, at second and fifth places respectively.

1.4.2 Comparison to SADC and SSA“Africa has risen to the stark realities that unless and until the challenge of backlog in infrastructure is meaningfully addressed, there can be no effective trade and development in the region” – The Honourable Jacob Zuma, President of the Republic of South Africa and Chairperson of the SADC region in 2009.11

Africa is rapidly urbanising, but urban infrastructure has not kept pace; roads are congested, power is unreliable, and sanitation is poor. The SADC encompasses the African continent south of the equator, and is a regional bloc in the African Union. A focus within the region is the provision of sufficient, integrated and efficient regional infrastructure. This is essential for promoting and sustaining regional economic development as well as trade and investment.

According to the SADC Infrastructure Development Status Report for Council and Summit (2009), while differences do exist across the countries within the region, the overall reality of infrastructure is of inadequate coverage and poor maintenance.12

table 1.6: infrastructure Rankings by saDC Region Countries, 2011-12stage 2 Economies stage 1 Economies

Mauritius 54 Zambia 112 Madagascar 133

Namibia 58 Mozambique 123 Tanzania 139

South Africa 62 Lesotho 124 transition Economies

Swaziland 98 Zimbabwe 127 Botswana 92

Malawi 131 Angola 140


Table 1.6 shows infrastructure rankings by country, for selected SADC region countries. Ranked amongst a total of 142 countries worldwide, Mauritius, Namibia and South Africa had the best rankings when compared to all other countries in SADC, at 54, 58 and 62 respectively. The infrastructure included in the report is transport, energy, and telecommunications networks. These countries are reported to be at stage two13 of development and are all efficiency-driven economies whilst all other economies in SADC, with the exception of Swaziland, are at stage one of development or are in transition between the two. Stage one economies are factor-driven economies, which are dominated by unskilled labour and are dependent on natural resources. Two countries from SADC, Angola and Tanzania are at 140 and 139 respectively and were ranked amongst the worst in the world when comparing infrastructure levels.

11 Information according to http://www.sadc.int/cms/uploads/K7543%20RTFP%20SADC%20Infrastructure%20brochure_English_V1 1_LR.pdf12 This is as per the September 2009 report, accessed from http://www.sadc.int/cms/uploads/K7543%20RTFP%20SADC%20Infrastructure%20brochure_English_V11_LR.pdf. See also http://www.sadc.int/index/browse/page/10913 The report stipulates efficiency-driven economies, which are at stage two, as economies that focus on the labour market efficiency, financial market development, technological readiness and goods market efficiency.

Box 1.3: SADCThe SADC vision is that of a common future within a regional community that will ensure economic well-being, improvement of the standards

of living and quality of life, freedom, social justice, peace and security for the peoples of Southern Africa. Formed in Lusaka, Zambia, on the

first of April 1980, SADC was originally known as the Southern African Development Coordination Conference (SADCC), the transformation of

the organisation from a Coordinating Conference into SADC took place on the 17th of August 1992 in Windhoek, Namibia.

Information according to http://www.sadc.int/index/browse/page/52

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Figure 1.1: Comparative infrastructure indicators, sa & ssa, 2011Figure 1.1: Comparative Infrastructure Indicators, SA & SSA, 2011

Figure 2.5: Share of Imports and Exports, Provinces & SA, 2011

0%

20%

40%

60%

80%

100%

Access to electricty(% of population)

Improved watersource (% of

population withaccess)

Improved sanitationfacilities (% ofpopulation with

access)

Total telephonesubscribers (%)

South Africa Sub-Saharan Africa Average

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

WC EC NC FS KZN NW GP MP LP SA

Exports Imports

Source: World Bank, Private Participation in Infrastructure, 2012

Figure 1.1 compares infrastructure between South Africa and the rest of SSA in 2011. South Africa’s infrastructure is above that of the SSA average for all the variables compared. For access to electricity, South Africa was at 66 percent; this was 39 percentage points higher than that of SSA at 27 percent. Improved water source access in South Africa was at 93 percent and that of SSA was below at 67 percent. Access to improved sanitation facilities for South Africa was 26 percentage points higher than that of SSA. The percentage of people subscribed to telephones was 82 percent for South Africa and only 22 percent for SSA as a whole. South Africa’s level of access to public service infrastructure is higher than average for the SSA region, of which South Africa is part. This indicates both that South Africa is more developed than the rest of the region, and that the average South African citizen thus enjoys a better standard of living than the average in SSA.

According to a study entitled, “Africa’s Infrastructure: A Time for Transformation”14 that covers 24 African countries, the poor state of infrastructure in SSA reduces business productivity by as much as 40 percent. Annual national economic growth is thereby reduced by 2 percentage points.15 The World Bank estimates that if SSA could improve its infrastructure to levels comparable to Mauritius, its growth in real GDP per capita would increase by 2.3 percent a year.16 The comparison is made to Mauritius because its level of infrastructure is ranked higher than that of South Africa. In the 2011-2012 Global Competitiveness Report, South Africa’s infrastructure, ranked at 62nd is worse than that of Mauritius, ranked at 54th.

1.4.3 Comparison to BRICS CountriesSouth Africa’s exceptional economy compared to the rest of Africa makes the country a valuable gateway to the African continent. This led to the country being invited to join the original group of four BRIC countries in December 2010.17 With the exception of South Africa, infrastructure in Africa is largely characterised by isolated infrastructure networks with limited interconnection between countries, poor fuel efficiency, low capacity, and high distribution and transmission losses.18 It is therefore not surprising that South Africa is the only African country in BRICS.

table 1.7: bRiCs infrastructure Rankings, 2011-12infrastructure Rankings

China 44

Russia 48

South Africa 62

Brazil 64

India 89


14 The study highlights the impact of Africa’s infrastructure and was conducted by a partnership of institutions including the African Union Commission, African Development Bank, Development Bank of Southern Africa, Infrastructure Consortium for Africa, the New Partnership for Africa’s Development, and the World Bank. This study is one of the most detailed ever undertaken on the African continent. This is according tohttp://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:22386904~pagePK:146736~piPK:146830~theSitePK:258644,00.html15 Information according to http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/SOUTHAFRICAEXTN/0,,contentMDK:22854475~menuPK:50003484~pagePK:2865066~piPK:2865079~theSitePK:368057,00.html16 This is according to http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:21951811~pagePK:146736~piPK:146830~theSitePK:258644,00.html17 This is according to http://www.globalsherpa.org/bric-countries-brics18 Information according to http://www.helio-international.org/Helio/anglais/reports/africa.html

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Table 1.7 shows overall infrastructure rankings for the BRICS countries. In the 2012 Global Competitiveness Report, South Africa was ranked higher than India and Brazil, at 62nd compared to 89th and 64th, respectively. The infrastructure comparisons made in the report included the effectiveness of modes of transport, the ability of the electricity supply to enable businesses and factories to work effectively, as well as telecommunications networks allowance for rapid and free flow of information. The highest ranked BRICS member was China, at 44th. It also has a higher GDP growth rate than any of the other BRICS countries, at 10.3 percent, and it is projected to remain rapid, if less so than previously.19 Infrastructure investment has contributed to China’s economic growth. China, therefore, is a clear example of the importance of infrastructure development.

Figure 1.2: Comparative infrastructure indicators for bRiCs Countries, 2008

Source: World Bank, Private Participation in Infrastructure, 2012Notes: Access to electricity data for Russia was not available from the World Bank. The Private Participation in Infrastructure was last updated in December 2011 and the latest data available was dated 2008.

Figure 1.2 compares several infrastructure variables for the BRICS countries in 2008. The first three variables that were compared, access to electricity, water sources and sanitation are reflected as percentages. Total telephone subscriptions per 100 inhabitants is also shown. While China performed the best in BRICS in terms of economic infrastructure, as shown in Table 1.7 above, Figure 1.2 shows that Chinese households have less access to some types of basic service infrastructure than do households in Russia. Data was available for Russia in three variables and it leads in all three of these. About 97 percent of Russia’s population have access to an improved water source, 87 percent have access to improved sanitation facilities and it has 137 telephone subscriptions per 100 inhabitants.

Box 1.4: Service Infrastructure DefinitionsAccess to an improved water source refers to the percentage of the population with reasonable access to an adequate amount of water from an

improved source, such as a household connection, public standpipe, borehole, protected well or spring.

Access to improved sanitation facilities refers to the percentage of the population with at least adequate excreta disposal facilities (whether private or

shared) that can effectively prevent human, animal, and insect contact with excreta. Improved facilities range from simple but protected pit latrines

to flush toilets and with a sewerage connection.

Total telephone subscribers per 100 inhabitants is calculated as the number of fixed telephone subscribers divided by population multiplied by 100.

Definitions are according to the World Bank’s Private Participation in Infrastructure database, 2012.

For both improved water sources and improved sanitation facilities, Brazil and South Africa were at approximately the same level. These two countries had 91 and 93 percent access, respectively, for improved water sources. The populations of both these countries enjoyed 59 percent access to improved sanitation facilities. The percentage of people with access to electricity, however, is much higher in Brazil when compared to that of South Africa at 95 and 65 percent respectively. South Africa had more telephone subscriptions, at 82 subscriptions per 100 inhabitants while that of Brazil was 73 subscriptions per 100 inhabitants.

Of all four variables compared, India had lower percentages than South Africa, only 28 percent of the population

19 This is according to http://www.durban.gov.za/media_publications/edge/Documents/Building%20Better.pdf

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had access to improved sanitation facilities. The percentage of people with access to electricity was less than half that of Brazil and China and an additional quarter of its population will need to have improved access to at least catch up to that of South Africa. India had only 18 telephone subscriptions per 100 inhabitants.

1.5 National Economic Review and Outlook

This section considers the South African economy from a variety of perspectives, both public and private. The areas considered include the sectoral focus of the economy, confidence in its future, and patterns of income, spending, savings and investment.

Figure 1.3: gDP growth, 2007-2015

Source: IHS Global Insight, 2012Note: ■ indicates estimates and ■ indicates forecasts.

Figure 1.3 shows the GDP growth rate of South Africa from 2007 to 2010, with estimates for 2011 and forecasts to 2015. In 2007, the GDP of the country grew by 5.5 percent. The following year, the effects of the global recession began to be felt and growth fell to 3.6 percent. In 2009, South Africa joined the world in recession and GDP fell by 1.5 percent. The recovery started soon after and the country returned to positive growth in 2010, reaching an estimated 3.1 percent in 2011. The troubles in the economy of the Euro-area are expected to negatively affect the country and thus its growth is expected to slow in 2012, to 2.7 percent, but rise again for the rest of the period under review. GDP growth of 4.5 percent is forecast for 2015.

1.5.1 Sectoral AnalysisSouth Africa has a modern economy that focuses on sophisticated tertiary sector activities over generally less skills-intensive primary sector activities. The table below examines these facts in more detail. Gross Value Added (GVA) is the difference between output and intermediate consumption for any given sector/industry. That is the difference between the value of goods and services produced and the cost of raw materials and other inputs, which are used in production.

table 1.8: sectoral Contributions to gva, 2007-20152007 2008 2009 2010 2011 2012 2013 2014 2015

Agriculture, forestry & fishing 3.0% 3.0% 2.9% 2.4% 2.6% 2.5% 2.3% 2.2% 2.1%Mining & quarrying 8.8% 9.7% 9.0% 9.4% 9.8% 9.8% 9.5% 9.3% 9.2%Primary Sector 11.8% 12.6% 12.0% 11.8% 12.4% 12.3% 11.8% 11.5% 11.3%Manufacturing 17.0% 16.8% 15.3% 13.8% 13.8% 13.6% 13.5% 13.5% 13.5%Electricity, gas & water 2.3% 2.3% 2.8% 3.0% 3.0% 3.0% 3.0% 3.1% 3.1%Construction 3.2% 3.6% 4.0% 4.3% 4.1% 4.1% 4.1% 4.2% 4.3%Secondary Sector 22.5% 22.6% 22.0% 21.0% 20.8% 20.7% 20.7% 20.8% 20.9%Wholesale & retail trade 13.3% 13.4% 13.7% 14.2% 14.3% 14.2% 14.2% 14.2% 14.1%Transport & communication 9.2% 9.3% 9.2% 8.4% 8.6% 8.8% 8.9% 8.9% 8.9%Finance & business services 22.6% 21.6% 21.4% 21.6% 21.3% 21.4% 21.7% 21.8% 22.0%Government, personal & social services 20.6% 20.5% 21.8% 22.9% 22.6% 22.6% 22.7% 22.8% 23.0%Tertiary Sector 65.7% 64.8% 66.0% 67.2% 66.8% 67.1% 67.4% 67.7% 67.9%

Source: IHS Global Insight, 2012Note: ■ indicates estimates and ■ indicates forecasts.

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Table 1.8 shows the contributions to the GVA of the country, made by sector and sub-sector. The contribution of agriculture has steadily declined from 3 percent in 2007 and 2008 to an estimated 2.6 percent in 2011. It is forecast to continue falling to 2.1 percent in 2015. Mining & quarrying’s contribution has grown from 8.8 percent in 2007 to an estimate of 9.8 percent in 2011. This resurgence is probably due to higher commodity prices; mining’s share of GVA is expected to reach a plateau and then decline from 2013 onwards, as commodity prices fall. Construction contributed 3.2 percent of the GVA of the country in 2007, this rose and reached 4.3 percent in 2010 due to preparations for the Fédération Internationale de Football Association (FIFA) 2010 World Cup and the infrastructure development for the Gautrain. The sub-sector’s share is forecast to remain near 2010-levels, returning to 4.3 percent in 2015, possibly because of infrastructure projects planned by government. The wholesale & retail trade sector’s contribution rose to an estimated 14.3 percent in 2011, from 13.3 percent in 2007. It is forecast to decline only slowly, reaching 14.1 percent by 2015. The wholesale & retail trade sector is supported by an increase in the disposable income of households, which can be seen in Figure 1.11.

The rise in the wholesale & retail trade, when combined with the simultaneous decline in manufacturing, also points to the economy of the country moving away from being production-driven to having consumption as its driving force instead. The contribution made by government, personal & social services is rising as government continues to spend in support of economic recovery. Government, personal & social services accounted for 20.6 percent of GVA in 2007. This rose to an estimated 22.6 percent in 2011 and this expenditure is expected to grow, though more slowly, to 23 percent in 2015. The finance & business services sub-sector was the largest contributing sub-sector in 2007, at 22.6 percent. Since then, its share has declined, being overtaken by government and personal & social services in 2010. This is largely due to increased government spending to stimulate the economy. The financial sub-sector is large and growing since it was largely protected from the financial crisis by government’s prudent legislation, such as the NCA. The government, personal & social services sub-sector overtook finance & business services because it is growing even faster. The large size of the financial sub-sector shows that the economy of the country is modern and sophisticated compared to both its past reliance on the primary sector and to the present state of the economies of the majority of countries on the African continent.

Manufacturing is an important sub-sector for the government, and it has been targeted in the New Growth Path (NGP)20. Manufacturing is seen as a potentially significant source of employment. Business conditions for the manufacturing sub-sector in the country are estimated by the Purchasing Managers’ Index (PMI).

1.5.2 Purchasing Managers’ IndexThe PMI is calculated from data obtained from a survey conducted by the Chartered Institute for Purchasing & Supply Southern Africa and the Bureau for Economic Research.21 In the calculation of the PMI, purchasing managers are asked to answer a number of questions to ascertain both their opinion of current business conditions and their expectations for the future. The PMI and its various sub-indices, such as the employment sub-index, are rated from 0 to 100. A rating above 50 indicates that there has been expansion, while a rating below 50 indicates contraction.

The overall PMI decreased to 46.2 index points in September 2012 from 50.2 the previous month. September was the second consecutive month that recorded a decrease, following a rise to 51 points in July. Since the PMI has fallen below 50, this means that business conditions turned contractionary in August and became more so in September. The PMI data is more recent than other data used in this publication. This, therefore, suggests that declining figures for manufacturing will be shown in those data sets for a short while in future, after improving for a very brief period. The employment sub-index fell to 46.5 points, after increasing to 51 points in July

20 The NGP was released in December 2010 by the then Minister of Economic Development, Honourable Ebrahim Patel. The framework outlines job creation as a priority for the country.21 Information accessed at www.kagiso.com

Box 1.5: NCAIn March 2006, the NCA was approved by Parliament and signed into law by the President of South Africa. The Act regulates credit

transactions and all institutions that provide consumer credit with the intention of promoting an honest credit market in order to protect

South African consumers and promote their welfare. Towards this goal, the NCA instituted a pair of governmental bodies, the National

Consumer Tribunal (NCT) and the National Credit Regulator (NCR). The NCT judges contraventions of the NCA and issues fines if

necessary. The NCR registers all credit providers, ensures compliance with the NCA and provides education about the NCA and the

nature of the credit market to both the public and providers of credit.

Information accessed from http://www.ncr.org.za/the_act.php, 2011.

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and remaining just barely in expansionary territory during August. The PMI leading indicator22 rose to 0.99 in September from 0.90 in the previous month. While a figure below one suggests a weakening of manufacturing in the near future, the leading indicator is at least rising and is now very near to the point where it would suggest improvement. The purchasing managers themselves also seem optimistic, as the expected business conditions sub-index remains above 50, at 55.5 in September. This is the first rise in this sub-index since the decline to 52.9 index points in August, from 59 in May.

Government affects business conditions for all sectors of the economy, including manufacturing. This impact is generated both by regulations imposed on businesses and by the management of the fiscus by government. Government imposes taxes on businesses and consumers in order to obtain money it can spend on projects intended to promote the public good. Government spending affects firms both directly and indirectly. A direct impact is felt by those businesses that are hired to do the work, as it provides them with an income. Businesses that use the infrastructure that government builds feel the indirect impact as they benefit from the government’s projects.

1.5.3 Government Revenue and ExpenditureOn observation, government often incurs substantial costs in an effort to fulfil its mandate to improve the lives of its communities. Government funds this expenditure through taxation. Even when government borrows to fund spending, the debts incurred need to be repaid, as well as the debt-servicing costs.

Figure 1.4: national tax Revenue, 2002-2011

Source: South African Reserve Bank (SARB), 2012

The tax revenue23 appropriated by the government in the years 2002 to 2011 is shown in Figure 1.4. From 2002 to 2008, tax revenue grew steadily from R161.6 billion to R373.4 billion. In 2009, the global recession negatively affected the economy. Revenue from taxes on economic activity, such as income tax and value-added tax, declined and less money was added to government coffers. Latterly, the domestic economy has recovered and tax revenue has risen with it.

22 The PMI’s leading indicator is its ratio between new sales orders and inventories.23 Taxes levied by the government include income tax, capital gains tax, Value Added Tax, estate duties and retirement funds tax. See http://www.sars.gov.za/home.asp?pid=289

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Figure 1.5: government surplus/Deficit as a % of gDP, 2002-2011

Source: SARB, 2012

Figure 1.5 shows the budget balance of the South African government, as a percentage of GDP, for the years 2002 to 2011. In 2002, government was in a budget deficit of 0.7 percent. This deficit grew to 2.5 percent in 2003, before declining and then becoming a surplus, reaching positive 0.7 percent in 2007. Government instituted a counter-cyclical policy, by saving during good times in order to prepare for harder times in future. This resulted in the surplus recorded in the pre-recession years of 2006 and 2007. It was very fortunate that this policy was not implemented any later, as harder times arrived soon after. When the worldwide recession brought on by the global financial crisis spread to South Africa, government responded by increasing spending to offset the negative impact on the economy. In addition, tax revenue declined as shown in Figure 1.5 above and thus the deficit of the country rapidly expanded to 5 percent of GDP in 2009. Since then, prudent fiscal management by government has seen the deficit shrinking once more, reaching 4.1 percent in 2011. In his 2012 Budget Speech, the Honourable Pravin Gordhan, Minister of Finance, forecast a budget deficit of 4.6 percent of GDP for the 2012/13 financial year and said that government plans to reduce the deficit to 3 percent in 2014/15. The Minister stated that government would phase in its fiscal consolidation over the medium term to avoid the problems that accompany more rapid adjustments. He indicated that this will stabilise government’s fiscal position without burdening the economy and future generations with excessive debt.24

1.5.4 PricesRelatively stable price levels help the economy by allowing economic agents to plan more accurately and with confidence. The price levels of the country and the province are briefly examined in this section.

Figure 1.6: inflation, CPi and PPi, sa & gP, 2002-2011

Source: Stats SA, 2012

24 The full text of the Minister’s speech can be found at: http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=25270&tid=57402

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Figure 1.6 shows CPI and Producer Price Index (PPI) inflation for South Africa for the years 2002 to 2011 and CPI inflation for the Gauteng province from 2003 to 2011. Earlier data for CPI in the province was not available from Statistics South Africa (Stats SA). The costs a producer incurs in the course of providing a product influence the price the producer charges for that product, and thus if the PPI is higher or lower than the CPI it puts pressure on the CPI to move towards the PPI. For the most part, inflation in the country has followed this tendency, with CPI generally rising when below PPI and generally falling when above PPI. This suggests that the CPI follows the movement of the PPI. CPI inflation in Gauteng has largely mirrored the national average, though it was noticeably higher in 2011. While the inflation rate of the province grew by 2.1 percentage points in 2011 to 5.8 percent from 3.7 percent in 2010, it remained significantly lower than its 2008 peak of 11 percent. The price of oil appears to have had a significant influence on the PPI, and thus the CPI. As with both types of domestic inflation, the oil price peaked in 2008, at US$97.04. It then fell to US$61.78 in 2009, before rising again from 2010 onwards.25

Oil-based fuel is included in the basket of goods used to calculate the CPI, but this is not the only reason that the price of oil is important to the CPI. Fuel is used by the vehicles which transport goods around the country. Even when consumers purchase goods directly from the producer’s premises, it is almost certain that inputs used to produce those goods had to be transported to the producer. These transport costs are passed on to the consumer, increasing the prices of all the goods in the CPI basket. The oil price does not necessarily affect the economy directly, since the price is in USA dollars, but the exchange rate between the USA dollar and the Rand also plays a role. If the Rand strengthens against the dollar, fewer Rands are needed to pay for oil. If the Rand weakens against the dollar, oil becomes more expensive. These currency effects can offset or enhance a movement in the actual oil price.

1.5.5 Savings, Investment and ConsumptionSavings support investment and investment enhances future growth. Both are thus important for economic growth. South Africa’s savings and investment levels are analysed and comparisons made to other countries in this section.

Figure 1.7: gross national savings, % of gDP, selected Countries, 2002-2015


Figure 1.7 shows the Gross National Savings (GNS) of Angola, the second largest economy in the SADC region after South Africa, the BRICS nations and two major advanced economies, the United Kingdom (UK) and the USA. The data is presented as a percentage of the GDP of each country, for the years 2002 to 2010, with estimates for 2011 and forecasts from 2012 to 2015. Angola’s savings have shown the greatest variance over the review period. It began the period, saving a lower percentage of its GDP than South Africa, at 12.2 percent, before falling further in 2003. Angola’s savings rate began recovering in 2004 and became the second highest after China in 2006 at 44.9 percent. As the global financial crisis began to be felt, the savings level in Angola fell, reaching 6.4 percent in 2009. The falling savings level suggests that the country was forced to consume

25 Oil prices sourced from the World Economic Outlook (WEO) database of the IMF, 2012.

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more of its production, rather than save it. The Angolan GNS recovered by 16.6 percentage points in 2010 but is estimated to have fallen again in 2011 and is forecast to continue on a downward trend, ending the period at 14.3 percent.

Brazil’s savings level has been comparatively steady throughout the period under review and is forecast to continue at the same level, although a slight dip was visible in 2009, the middle of the world recession. The national savings level in China was equal to 40.3 percent of GDP in 2000; it grew rapidly until it rose above 50 percent in 2006. China’s growth in savings slowed from 2007, becoming negative in 2010 as the GDP growth of the country slowed. The IMF recommended that China promote domestic demand as a response to slowing growth and as a method of ‘balancing’ its economy to be more sustainable. It may be that the lower estimate of China’s savings level in 2011, at 51 percent, with a slow decline forecast to bring savings down to 50.5 percent of GDP by 2015, reflects an expectation by the IMF that China will follow its advice and more of the Chinese GDP will be consumed rather than saved. However, the IMF may be disappointed, because China has a less extensive social security system than many other countries and this will make it difficult for the people of China to change their savings patterns.

India and Russia both had significantly higher savings levels than South Africa throughout the period under review. South Africa has the lowest savings rate within the BRICS group. The country saved 15.3 percent of its GDP in 2000. There has been comparatively little variation in the country’s savings rate and in 2011, it is estimated to have saved 16.5 percent. South Africa’s savings level is forecast to return to this general level in 2015, after the slight dips expected in 2012 and 2013. According to a paper written for the IMF by Eyraud (2009),26 South Africa’s low savings rate is caused by demographic factors. The country has a population that is comparatively young and urban, and which is thus less inclined to save than that of many countries that exceed it in economic growth. The expansion of the social security net of the country is also unlikely to have encouraged saving.

The savings rates of the UK and the USA have remained close to one another, often to the point of overlapping directly. From 2002 to 2007, their savings levels moved within a band between 15.5 percent and 14 percent of GDP. By 2008, the USA had fallen below this band and the UK followed in 2009. These falls in savings levels were in reply to the global financial crisis and thus it is not surprising that the USA’s savings level dropped first since the crisis originated there. The USA’s savings level was also the first of the two to recover in 2010, with the UK estimated to have followed suit in 2011. The savings levels of both countries are forecast to continue rising for the rest of the period. The UK is expected to return to pre-crisis levels in 2013, at 14.2 percent, and the USA in 2014 at 14.4 percent.

Figure 1.8: total investment, % of gDP, selected Countries, 2002-2015


26 This is according to a paper titled “Why isn’t South Africa growing faster? A comparative approach” and can be accessed at http://www.imf.org/external/pubs/ft/wp/2009/wp0925.pdf

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Figure 1.8 is a continuation of Figure 1.7 above and shows total investment, as a percentage of GDP, for the years 2002 to 2010, with estimates for 2011 and forecasts up to 2015. Savings are necessary for investment and thus similarities can be expected between the two figures. China and India, two of the countries with the highest savings rates also have the greatest levels of investment. China enjoyed investment equal to nearly 50 percent of its GDP in 2009 and the level is expected to remain above 45 percent for the rest of the period. Investment in India reached 37.1 percent of GDP in 2009. It is forecast to fall slowly to 35.6 percent by 2015. However, not all savings are invested and investment can flow across national borders. Thus, the figures do not mirror one another.

While Angola’s savings level has been very high at some points in Figure 1.7, it varies more than any other country examined here. This lack of reliability is possibly related to the fact that Angola’s investment level is low compared to its savings. Russia’s investment has been lower than its savings level throughout the period; it is, however, expected to move more in line by 2015. In the USA and the UK, savings and investment have closely tracked one another. They are forecast to continue to do so. South Africa is largely similar to the UK and USA in this regard. The one exception was from 2004 to 2008, when investment in the country was growing faster than savings. This was probably a combination of foreign investment and South Africa’s low savings rate. The world recession caused money to be pulled out of emerging economies due to their perceived risk and also changed the credit culture in the country.27 These factors led South Africa’s post-2008 investment to follow more closely the savings rate of the country. The South African Finance Minister has expressed the intention to ensure that saving takes place. This will be done by phasing in the legislated preservation of accumulated retirement savings to reduce the currently high pre-retirement leakage. The legislation will also ensure that workers have sufficient provision for retirement.28

Figure 1.9: Household Consumption and Debt as % of income, 2002-2011

Source: SARB, 2012

Figure 1.9 shows the consumption of South African households and their debt as a percentage of their income. Household consumption amounted to R879 billion in 2002; it grew steadily to R1.16 trillion in 2008. This growth in consumption was fuelled by simultaneous growth in debt levels; household debt to income grew from 52.6 percent to 82.3 percent from 2002 to 2008. However, the rate of growth in consumption and debt was already slowing in 2008, due to the early effects of the world recession and the impact of the NCA. In 2009, the recession reached South Africa and consumption fell to R1.14 trillion. The country recovered quickly, consumption grew to R1.18 trillion in 2010 and then to R1.24 trillion in 2011. However, a new approach to credit had developed from the NCA and the shock of recession; this meant that debt continued to fall even as consumption recovered. Household debt was 75.8 percent of income in 2011.

27 Information sourced from The SA economy on cruise control. Bruggermans. 2012. https://www.fnb.co.za/economic-comment/fnb-economic-comment.html28 A summary of the points in the Minister’s speech which are relevant to retirement savings can be accessed here: http://www.treasury.gov.za/comm_media/press/2012/2012051402.pdf

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Figure 1.10: Household Expenditure by Product, 2009-2011

Source: IHS Global Insight, 2012

Figure 1.10 shows the expenditure of South African households on various products for the years 2009 to 2011. Food & non-alcoholic beverages account for between 18 and 19 percent of the expenditure of households, making it the largest single expense they face. This is probably because a large segment of the population of the country is poor, and the poor spend a larger percentage of their income on basics such as food. The decline in purchases of furniture, appliances & other household goods, from 3.8 percent in 2007 to 3.5 percent in 2011, is probably due to consumers becoming increasingly risk-averse due to the recession and thus not wishing to make large financial commitments during times of economic uncertainty. Due to its small size, education has been made part of the ‘Other’ category. It is still important to note that, at approximately 2.5 percent, education’s share of expenditure is probably low because of poverty. Also worth noting is the fact that the percentage of South African households’ income that is claimed by tax rose from 11.7 percent in 2008 to 13.1 percent in 2010, before falling to 12.7 percent in 2011.

Figure 1.11: Household Disposable income, 2002-2011


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Figure 1.11 shows the total disposable income of households for the years 2002 to 2011. Household income rose steadily from R861 billion in 2002 to R1.1 trillion in 2008. Income then fell in 2009 as the recession caused job losses, leaving many households with no income. In 2010, income began rising again due to various factors including rising commodity prices, increased government spending to combat the recession, above-inflation wage increases and the scarcity premium paid to skilled labour. Disposable income continued growing in 2011, reaching R1.2 trillion. It has grown at an average of 4 percent per year over the period under review. The data in Figure 1.11 is measured in constant prices, because of this, the fact that disposable income is shown to be increasing every year, with the exception of 2009, means that income growth outpaced inflation in each year, excluding 2009.

1.6 Conclusion

The economy of South Africa was also affected by the global recession, though to a lesser extent compared to many other countries. However, the world’s recovery from recent recession is uncertain. Predictions remain largely positive overall, though lower than in previous forecasts.

World output rose by an estimated 3.9 percent in 2011. It is forecast to maintain positive growth. A small reduction of 0.3 percent in the Euro-area’s GDP is predicted for 2012, probably due to the debt crises currently being experienced by several member states, but a return to positive growth is expected. Emerging & developing economies, including SSA, have grown faster than the advanced economies. They are forecast to continue doing so because some are rich in natural resources, such as oil, and others are able to produce manufactured goods at competitive prices, as epitomised by China. South Africa’s infrastructure ranking compares favourably to the rest of SSA, but still lags that of many developed nations. South Africa ranks third amongst the BRICS in infrastructure, marginally better than Brazil and India.

Prudent fiscal management has reduced the government deficit of the country from 5 percent of GDP in 2009 to 4.1 percent in 2011. South Africa’s savings levels showed some improvement, by increasing to 16.5 percent of GDP in 2011 from 14.3 percent in 2007 due to the country developing a new credit culture from the effect of the recession and the NCA. South African households have shown some fiscal responsibility post-recession, the household debt-to-income ratio has fallen from 82.3 percent in 2008 to 75.8 percent in 2011. There is further room for improvement as household debt levels still remain high. While unexpected events can change forecasts at any time, currently, the economic prospects for South Africa look hopeful.

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Chapter 2: Gauteng Economic Review and Outlook

CHaPtER 2: gauteng Economic Review and Outlook2.1 Introduction

The Gauteng province is the commercial hub of the country as well as for the SADC region. It is also home to three of the eight metropolitan municipalities in the country: City of Johannesburg (CoJ), City of Tshwane (CoT) and Ekurhuleni. The CoJ is the largest city in the country, and houses the head offices of most financial institutions. The CoT is the administrative capital of the country with the fastest growing economy. Ekurhuleni is known to be Africa’s leading manufacturing centre.

The province is recognised for its vibrant economic activities, especially those of the tertiary sector. Although it accounts for the largest share of the economy of the country, it is said to have received an additional economic boost from the 2010 FIFA World Cup, which led to great infrastructure development. These developments included extensions to the O.R. Tambo International Airport, the construction of the Johannesburg Bus Rapid Transit System (BRT), the mammoth investment in the Gautrain Rapid Rail-link and the improved freeways.

Improvement in social infrastructure development is still required in the province.

This chapter provides an assessment of the economic contribution of the province to the country, detailing economic performance and forecasts. Given the active involvement of the province in the global economy, the global economic impact on the province will also be a focus of analysis. The impact of the Euro-area debt crises has dominated the global economic environment and led to a deteriorating global economy, also evident in the economy of the province. A sectoral analysis by the municipalities is also given, providing an account of the economic sub-sectors that contribute the most and/or least. An assessment of international trade further demonstrates that more than 60 percent of imports and exports in the country take place in Gauteng, with China being the biggest trading partner for the province. Trade has been attractive in the province since the balance of the trade account has been positive for the past three years. Unfortunately, the same cannot be said for household saving where only 0.3 percent of disposable income was saved in 2011. The economy of Gauteng is consumption driven and households spend a very large share of their income on non-durable items such as food.

2.2 Developments in the Gauteng Economy

Due to the degree of openness and integration experienced by the Gauteng province, international economic conditions greatly influenced its performance. This section gives the inter-provincial comparisons of economic contributions to the South African economy, a sectoral analysis of Gauteng, as well as the trends and forecasts of the province for economic growth. This analysis aims to emphasize the large impact of the economic performance of the province on that of the country. Drivers of the Gauteng economy will be examined by municipality so as to show the concentration of the sub-sectors.

Even though Gauteng has the smallest land area of 1.4 percent in the country, it is the biggest contributor to GDP. According to IHS Global Insight, the province contributed 35.6 percent to the GDP in 2011. In Africa, the province is estimated to have contributed 7.7 percent of the continent’s GDP in 2011.

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Figure 2.1 Provincial Contributions to sa Economy, 2002 & 2011

Source: IHS Global Insight, 2012Note: LP=Limpopo, MP=Mpumalanga, GP=Gauteng, NW=North West, KZN=KwaZulu-Natal, FS=Free State, NC=Northern Cape, EC=Eastern Cape and WC=Western Cape.

Figure 2.1 shows the provincial contributions to the economy of the country for 2002 and 2011. For the two years, Gauteng was the single largest contributor to the economy of the country, contributing 34.8 percent to GDP in 2002. It was followed by KwaZulu-Natal, contributing 16.2 percent, and the Western Cape at 14.3 percent. Thus, the economy of Gauteng is more than twice that of KwaZulu-Natal or the Western Cape. The Northern Cape has contributed the least, at 2.3 and 2.1 percent for the two years. In 2011, the economic contribution made by Gauteng had increased by 0.8 percentage points compared to that in 2002. This data indicates that the province has not lost its position of importance in the national economy over the years. The contribution of KwaZulu-Natal increased by 0.2 percentage points to reach 16.4 percent in 2011 and that of Western Cape increased by 0.6 percentage points.

Improved economic activity has the potential to improve social conditions. When an economy grows, the social responsibility burden of the government becomes smaller as the number of economically active population increases, reducing the number of persons requiring government support. This allows the government to invest more in the economy of the region.

table 2.1: gDP-R and growth Rates, gauteng & sa, 2007-2015

2007 2008 2009 2010 2011 2012 2013 2014 2015

gDP (R millions)

Gauteng 618,593 642,663 634,027 653,766 674,882 694,780 719,149 747,082 781,558

SA 1,751,164 1,814,531 1,786,636 1,838,264 1,895,668 1,946,900 2,011,331 2,085,638 2,178,477

gDP growth

Gauteng 5.9% 3.9% -1.3% 3.1% 3.2% 2.9% 3.5% 3.9% 4.6%

SA 5.5% 3.6% -1.5% 2.9% 3.1% 2.7% 3.3% 3.7% 4.5%Source: IHS Global Insight, 2012Note: ■ indicates estimates and ■ indicates forecasts.

Table 2.1 depicts the actual Gross Domestic Product by Region (GDP-R) for Gauteng and the GDP for the country as well as the growth rates. The figure shows that the GDP-R increased from R618 billion in 2007 and reached an estimate of approximately R675 billion in 2011. It is forecast to continue increasing to about R781.6 billion by 2015. The economic growth rates for the country and Gauteng appear to be similar, although for most of the review period, Gauteng had slightly superior growth. In 2009, the country went into recession due to the global financial crisis. The GDP contracted by 1.5 percent and the GDP-R of Gauteng by negative 1.3 percent. In 2010, both the country and the province rebounded from recession. Though economic growth in Gauteng is forecast to increase to 4.6 percent by 2015, this growth rate may not be enough to reduce significantly the high unemployment that persists in the province. According to the Finance Minister Pravin Gordhan, the country needs a sustained growth of at least 7 percent over a 20-year period in order to reduce unemployment and poverty significantly.

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Figure 2.2: gDP-R & average growth Rates, municipalities, 2011


Figure 2.2 shows the GDP-R for the municipalities and their average growth rates between 1997 and 2011. The bubble size is an indication of the size of the economy of the respective municipalities. The bigger the bubble, the bigger is the GDP-R, and the opposite is true. The CoJ had the largest GDP-R of R313 billion in 2011. The CoT had the second largest bubble size, indicating that it had the second largest GDP-R of R184 billion. Ekurhuleni had the third biggest economy at R128 billion. The economies of both West Rand and Sedibeng are relatively small. The CoT is said to be the fastest growing municipality in the whole country.

Its economy grew by an average annual growth rate of 4.4 percent between 1997 and 2011. The large average annual growth in the CoT can be explained by the large average annual growth of Gross Value Added by Region (GVA-R) of construction and the transport sub-sector, both of which grew by an average of 7.8 percent in the reviewed period. CoJ grew by an average of 4 percent and Ekurhuleni by 3 percent during the same period. The economy of the West Rand is the most sluggish in the province, with an average annual growth rate of 0.1 percent. Sedibeng’s average annual growth during the same period was 1.4 percent.

2.2.1 Economic Sector PerformanceSectoral analysis provides the background of the economic sectors that drive the economy of a region. It also identifies sub-sectors that are growing and those that are shrinking in terms of their economic contribution.

table 2.2: sectoral Composition of the Economy, gauteng, 2007-2015actual Estimate Forecast

2007 2008 2009 2010 2011 2012 2013 2014 2015

Agriculture, forestry & fishing 0.5% 0.5% 0.5% 0.4% 0.4% 0.4% 0.4% 0.4% 0.3%

Mining & quarrying 3.4% 3.7% 3.5% 3.6% 4.2% 4.3% 4.1% 3.8% 3.6%

Primary Sector 4.0% 4.2% 4.0% 4.1% 4.7% 4.7% 4.4% 4.2% 3.9%

Manufacturing 20.2% 20.1% 18.2% 16.5% 16.3% 16.0% 15.9% 15.8% 15.8%

Electricity, gas & water 2.3% 2.2% 2.7% 2.9% 2.9% 2.9% 2.9% 2.9% 2.9%

Construction 4.1% 4.6% 5.1% 5.4% 5.2% 5.1% 5.3% 5.4% 5.5%

Secondary Sector 26.6% 26.9% 26.0% 24.8% 24.3% 24.0% 24.0% 24.1% 24.2%

Wholesale & retail trade 13.6% 13.8% 14.1% 14.6% 14.8% 14.7% 14.6% 14.6% 14.5%

Transport & communication 8.6% 8.8% 8.7% 7.9% 8.2% 8.3% 8.4% 8.4% 8.4%

Finance & business services 26.1% 25.0% 24.9% 25.2% 24.9% 25.0% 25.3% 25.5% 25.7%Government, social & personal services 21.2% 21.3% 22.5% 23.4% 23.2% 23.2% 23.2% 23.2% 23.2%

Tertiary Sector 69.5% 68.9% 70.1% 71.1% 71.1% 71.2% 71.5% 71.7% 71.9%Source: IHS Global Insight, 2012Note: ■ indicates estimates and ■ indicates forecasts.Due to the data being rounded off, totals do not add up to exactly 100 percent

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The economy of Gauteng is largely driven by the tertiary sector; this also applies to the country as a whole, as shown in Table 1.8 in Chapter 1. It is evident from Table 2.2 that the tertiary sector contributes the most to the economy of the province. In 2007, it contributed 69.5 percent, which increased to 71.1 percent in 2011. The finance & business services sub-sector contributed the most at 24.9 percent, followed by government, social & personal services at 23.2 percent. The contribution made by the tertiary sector is forecast to increase to 71.9 percent by 2015. The secondary sector was the second largest contributor, at 24.3 percent in 2011. The manufacturing sub-sector dominates contributions within the secondary sector; these amounted to 16.3 percent in 2011. Manufacturing in Gauteng is said to be the largest in the country, with almost half of the factories housed in the province.29 It should be of concern though, that the contribution of manufacturing to the Gauteng economy is forecast to decline and reach 15.8 percent by 2015. The decline is partly attributed to the global economic crisis, which led to the recession in 2009. The data also suggests that the province is moving away from industrialisation. The primary sector contributed the least to the economy of the province, at 4.7 percent in 2011. Its contribution is forecast to trim down to 3.9 percent by 2015. Mining & quarrying dominates the primary sector as it contributes the most to the economy of Gauteng at 4.2 percent.

Figure 2.3: gva-R average annual growth by sub-sector, 2008-2011


Figure 2.3 shows the GVA-R annual average growth of the respective sub-sectors from 2008 to 2011. The GVA-R average annual growth by the mining & quarrying sub-sector for 2008 was negative 8.9 percent. Possibly, due to closures of mines during that year, mining output declined. In 2009, the average annual growth in GVA-R by manufacturing declined the largest amount at negative 12.4 percent. This could be explained by the large number of factories that shrank or ceased operation that year, possibly due to an increase in manufactured imports as well as reduced demand for manufactured exports due to the global financial crisis. The annual growth in GVA-R by the construction sector was largest in 2009 and it was spurred on by projects related to the 2010 Soccer World Cup. The agriculture, forestry & fishing sub-sector was the only one that recorded negative growth in GVA-R in 2010, at negative 0.2 percent. The contraction of the growth of agriculture in GVA-R can be attributed to the long lead times occurring in the sector and the resultant sluggishness of economic players in their response to depressed economic conditions.30 In 2011, mining & quarrying and agriculture, forestry & fisheries recorded negative GVA-R growth rates at 0.6 percent and 1.3 percent respectively. All other sub-sectors seem to have recorded positive growth in GVA-R.

Table 2.3 breaks down the sectoral composition of Table 2.2 into municipalities of the province. This provides an indication of the largest and smallest contributions of the municipalities in the respective sub-sectors.

29 Information sourced from http://www.gautengonline.gov.za/Publications%20and%20Reports/The_South_African_Economy_and_its_Engine_Room_Gauteng.pdf30 Information sourced from http://www.kpmg.com/ZA/en/IssuesAndInsights/ArticlesPublications/Economic-Insights/Documents/Economic%20Insight%20Quarterly%20Review%20Issue%2010%20Q3%202009.pdf

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table 2.3: sectoral Contribution of gva-R, municipalities, gauteng, 2011 Ekurhuleni CoJ Cot sedibeng West Rand total

Primary sector

agriculture, forestry & fishing 17.3% 30.5% 28.6% 9.3% 14.2% 100%

mining & quarrying 9.2% 36.7% 10.8% 0.5% 42.9% 100%

secondary sector

manufacturing 25.8% 42.4% 22.5% 6.2% 3.2% 100%

Electricity, gas & water 20.0% 49.2% 21.2% 6.5% 3.1% 100%

Construction 17.2% 47.1% 30.2% 2.7% 2.8% 100%

tertiary sector

Wholesale & retail trade 14.6% 54.2% 26.7% 1.8% 2.6% 100%

transport & communication 18.0% 41.6% 36.5% 1.8% 2.1% 100%

Finance & business services 14.8% 54.6% 26.3% 2.2% 2.2% 100%

government, social & personal services 14.4% 43.3% 35.4% 3.5% 3.4% 100%Source: IHS Global Insight, 2012

The economic contribution of CoJ is the largest in most sub-sectors, excluding mining & quarrying, the highest contribution of which came predominantly from the West Rand. This suggests that CoJ is the powerhouse of the economy of the province. More than half of the economic contributions made by wholesale & retail and finance & business services came from CoJ, suggesting a strong comparative advantage that this metro has in these sub-sectors. The CoT contributed the second largest share in most sub-sectors, excluding mining & quarrying and manufacturing. The second largest contribution to manufacturing came from Ekurhuleni. About 90 percent of the total economic contribution of the province is generated by the three Gauteng metros.

2.2.2 Opportunities and Challenges

OpportunitiesGauteng is diversified. It therefore offers opportunities in all three sectors: primary, secondary and tertiary. The province is a good place in which to invest due to the reasons stated below:31

• an enabling environment that is stable economically and politically;• outstanding business opportunities;• strong financial & industrial base;• excellent freight of logistics; and• high quality information.

table 2.4: Economic Opportunities by municipalities

CoJ

Power generation through renewable energies.

Development of new natural systems to minimise the impact of urban flooding.

Improving rail freight into the city.

Strengthening of the emerging Information Communication Technology (ICT) sector. (Source: Growth and Development Strategy 2040: City of Johannesburg, 2011)

CoT

Automotive and components industry.

Aerospace village for manufacturing components.

Research and development (i.e. Biotechnology Laboratories)

Broadband network opportunities.(Source: Tshwane Economic Development Framework and Investment Strategy and Opportunities, 2011)

Ekurhuleni

The presence of O.R Tambo International Airport and the N12 Johannesburg Maputo Corridor, create economic opportunities in logistics & transport, business tourism and high value added manufacturing.

Intensive agricultural production and food processing and packaging.

Environmental opportunities in wetlands, ridges and agriculture potential.(Source: Ekurhuleni Growth and Development Strategy 2025, 2005)

31 Information sourced from http://www.gautengonline.gov.za/Publications%20and%20Reports/Investing_in_Gauteng.pdf

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West Rand

Due to the availability of vacant land, there is an opportunity for property development.

Environmental opportunities in terms of agriculture potential.

The geographical location (close proximity to Lanseria airport, Johannesburg and major access route) allow the opportunity of economic diversification in the municipality.

(Source: West Rand District Municipality Integrated Development Plan (IDP) 2011/12 to 2015/16, 2012)

Sedibeng

Tourism development opportunities along the Vaal River.

Environmental opportunities around the existing nature reserves, the various conservancies and watercourses.

Processing of agriculture produce.(Source: Sedibeng District Municipality 2011/2012 IDP, 2011)

ChallengesGauteng has numerous economic challenges ranging from infrastructure backlogs, the declining manufacturing sector, e-tolls, and skills shortages, amongst others. This section discusses the high unemployment rate in the province.

According to the Territorial Review by the OECD of the Gauteng City-Region (GCR), the province has very high unemployment. In the first quarter of 2011, the province’s unemployment rate was 26.9 percent and Gauteng had the highest unemployment rate among OECD metropolitan regions.

Box 2.1: OECDThe OECD is an international association of developed nations, with headquarters based in Paris, France. It provides a forum in which

governments can work together to share experiences and seek solutions to common problems.

See http://www.oecd.org/document/2/0,3746,en_2649_34413_49046018_1_1_1_1,00.html

As in many other regions, the unemployment rate was driven high by the 2008/09 global economic crisis. The decline of the mining sector of the province and the contracting job creation in the services sector has also exacerbated the economic situation. Between the fourth quarter of 2008 and the first quarter of 2009, Gauteng was the second hardest hit province in terms of job losses, recording 49,000 losses. Since the fourth quarter of 2008, the province’s unemployment has been marginally increasing, reaching a peak (28.2 percent) in the second quarter of 2011. A further discussion of unemployment in the province can be found in Chapter 4, section 4.4.3. To address the chronic unemployment in the province, the Territorial Review of the GCR suggests that employment should be raised through improved labour market interventions.

The Jobs Fund is an example of labour market intervention by national government.

2.3 Trade Analysis

In this sub-section, the share of imports and exports by Gauteng is analysed and reference made to the trade account balance. The sub-section further explores the international trade contributions of all the provinces. This analysis is done to provide an indication of the provinces that would be more affected by global economic events.

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Figure 2.4: Provincial Contribution to imports and Exports, 2011

Source: Quantec Research, 2012

Figure 2.4 depicts the contribution made by each province to national imports and exports in 2011. Gauteng is the largest single net exporter in South Africa. The province was responsible for 61.4 percent of all imports and 68 percent of exports. The Western Cape was the second largest importer of the country with a 19.3 percent share of total imports. KwaZulu-Natal was the second largest exporter with a share of 11.2 percent of total exports. The Northern Cape and Free State contribute minimal shares to total exports and imports in the country; this indicates that their trade is concentrated more domestically.

Figure 2.5: share of imports and Exports, Provinces & sa, 2011

Figure 1.1: Comparative Infrastructure Indicators, SA & SSA, 2011

Figure 2.5: Share of Imports and Exports, Provinces & SA, 2011

0%

20%

40%

60%

80%

100%

Access to electricty(% of population)

Improved watersource (% of

population withaccess)

Improved sanitationfacilities (% ofpopulation with

access)

Total telephonesubscribers (%)

South Africa Sub-Saharan Africa Average

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

WC EC NC FS KZN NW GP MP LP SA

Exports Imports


Figure 2.5 shows the share of trade held by imports and exports for the respective provinces of South Africa. The share of imports against exports is largest in the Western Cape at 72 percent. The share of exports of the Northern Cape was the largest at 88 percent consisting mainly of diamonds, which comparatively have the highest value of total export commodities. Five of the provinces (Northern Cape, North West, Mpumalanga, Limpopo and Gauteng) have higher shares of exports than imports, suggesting that these provinces recorded a surplus on the trade account in 2011. The overall trade shares of the country indicate 51 percent for imports and 49 percent for exports, thereby suggesting that a deficit was recorded in the trade account in 2011.

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2.3.1 Trade PositionThis sub-section looks at the trend in Gauteng’s share of total imports and exports as well as the main the trading countries.

Figure 2.6: share of total imports & Exports, 2002-2011


Figure 2.6 shows Gauteng’s share of national imports and exports from 2002 to 2011. Before 2005, the share of imports from the province exceeded that of exports. Thereafter, the province’s share of exports was higher. In 2002, Gauteng contributed 58 percent to total imports. This share increased to 61 percent in 2011. The province’s share of exports had higher growth, with an annual average of 1.3 percent. In 2002, the province’s share of exports was 57 percent, and this increased to 68 percent in 2011. The data suggests that the province is able to generate more money from abroad than any other province. A higher share of exports from 2005 does not necessarily mean that the province has had a surplus in the trade account. It only means that Gauteng’s share of total exports increased above its share of total imports. The share of Gauteng’s imports compared to total imports is also large since it accounts for more than 50 percent.

Figure 2.7: import share by key Countries, 2010 & 2011

Source: Quantec Research, 2012Note: S. Arabia is Saudi Arabia

Figure 2.7 shows Gauteng’s key import countries for 2010 and 2011. In both years, China remained the province’s main source of imports, with a 15.2 percent and 15.3 percent share respectively in 2010 and 2011. Germany’s share of the province’s imports remained at 12.2 percent in both years. The share of imports from the USA increased in 2011 by 1.5 percentage points from 8.5 percent in 2010. Two of the BRICS countries, namely China and India are amongst the province’s main trading partners. With the inclusion of South Africa

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into the BRICS group, trade with these countries can be expected to increase further. Products that are imported from China include computers, electrical apparatus for line telephone & telegraph and printers. Imports from Germany include equipment components and cars.

Figure 2.8: Export share by key Destination, 2010 & 2011


Figure 2.8 shows the province’s share of exports to key destinations. China’s rapid economic growth, leading to increased demand for commodities, had a positive impact on the province’s exports. In 2010, the share of goods exported to China was 12 percent. This share increased to 14.6 percent in 2011. This meant that China is the province’s leading export destination. Products exported to China include mineral products such as ore, slags & ash, mineral fuels, oils & distillation products and iron & steel. Gauteng’s second and third largest export markets were the USA and Japan, respectively. To both these countries, the province exports vehicles, precious stones & pearls and iron & steel. In 2011 within the African continent, the province had significant export shares to Mozambique (2.6 percent) and Zambia (2.4 percent).

Figure 2.9: balance of trade account, 2002-2011


Figure 2.9 depicts the balance on the trade account of Gauteng for 2002 to 2011. A surplus on the trade account indicates that the value of exports exceeds that of imports and a deficit indicates that imports exceed exports. Between 2002 and 2008, the province recorded deficits on the trade account that increased annually to reach a trough of R39.750 billion in 2007. Thereafter, the deficit on the balance of the trade account shrank to R8.551 billion in 2008, and entered positive territory in 2009. A trade surplus of R15.756 billion was recorded in 2009. The surplus on the trade account continued through to 2011. According to the Industrial Development Corporation (IDC), global trade slowed substantially in 2011 as growth in export volumes declined to 5.8 percent from 15.4 percent in 2010. Merchandise export value from the province increased to 19.9 percent in

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2011 (16.1 percent in 2010), but demand for imports rose at a faster pace to 21.4 percent from 14.1 percent in 2010. Hence, the trade balance came under some pressure in 2011, with the surplus for the year measuring only R24.296 billion, which is less than the 2010 surplus of R24.928 billion. The slower growth in exports could be explained by reduced demand from the country’s regional trading partners in the Euro-area, which has been experiencing dire economic conditions.

2.4 Saving, Investment and Consumption

It is a well-known fact that South Africans have a low savings culture. Saving is not only crucial personally, but also nationally. Savings allow investment to take place in buildings, services and roads. Without sufficient savings, the growing needs of a country’s citizens would have to be provided for through borrowing. This could erode the country’s funds through interest charges. To assess the level of savings in Gauteng the average propensity to save is analysed for households within the respective municipalities of the province.

Box 2.2: APSThe Average Propensity to Save (APS) is an economic term that refers to the proportion of income that is saved rather than spent on

goods and services. APS is also known as the savings ratio, it is usually savings expressed as a percentage of total household disposable

income (income minus taxes).

Definition sourced from http://www.investopedia.com/terms/a/average-propensity-to-save.asp#ixzz1zeZvrhvX

The adoption of the NCA, which came into effect on the first of June 2007, had a positive impact on the average savings of the province. The aim of the Act is to protect consumers from being over indebted, thereby promoting social and economic wellness.

Figure 2.10: aPs, gauteng, 2002-2011


Figure 2.10 shows the APS for Gauteng and its municipalities for 2002 to 2011. During this period, Gauteng only had a positive savings ratio in 2011. For the rest of the period, households were dissaving and possibly living in debt. The highest level of dissaving in the province was reached by households in 2006 when the average propensity to save was negative 1.7 percent. All the municipalities in the province seem to follow the same trend as that of the province’s savings ratio. Generally, it appears that households from Sedibeng have the lowest savings rate. In 2008, Sedibeng’s APS reached a low of negative 6.1 percent. Thereafter, in 2009 it improved to negative 3.2 percent before declining to negative 6 percent in 2011. Between 2002 and 2007, households in Ekurhuleni had a better savings ratio than other municipalities. From 2008 onwards, the CoJ’s savings ratio was higher than that of other municipalities in the province. In 2011, it recorded the highest savings ratio of 2.7 percent, followed by Ekurhuleni at 1.2 percent. Possibly, the rest of the households in the CoT, Sedibeng and the West Rand were all living in debt. The World Bank suggests that as a solution to the low savings rate in the country, the high unemployment rate should be resolved. High levels of investment have the potential to promote economic growth. A country that invests could

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take advantage of economic opportunities that present themselves and therefore stimulate the economy. According to the World Factbook , in 2011 China had the highest share of investment to GDP at 54.2 percent and an estimated GDP growth of 9.2 percent. South Africa’s share of investment to GDP was estimated to be 18.4 percent in 2011 and its GDP growth, 3.4 percent. According to a media statement released by Business Unity South Africa (BUSA), South Africa needs to increase its share of total fixed investment to 25 percent of GDP in order for the country to realise an economic growth rate of 6 percent.

Figure 2.11: investment as % of gDP-R, 2002-2011


Figure 2.11 shows investment as a percentage of GDP-R in Gauteng for the years 2002 to 2011. In 2002, investment as percentage of GDP-R was 13.2 percent. It gradually increased over the years to reach a peak in 2008 of 19.8 percent. This increase in investment as percentage of GDP-R could be explained by major outlays for construction projects. These were for the preparation for the 2010 Soccer World Cup. Thereafter, investment as a percentage of GDP-R steadily declined in 2009 and 2010 to 19.2 percent and 18.4 percent respectively. In 2011, there was a slight improvement as it increased to 18.6 percent.

Box 2.3: GDFIGross Domestic Fixed Investment (GDFI) comprises all outlays (purchases and own-account production) on additions of new and

imported durable goods to the stocks of fixed assets, less the proceeds of net sales (sales less purchases) of similar second-hand and

scrapped goods. Outlays by general government on durable goods primarily for military purposes are excluded. According to the

System of National Accounts, these outlays are treated as current consumption and classified under government consumption.

Definition sourced from http://www.fao.org/docrep/x2613e/x2613e2w.htm

Figure 2.12 shows the GDFI and its growth for Gauteng and the country as a whole for 2002 to 2011. Investment patterns in the province closely tracked those of the country throughout the review period.

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Figure 2.12: gross Domestic Fixed investment, gauteng & sa, 2002-2011


The value of Gauteng’s GDFI has increased from R63.8 billion in 2002 to reach a peak of R127.2 billion in 2008. In 2009 and 2010, it fell to R122.1 billion and then R120.1 billion, respectively. In 2011, the province’s GDFI increased to R125.6 billion. The highest growth rate of GDFI in the province was recorded in 2004 at 16 percent and the lowest was in 2009 at negative 4 percent. The GDFI of the country also increased between 2002 and 2008, by an annual average growth of 11 percent. In 2009, the GDFI of the country declined to record a negative growth of 3 percent, and a negative 2 percent in 2010. The decline in GDFI could be explained by investors choosing to invest in less riskier assets during times of economic uncertainty. The GDFI for South Africa expanded by 5 percent in 2011 to reach R379.6 billion from the R190.9 billion that was recorded in 2002.

The portion of income that is not saved by households is spent on other goods and services. This final consumption expenditure of households encompasses all domestic costs (by residents and non-residents) for individual needs. Among other things, it includes expenditure on goods and services, the consumption of garden produce and rent for owner-occupied dwellings. Consumption goods can be classified as durable goods, semi-durable and non-durable goods.

Box 2.4: Types of Consumption GoodsDurable goods are consumption goods that can be used repeatedly or continuously for purposes of consumption over a long period of

time, typically several years.

Semi-durable goods differ from durable goods in that their expected lifetime of use, though more than one year, is often significantly

shorter and their purchasers’ value is substantially less.

Non-durable goods are household items that do not last for long, for example food and personal care items. Households acquire these

items on a daily, weekly or monthly basis.

Definitions sourced from http://www.statssa.gov.za/cpi/documents/CPI_Sources_Methods.pdf

Figure 2.13 shows the total consumption expenditure of households by type of goods and total services. It should be noted that due to services not being broken down by type in the figure, it may appear that households actually spend a large portion of their disposable income on this. However, the largest portion is spent on goods.

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Figure 2.13: Consumption Expenditure, 2002-2011


In the province, final consumption expenditure by households has been gradually increasing. In 2002, it totalled R288.2 billion, and by 2011, it had increased to R441 billion. This was annual average growth of 4.9 percent. During the period under review, the share of total expenditure on goods ranged between 55.2 percent and 58.2 percent and that on services between 44 percent and 44.8 percent. The main consumption expenditure was on non-durable goods, which includes food, beverages and electricity. This accounted for 34 percent in 2011. There has been a declining trend in household consumption expenditure on non-durable goods and an increase of expenditure on services. This suggests that the disposable income of households has increasingly been eroded by costs for services such as transport, education and accommodation rental fees. With the latest trend of an ever-increasing fuel price, household consumption expenditure on services can be expected to increase.

2.5 Gauteng Infrastructure Overview

The state of the nation’s infrastructure influences not only the quality of life, but well-designed infrastructure also leads to improved productivity. This efficiency in turn enhances economic growth while providing significant positive spill-overs to various economic sectors.32 It is essential to determine how well infrastructure is performing because this assists in ensuring its maintenance.33 Lack of maintenance decreases the lifespan of infrastructure and harms its ability to contribute to the economy. This leads to investment, which would be better spent on improvements, being used instead on unnecessarily expensive repairs. Improved infrastructure assists in reducing input costs for producers, thus enhancing economic growth and minimising revenue losses.34 There are also costs associated with improved infrastructure that include increased rental costs for machinery and buildings.

The Gauteng Member of the Executive Council (MEC) for Finance, Honourable Mandla Nkomfe, has argued that for the province to achieve higher levels of growth and to be attractive to investors, infrastructure is crucial.35 In the 2012 Estimates of Provincial Revenue and Expenditure, an allocation of R30.6 billion was made for infrastructure development. Allocations for infrastructure are aimed at ensuring that the province has reliable and well-maintained infrastructure to drive its economy further, as well as that of the country.

Infrastructure development happens through the construction sub-sector and is labour intensive. Construction projects are divided into categories such as residential buildings (houses and residential property), non-residential buildings (industrial buildings) and public works (government infrastructure like roads and schools). According to data from IHS Global Insight, the GVA-R contribution of the sub-sector in Gauteng was 5.4 percent in 2010. This decreased slightly by 0.2 percentage points, reaching an estimated 5.2 percent in 2011.

32 Information is according to http://www.whitehouse.gov/sites/default/files/infrastructure_investment_report.pdf33 This is according to http://www.nap.edu/openbook.php?record_id=4929&page=134 Information accessed from http://www.dbsa.org/Research/Infrastructure%20Publications/Project%20to%20enhance%20the%20socio-economic%20impact%20of%20infrastructure%20maintenance%20in%20SA.pdfic35 This is according to information from http://www.wbsjournal.co.za/journal-articles/provincial-features/67-infrastructure-keeps-gauteng-on-the-move.html

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According to the June 2012 Industry Insight’s Investment Map Monitor report, the total nominal value of contracts awarded between April 2011 and March 2012, amounted to R77.7 billion. From the total nominal value of contracts awarded in the country, Gauteng received the largest share of 22 percent, or R17.3 billion. This comprised of a 72.1 percentage share in building expenditure and a 27.9 percentage share in public works. KwaZulu-Natal and the Western Cape received the second and third highest shares of 17 percent respectively, at R13.3 billion and R13.1 billion.

Figure 2.14: nominal value of Contracts awarded, Provinces, april 2011-march 2012

Souce: Industry Insight, 2012

Figure 2.14 shows the nominal value of all contracts awarded nationally, in the building and public works sectors of the construction industry for March 2012. Gauteng received the highest allocation at R12.2 billion for buildings followed by the Western Cape and Eastern Cape at R8.5 billion and R7.6 billion respectively. KwaZulu-Natal received the fourth highest allocation of R6.6 billion. This reflects that most infrastructure development of buildings in Gauteng is private, with a 70 percent share in building expenditure and a 30 percent share in public works. The Western Cape had 65 percent share of the value of contracts awarded to the building sector. For the Eastern Cape and KwaZulu-Natal, the building sector was awarded 64 percent and 50 percent of contracts respectively.

KwaZulu-Natal was leading for the public works sector at R6.7 billion followed by Gauteng at R5.2 billion. The North West and Free State had the lowest value of public works contracts awarded at R1.1 billion and R1.7 billion, respectively.

In a bid to improve the economy of the province and create jobs, the provincial government will be investing in several multi-pronged infrastructure development projects. Amongst others, these include the Information Communication Technology (ICT) hub.36 This Smart City will be a multi-disciplinary development including a film and animation studio, a manufacturing centre for ICT products, a residential development, a multimedia and training centre and a Green ICT centre. With the proposed advanced technologies to be furnished at the Smart City, a large number of investors would be attracted into the province.

36 This ICT hub will be called the Smart City, according to information sourced from http://www.joburg.org.za/index.php?option=com_content&view=article&id=7783&catid=88&Itemid=266

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2.6 Conclusion

Gauteng remains the single largest contributor to the economy of the country and has become increasingly important. Its contribution has increased from 34.8 percent in 2002 to 35.6 percent in 2011. The economy of the province has increasingly been driven by the tertiary sector, which is estimated to have contributed 71.1 percent to the economy in 2011. The finance & business services sub-sector was the largest contributor (24.9 percent), followed by government, social & personal services at 23.2 percent. Manufacturing, which belongs to the secondary sector, had the third largest economic contribution of 16.3 percent. Forecasts indicate that the increase in the contribution of the tertiary sector will come at a cost for the primary sector. Contribution by the tertiary sector is projected to reach 71.9 percent by 2015. Meanwhile, the contribution of the primary sector is expected to decrease from 4.7 percent in 2011 to 3.9 percent in 2015. The share of GVA-R by the CoJ is the largest in all sub-sectors, excluding mining & quarrying, which was largest in the West Rand at 42.9 percent. The CoJ therefore had the largest economy in the province worth R313 billion in 2011. The CoT has the second largest economy in Gauteng and is the fastest growing economy in the entire country with an annual average growth of 4.4 percent between 1997 and 2011.

In terms of trade with other countries, the province has the highest share of imports and exports at 61.4 percent and 68 percent, respectively. In 2011, about 51 percent of total trade was exports and 49 percent constituted imports. This led to a surplus of R24.3 billion in the trade balance. China was the major trading partner, with a share of about 15 percent of total imports and exports, respectively. Gross domestic fixed investment improved in 2011; seemingly, the level of household saving also improved. The average propensity to save is highest in the CoJ at 2.7 percent and lowest in Sedibeng at negative 6 percent. A large share of household income is spent on goods, especially non-durable goods.

To support economic development in the province, infrastructure investments seem to be larger than any other province. Between April 2011 and March 2012, Gauteng had the largest value of contracts awarded for construction at R12.1 billion. This indicates that in the near future, several new buildings will be erected.

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35

Chapter 3: Economic Overview of the Agricultural Sector

CHaPtER 3: Economic Overview of the agricultural sector3.1 Introduction

In a developing country such as South Africa, agriculture represents a potential source not only of foreign revenue, but food security that could alleviate problems associated with poverty. For agriculture to have any significant effect on economic development in developing countries, production processes need to be optimised in order to gain the highest return from agricultural activities. Any attempts to develop agricultural strategies must aim to optimise agricultural production processes and improve the role that agriculture plays in socio-economic development.

Many governments across the world implement trade restrictions to safeguard the incomes of farmers. It is a matter of political importance for many countries to maintain a certain level of independence in agricultural production. The imposition of dumping duties on Brazilian chicken products is the latest attempt by the South African government to protect the local poultry industry. Currently, the Brazilian government is challenging such trade restriction at the World Trade Organisation (WTO).

Demand growth for agricultural produce is highest in emerging markets, as incomes are increasing at a greater rate and urbanisation marks a shift from subsistence farming to more industrial methods. Demand in developed markets is relatively stable, but some upward movement remains noticeable with increasingly expensive tastes driving up demand for meat, and the rise of biofuels offering the western world reduced reliance on the Middle East for oil.

The forecast for the agricultural sector is always fragile because of numerous non-economic factors that affect the demand and supply of output. Weather patterns often affect agricultural activities, specifically the harvest output. As global warming and climate change accelerates, volatility in output will increase. This might lead to droughts; floods will become more common and intense, reducing yields and making farming more costly.

This chapter provides an overview of the agriculture sub-sector in the country. Amongst provinces in the country, KwaZulu-Natal makes the largest contribution to the total agriculture sub-sector. Research shows that maize is the most widely grown crop in the country. In the past ten years, the share of economic contribution made by the agriculture sub-sector has been gradually declining and the same also applies to its employment levels. Analysis on the linkages between agriculture and agro-processing will also be provided. The remainder of the chapter discusses agriculture in the province. The economic contribution made by this sub-sector in the province is the smallest and it has declined from 0.9 percent in 2002 to 0.4 percent in 2011. The challenges and opportunities of the sub-sector are discussed.

3.2 Overview of Agriculture

Change in the agriculture market is fuelled mainly by three factors, increased protein demand resulting from rising incomes, demand for grain by China and biofuels. A characteristic of agricultural commodities is volatility in their price structure. The typically stable trend of demand, combined with inelastic yet volatile supply, means that prices alter considerably depending on supply conditions.

Box 3.1: Inelastic Supply The supply of a good or service is inelastic if a given percentage increase in the price at which it can be sold produces a smaller percentage

increase in the quantity supplied. Supply is inelastic if a price increase causes little increase in output by existing firms and little entry into an

industry by new firms.

For example, it is possible to grow tomatoes all year round. To grow tomatoes in winter will however require tunnels, glasshouses, heating and

supplementary lighting to compensate for the shorter days and longer nights. This can be done at considerable costs but tomatoes will not be

priced accordingly.

Source: The Oxford Dictionary of Economics, Oxford University Press. 2009.

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Supply growth has been relatively constant over the last five years, as much of the land suitable for farming is already being used. Governments in various countries have responded to rising food prices by introducing price controls, increased subsidies, reduced import barriers, and restrictions on exports designed to benefit consumers. There has been an increased vigilance by all WTO members, as protectionism remains a stubborn feature due to high levels of unemployment in many countries. Other reasons for protectionism include persistent global imbalances, macro-economic concerns, commodity price fluctuation, sovereign debt problems and geo-political tension.

Box 3.2: WTO The WTO is a place where member governments try to sort out the trade problems they face with each other. It operates a system of trade rules.

Functions of the organisation include administering WTO trade agreements, being a forum for trade negotiations, handling trade disputes,

monitoring national trade disputes policies, providing technical assistance as well as training to developing countries and cooperating with

other international organisations. As of the 22nd of August 2012, the organisation had 156 members.

Source: http://www.wto.org/english/thewto_e/whatis_e/what_we_do_e.htm

3.3 Agriculture in South Africa

In South Africa, the dualistic agricultural economy is a common feature that comprises a well-developed commercial sector and a poorly developed and also predominantly subsistence-oriented rural sector. The agriculture sub-sector contributes about 2.6 percent to the GDP and approximately 6 percent to formal employment. However, this contribution largely depends on a number of factors that include the availability, access and proper use of technology, human capital and functional markets.

Agriculture is one of the economic sub-sectors that have been targeted in the New Growth Path (NGP) as a growth focal point, specifically due to its potential for job creation and poverty alleviation. For households in agricultural smallholder schemes, the target for 2020 is the creation of 300,000 opportunities and the creation of 145,000 jobs in agro-processing. There is also the potential to upgrade conditions for 660,000 farm workers.

Box 3.3: NGP Following the challenge of high unemployment in the country, the then Minister of Economic Development, the Honourable Ebrahim

Patel released the NGP framework in November 2010. It is a strategy aimed at enhancing growth, employment creation and equity.

The strategy’s principal target is to create five million jobs over the next ten years.

Agriculture, mining, manufacturing and tourism & services have been identified as the most labour-intensive economic sub-sectors,

which would be targeted for increased job creation.

Source: http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=14787&tid=24857

The Department of Agriculture, Forestry and Fisheries (DAFF) defines farming as all activities related to agricultural input provision, farming and the processing and distribution activities that add value to farm products. The agriculture sub-sector addresses the basic human need for food. According to the DAFF, agriculture is an important engine for growth in all sectors in the economy. This is due to its forward and backward linkages. Purchases of goods such as fertilisers, chemicals and implements form backward linkages with the manufacturing sector, while forward linkages are established through the supply of raw agricultural materials for production processes within the manufacturing sector.

3.3.1 Sectoral AnalysisThe agriculture sub-sector is composed of animal production, field crops, horticulture and floriculture.37 It is further subdivided into hunting, forestry and logging, fishing and operation of fish farms. The performance of this sub-sector has a pivotal role in the determination of food security, employment and overall performance of the manufacturing sector. Although the contribution of the sub-sector to GDP has declined steeply over the years, it nevertheless has a strong impact on the growth and development of the economy.38

37 Horticulture is defined as that branch of agriculture concerned with intensively cultivating plants that are used by people for food, for medicinal purposes, and for aesthetic gratification. Floriculture is that branch of horticulture dealing with

the production of field-grown or greenhouse-grown plants for their flowers or showy leaves. Definitions sourced from http://www.ams.usda.gov/AMSv1.0/getfile?dDocName=STELPRDC508211338 Information sourced from The South African Food Cost Review.2010. See http://www.namc.co.za/dnn/LinkClick.aspx?fileticket=aP_9NUu6jjI%3D&tabid=73&mid=637

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The agriculture sub-sector not only has an important direct impact on the growth of the economy, but because of forward and backward linkages with other sectors, it also affects the economy indirectly. In South Africa, agriculture consists largely of cattle and sheep farming, with 13 percent of land being used for growing crops. Maize is the most widely grown crop, followed by wheat, oats, sugarcane and sunflowers (DAFF, 2010).

South Africa remains a net exporter of agricultural products in terms of both volume and value. The major export products include citrus fruits, grapes, apples & pears and maize. In 2011, citrus fruits were the main earner of foreign income, with an estimated export value of R7.1 billion, followed by maizegarpes at R6.1 billion. In 2011, according to data from Quantec Research, the Netherlands, UK and Mexico remained the largest export destinations accounting for R4.4 billion, R2.9 billion and R2.8 billion respectively. These countries collectively accounted for 32.4 percent of total export revenue received from agricultural products. The 10 most important agricultural products which contributed a considerable amount to the total agricultural export value include preserved foods, cereals, edible fruit & nuts, beverages, sugars, milling products, malt & starch, fats & oils, vegetables, fish & seafood and miscellaneous grain & seed. The value of agricultural exports was R31.2 billion in 2011.

There is a backward linkage with the machinery, petroleum and chemical industries through the continuous purchase of capital and production inputs. These industries depend almost exclusively on sales to and from farmers. If production in the agriculture sub-sector declines because of natural disasters like droughts and floods, the activities of these industries are inevitably affected.

3.3.2. Economic ContributionIn monetary terms, the share of agriculture in the economy of the country has long been outstripped by the secondary and tertiary sub-sectors. According to Stats SA, agriculture accounts for less than 3 percent of GDP. In contrast, there has been a sharp increase in the contribution of finance & business services to GDP, which grew by an annual average rate of 5.5 percent between 2002 and 2011. Most studies conducted have shown that it is a global phenomenon that as a country develops, a shift occurs from primary industries such as mining and agriculture to an economy dominated by secondary and tertiary industries. A healthy development in an economy is one in which the relative decline in the contribution of a sub-sector to the GDP, is coupled with an increase in output, even if it will still be outpaced by much higher growth in other sub-sectors.39

Agriculture remains a vital sub-sector in the economy through the provision of employment, foreign exchange and raw materials.

As indicated in the Table 1.8 of Chapter 1, agriculture contributed 2.6 percent to the national economy in 2011. This was the lowest contribution compared to that of other economic sub-sectors. Electricity had the second smallest contribution at 3 percent. Government, personal & social services had the largest economic contribution at 22.6 percent.

Figure 3.1: Contribution share of agriculture to gDP, 2002-2011


39 Information was sourced from Department of Agriculture, Forestry and Fishing. 2010. Quarterly Economic Overview of the Agricultural Sector, 4th Quarter 2009.

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Figure 3.1 shows the contribution of agriculture to the GDP of the country from 2002 to 2011. On a ten-year average, the contribution towards GDP is 3 percent. In 2002, agriculture was contributing around 4.2 percent, while in 2011 it contributed 2.6 percent. This is a decrease of 1.6 percentage points and shows that the contribution has been declining. This is due to increases in the other sub-sectors such as the services sub-sector, as mentioned earlier.

3.3.3. Employment in AgricultureThe agriculture sub-sector has traditionally been a large employer in the economy. However, as the sub-sector becomes more modernised and capital intensive, more labour is released to other sectors of the economy. During 1990, the sector absorbed about 10 percent of the labour force; however, currently it absorbs less than 3 percent of the total labour force (DAFF, 2010).

Figure 3.2: agricultural Employment, 2002-2011


Figure 3.2 shows that the trend in agricultural employment in the country is moving downwards as indicated by the black trend line. In 2002, there were 934,015 people employed in agriculture. In 2003, employment started to decline until it reached 767,221 in 2006. It then rose once again, until 2008, before it started declining. When comparison is made between 2002 and 2011, there has been a 22.3 percentage point decrease in agricultural employment.

According to Stats SA, data pertaining to the number of informal employees in the country’s broad economic sectors is rarely available. Nevertheless, informal employment accounts for about 47.8 percent of total employment in the agriculture sub-sector.

3.3.4. Employment in Agro-processingAgriculture stimulates growth in employment via its agro-processing industry and also in rural communities. The industrialisation of agriculture and the development of the agro-processing industry is a joint process, which is generating an entirely new type of industrial sector.40

40 Information was sourced from the GDARD Economic Review, 2010.

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Box 3.4: Agro-processingAgro-processing is that part of manufacturing that transforms agricultural produce into a different physical or chemical state. The term

agro encompasses a wide range of food and non-food agricultural products. It is also quite often referred to as value adding.

According to the Standard Industrial Classification (SIC), agro-processing encompasses the following sub-sectors: food, beverages,

tobacco, leather & leather products, textiles, wood & wood products and paper & paper products

Source: http://www.northern-cape.gov.za/oldsite/ncpgds/agric/agriculture.pdf

In 2011, employment by agro-processing contributed 2.1 percent to the total employment of the South African economy. The food industry accounts for most jobs within agro-processing. Figure 3.3 shows that, on average, employment in agro-processing improved from 2002 to 2011.

Figure 3.3: Employment in agro-processing, 2002-2011


In 2002, there were about 178,920 people employed in agro-processing. In 2011, the number had increased to 267,754. Although there was an overall increase in employment in agro-processing of 88,834 workers over the period, employment in this industry has been at its lowest levels between 2002 and 2006. This was due to the restructuring of the industry in response to greater competitive pressures associated with lower tariffs and a freer trade regime, which resulted in rapid increases in cheaper imports that significantly affected several agro-processing sub-sectors.41

41 This is according to the ASGISA and Economic Growth: Implications for skills development in Agro-processing report. See https://www.labour.gov.za/downloads/documents/research-documents/asgisa_economicgrowth.pdf

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Figure 3.4: Contribution of agro-processing towards manufacturing Employment, 2002-2011


Figure 3.4 shows the contribution of agro-processing to employment in the manufacturing sub-sector. While employment in the production of other manufactured goods has fallen due to the global recession, the number of people employed in agro-processing has generally increased between 2002 and 2010. In 2002, about 19 percent of all workers employed in manufacturing were working in agro-processing. After some volatility, this increased to 33 percent in 2010. In 2011, the employment contribution by agro-processing to manufacturing plunged to 19 percent. The reduction in the share of employment could be explained by larger and/or faster employment growth in other manufacturing industries.

3.3.5 Comparison to Other ProvincesWhile the relative importance of the agriculture sub-sector differs across provinces, in terms of contribution towards the economy, it remains a key component of government’s plan to see poverty alleviated in the short- and medium-term. Each province has the responsibility to harness the potential of its agriculture sub-sector to the fullest extent in a bid to secure both commercial and, very specifically, subsistence farming across the country. The figure below illustrates what the different provinces contribute to the total agriculture sub-sector.

Figure 3.5: Contribution of Provinces to agriculture, 2011


Figure 3.5 shows that KwaZulu-Natal, at 27.7 percent leads in terms of contribution towards agriculture in South Africa. It leads because it has a large amount of agricultural land and is the major producer of a high value crop in the country. This province also produces and processes more than 80 percent of sugarcane. The Western Cape makes the second highest contributions to agriculture (21.4 percent) followed by Free State (10.3 percent).

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The Western Cape produces a large amount of grapes, which include table grapes and wine grapes, amongst others. It must be noted that these provinces are not the only producers of the aforementioned products and also produce other crops. For example, the Western Cape produces wheat and also leads in terms of production volumes.

Box 3.5: The Difference between Table and Wine GrapesTable grapes are often bigger, more crispy and crunchy, with much thinner skins and smaller seeds or none at all. They are also selected

to withstand different types of travel and handling.

Wine grapes are much sweeter when ripe, softer and juicier. They also have thicker, chewier skins and seeds that are more prominent.

Wine grapes are much riper when picked and so deteriorate faster.

Source: http://www.northern-cape.gov.za/oldsite/ncpgds/agric/agriculture.pdf

Gauteng is the third smallest role player when it comes to the country’s agricultural activities. It should however be noted that given the geographical location and land size in the province, the 5.8 percent contribution compares fairly well with other provinces.

3.4 Agriculture in Gauteng

Though relatively small in magnitude when compared to other sectors in the province, the agriculture sub-sector plays a vital role when it comes to food security, rural development and skills development. These factors are essential to the achievement of South Africa’s Millennium Development Goals (MDGs), which focus to a large extent on ensuring food security for the poor, fighting hunger and poverty and effectively addressing rural development.

Box 3.6: MDGsThe MDGs come from the United Nations Millennium Declaration signed by 189 countries, including 147 heads of State and governments

in September 2000, and from further agreement by member states at the 2005 World Summit. A total of eight MDGs were identified

and served as an expression of a minimum commitment to the global development agenda. They set minimum standards that must be

achieved by nations of the world towards meeting the developmental needs of their people. In order of priority, the eight MGDs are:

• End poverty and hunger • Maternal health

• Universal access to education • Combat the Human Immunodeficiency Virus/Acquired Immunodeficiency

Syndrome (HIV/AIDS)

• Gender equality • Environmental sustainability

• Child health • Global partnership

3.4.1 Spatial Distribution of AgricultureThe locality of the province and the sophistication of its physical and economic infrastructure have resulted in Gauteng having a large urbanised component that places huge pressure on the remaining available agricultural land. However, four major fresh produce markets, the largest feedlots in the country and millers are situated in the province, and there is a well-developed road infrastructure with easy access to the country’s largest airport. The secondary and tertiary sectors are the largest in the country, contributing to Gauteng’s profile as the economic powerhouse of the country.

Due to its size and high industrialisation, Gauteng falls mainly within the highly intensive, diversified commercial and subsistence agricultural zones, coupled with grain cropping, ranching & dairy, poultry and pig farming. A significant component of the agriculture sub-sector is maize production, while groundnuts, sunflowers, cotton and sorghum are grown in the Bronkhorstspruit, Heidelberg and Cullinan areas. Maize is concentrated in the areas closer to major maize producing provinces in the country. The Free State province, the largest producer of maize in the country, borders Gauteng on the south, closer to the Sedibeng district municipality. North West, the second largest producer of maize, borders Gauteng on the West Rand. Mpumalanga, the third largest producer of maize, borders Gauteng in the east, closer to the former Metsweding district municipality, now incorporated into CoT. This makes Sedibeng, West Rand and CoT the major maize producing areas in the province. Map 1 illustrates the geographical spread of grains and oil seeds production within the Gauteng province.

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map 1: Distribution of grains and Oil seeds, gauteng, 2009

Source: Gauteng Department of Agriculture and Rural Development, 2009

The major agricultural enterprises are geared towards providing the urban areas of the province with fresh farm produce daily. Most agriculture takes place on commercial dry land, although areas of irrigated cultivation occur in the Bapsfontein area, Randfontein and Mogale City, Wonderboom and along the Klip River towards Vereeniging in the south. In the province, agriculture consists largely of livestock (cattle) and maize farming. Maize is the most widely grown crop in the province, making it the fourth largest producer in the country.

3.4.2. Sectoral Economic ContributionIn Gauteng, as mentioned previously, the contribution of agriculture to GDP is minimal, even though a large area of the province falls within the so-called Maize Triangle42. Figure 3.6 shows that the contribution of agriculture to GVA is decreasing.

42 The Gauteng Department of Agriculture and Rural Development (GDARD) launched the Maize Triangle project in October 2010. It is aimed at increasing maize production in Gauteng. One of the GPG priorities for 2009 to 2014 is the revitalisation of the Maize Triangle. The land surface coverage in the province used to produce maize is 105,000ha, making it the most widely produced crop in the province. Information sourced from http://www.info.gov.za/speech/DynamicAction?pageid=461&sid=17787&tid=32035

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Figure 3.6: Contribution of agriculture towards gva, 2002-2011


The ten-year average (2002–2011) of the contribution of agriculture towards GVA is 0.6 percent. During 2002, the contribution of agriculture was 0.9 percent, while in 2011 it decreased to 0.4 percent. This shows the minimal direct contribution of agriculture to the economy of the province. In terms of agriculture industries in Gauteng, the following GVA-R values, as presented in Table 3.1, were recorded.

table 3.1: gva-R Contribution, 2011industry value

Agriculture & hunting R3.1 billion

Forestry & logging R0.5 billion

Fishing & operation of fish farms R0.01 billion


Despite the relatively small contribution of the sub-sector to GVA-R, there is an array of other economic sub-sectors, including manufacturing, that rely on outputs from the agriculture sub-sector during their production processes. The most reliant sub-sectors include:• Meat, fish, fruit, vegetables, oils & fat activities;• Dairy activities;• Grain mill, bakery & animal feed products;• Wood & wood products; • Beverages & tobacco products;• Paper & paper products; and • Other food products.

3.4.3 Employment in AgricultureWhile in percentage terms the agriculture sub-sector employs an ever-smaller share of the province’s workers compared to other sectors, that share still translates into tens of thousands of jobs. The sub-sector’s contribution to employment is even more significant when it is considered that employment in agro-processing is on the rise.

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Figure 3.7: agricultural Employment, 2002-2011


Figure 3.7 shows that, in general, agricultural employment in Gauteng is moving downwards, except for 2010 when it started to increase. This is a similar trend to that followed by the national figure. In 2002, there were 50,252 employment opportunities in Gauteng, and then there was a decline until it reached 37,500 in 2006, which is about a 24 percent decrease. Employment improved in 2007 and declined again in 2008 until 2010, when it reached 34,624. When comparing 2002 with 2010, there was a 31 percent decrease in agricultural employment. However, in 2011 there was a slight increase of an additional 8,126 in employment over the previous year.

3.4.4. Employment in Agro-processing Figure 3.8 shows the contribution of agro-processing towards employment. The figure shows that value adding in agriculture employs more and more people.

Figure 3.8: Employment in agro-Processing, 2002-2011


The overall trend in the figure shows that there was improvement in employment in agro-processing. In 2002, there were about 62,912 employment opportunities. During 2011, there were about 86,768 employment opportunities. Between 2002 and 2011, employment in the agro-processing industry of Gauteng grew by an annual average growth of 4.2 percent.

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Figure 3.9: Employment Contribution of agro-processing towards manufacturing, 2002-2011


Figure 3.9 shows the contribution of agro-processing in Gauteng towards employment in manufacturing. From 2002 to 2011, on average, the contribution of agro-processing has been increasing. In 2002, the contribution was 11.7 percent, while in 2011 it increased to 15.7 percent, which shows a 4 percentage point improvement in agro-processing’s share of manufacturing’s employment.

3.5 Challenges and Opportunities in Agriculture

3.5.1 ChallengesThe Gauteng province is predominantly urban and faces major challenges of protecting the high potential agricultural lands from the results of urban sprawl. Land is a severely limited factor and the amount available has to be shared between varieties of competing interests.43 Some of the competing interests may well be considered to yield higher economic returns per unit of investment, and in so doing give agriculture stiff competition.

There is low investor confidence in agriculture. The weak investor confidence is caused by the low returns as well as the definitive and hard-core economic and social impact on investment and production. These are caused by phenomena such as farm murders, evictions, illegal occupations and policy issues, particularly Land Claims.

Box 3.7: Land ClaimsThe South African Constitution gave people and communities who had been dispossessed of land after the 19th of June 1913 as a

result of racially discriminatory laws or practices, the right to restitution of that property or to fair compensation. People who had been

dispossessed of their land had until December 1998 to lodge a claim for restoration with a Land Claims Commission. It was recorded

that an estimated total of 67,531 claims were lodged before the deadline.

Source: http://www.westerncape.gov.za/eng/directories/services/11524/21513

There are a number of challenges facing agriculture, especially for emerging farmers trying to enter the commercial industry. These challenges include high operational costs, geographic location, weak lobby groups and lack of adequate capital investment, production, managerial experience & skill, access to markets and technical and financial support. These challenges make it almost impossible for small farmers to enter into agricultural production on a commercial basis. According to the Agricultural Business Chamber (ABC), there are also a number of factors that hamper the wider industry.

43 Competing interests for the use of land include commercial, industrial and residential property developments instead of agricultural usage.

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Box 3.8: The ABCThe ABC is a voluntary, dynamic and influential association of agribusinesses operating in South and southern Africa. Its function is to

ensure that agribusiness plays a constructive role in the country’s economic growth, development and transformation, and to create an

environment in which agribusinesses of all sizes and in all sectors can thrive, expand and be competitive. Activities of the chamber are

directed at addressing the collective interests of its members and adding value to their businesses.

Source: http://www.agbiz.co.za/AboutUs/History/tabid/454/Default.aspx

Factors that hinder the development of agriculture include fluctuations in the interest rate, more attractive returns on alternative use of funds, poor sales outlook, unstable exchange rates, labour regulations and uncertainty over future labour relations. Furthermore, added to these are the inability to penetrate export markets, increasing competition in the country’s markets, high income tax rates and inadequate public infrastructure, amongst others.

3.5.2 OpportunitiesAlthough there are challenges in the agriculture sub-sector, opportunities also exist for farmers. South Africa continues to import major products like wheat, vegetables oils and poultry. These products can be produced locally. There is still under-utilised land that can be used to increase agricultural production. Huge opportunities also exist for banks to get involved in the transformation of the country’s agricultural sector by providing finance to smallholder farmers and farm workers. Various institutions, like the National Department of Agriculture (NDA) can also offer advice to established farmers seeking Broad Based Black Economic Empowerment (BBBEE) partners.

Furthermore, in order to maximise gains from production, value-adding activities present new opportunities for the farming community. Farmers can process oil, maize meal and feeds as well as packaging and selling products to the market at prime prices.

In connection with forestry, there are about 530,000 hectares of indigenous or natural forest in the country, which occur mainly along the southern and eastern escarpment, the coastal belt and in sheltered kloofs or ravines. There has been an increase in the use of natural forest as a source of medicine, building material, fuel wood and food. According to DAFF, it is estimated that around 80 percent of the population of South Africa still uses medicinal plants, many of which are sourced from natural habitats.

3.6 Development Programmes for Farmers

The GDARD has developed several programmes to address the issues of job creation, economic growth, and food security, amongst others. The programmes are in line with the clause of the Freedom Charter that states, “The State shall help the peasants with seeds, tractors and dams, to save the soil and to assist the tillers”.44 The Freedom Charter stated the core principles of the South African Congress Alliance that consisted of the African National Congress (ANC) and its allies. It is characterised by its opening demand, “The People Shall Govern”. The Freedom Charter represents ANC policies, and spells out the kind of society that was envisaged to replace apartheid. It included ideals such as sharing the wealth of the country and adequate housing, education, and healthcare for all.

The following are the GDARD programmes: • Comprehensive Agricultural Support Programme (CASP);• Land Care Programme;• Micro Agricultural Finance Institution of South Africa (MAFISA);• Land Reform;• Household Food Security Programme (HHFSP);• Development of Flower Agri-Parks within Agriculture Hubs;• Agricultural Cooperative Development Programme;• Agricultural Farm Mechanisation Programme; and• Infrastructure Development.

44 Information sourced from http://www.anc.org.za/docs.php?t=Freedom%20Charter

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3.6.1 CASPThe aim of this programme is to provide post-settlement support for the targeted beneficiaries of land reform and to other producers who have acquired land through private means. The programme benefits subsistence and household food producers, emerging farmers and agricultural macro-systems within the consumer environment.

3.6.2 Land Care ProgrammeThe Land Care Programme is a community-based and government supported approach to the sustainable management and use of natural agricultural resources. The goal of the Land Care Programme is to develop and implement integrated approaches to natural resource management in South Africa. These approaches need to be efficient, sustainable, equitable, and consistent with the principles of ecologically sustainable development. The objectives of the programme include promotion of partnerships between communities, the private sector and government in the management of natural resources and establishment of institutional arrangements. This is in order to develop and implement policies, programmes and practices that will encourage the sustainable use of natural resources.

3.6.3 MAFISA The MAFISA programme was established in 2004 to facilitate the provision of equitable and large-scale access to financial services for the farming community. This was aimed specifically at economically active rural poor communities on an affordable, diversified and sustainable basis. The main intention of MAFISA is to provide capital in order to increase support for economic activities in the sector. Support is increased throughout the value chain with particular focus on communal land areas and other small-scale producers as well as the related value addition activities. MAFISA provides short- to medium-term production loans, savings mobilisation and capacity building for member-based financial institutions to enhance agriculture, forestry and fisheries activities.

3.6.4 Land ReformLand reform includes three distinct components, namely the restitution, tenure and redistribution programmes. According to the National Department of Agriculture,45 over the 2012/13 to 2014/15 Medium Term Expenditure Framework (MTEF), the objectives of the land and agrarian reform project are to:• increase the number of Black entrepreneurs in the agribusiness industry by 10 percent; • provide universal access to agricultural support services for emerging Black farmers; • increase agricultural production by emerging Black farmers by 10 percent under the Ilima/Letsema campaign;

and • to increase agricultural trade by previously disadvantaged people by 10 to 15 percent.

The slow process of land reform and the land restitution claims that remain unsettled, creates uncertainty regarding farm investment. Lack of skills, inputs and markets has resulted in farm projects, which were otherwise sustainable and economically viable, failing due to lack of adequate support.46

3.6.5 HHFSP This is an intergovernmental project between the National Department of Agriculture, Provincial Department of Agriculture, Department of Health and Social Development and municipalities. The project is aimed at providing interim relief measures to households and beneficiaries severely affected by food insecurity and the price escalation of basic food items by providing agricultural input and equipment for own food production. The programme provides agricultural input and equipment to the existing food security campaign and Special Programme for Food Security Projects (SPFS). It also encourages household food production through improvement of crop intensification, diversification and adoption of simple and affordable technologies. The programme also promotes home backyard mixed farming47

and, where appropriate, school gardens and urban agriculture, using sustainable technologies and encouraging the sustainable utilisation of unused or underutilised resources.

3.6.6 Development of Flower Agri-Parks within Agriculture Hubs The project entails the provision of planting inputs and structures to Gauteng farmers who are farming within the identified hubs. The range of activities within the identified agriculture hubs will include, amongst others, provision of shade-net structures, plastic tunnels, assistance with inputs, training and development of co-operatives and building of marketing infrastructure through the agro-processing strategy. The outcomes of the Flower Agri-Parks are skills development in flower production and making marketing opportunities accessible to flower producers.

45 Information sourced from http://www.nda.agric.za/doaDev/topMenu/DoAProgrammes/LARP_25Feb08.pdf 46 This information is according to the DAFF report, 2009. 47 Backyard mixed farming includes growing crops and feed and keeping livestock on the same farm/plot/yard.

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Box 3.9: Agriculture HubsGDARD, together with other government institutions, agricultural communities and agri-industries, have developed the Agriculture

Hubs programme, which demarcates High Potential Agricultural Land (HPAL) into nodes for effective resource protection and holistic

management. The programme is commercially focused, with a spatial plan for present and future agriculture development in Gauteng.

The main goal of agriculture hubs is to ensure judicious use of natural resources that will preserve, protect and enhance economically

viable agriculture in the province, particularly on the HPAL.

3.6.7 Agricultural Cooperatives Development ProgrammeThe purpose of this project is to conduct needs assessments of both stakeholders and beneficiaries in order to ascertain the resources required for the successful implementation of the Gauteng Agricultural Cooperatives Support Programme. The main reason is to provide institutional and production support to agricultural cooperatives and commodity groups in Gauteng. It is also intended to facilitate access to finance, markets and Agricultural Economic Empowerment (Agri-BBBEE) deals for agricultural cooperatives and commodity groups through networks in the private and public sector.

3.6.8 Agricultural Farm Mechanisation ProgrammeIn an attempt to unlock the untapped agricultural potential in the province, GDARD has developed this mechanisation policy to complement other government initiatives that seek to advance the farming sector. Gauteng is lagging behind other provinces in terms of mechanisation. The Gauteng Mechanisation Programme covers ploughing, disking, harrowing, planting and chemical spraying for both household food security beneficiaries and emerging farmers under the Farmer Settlement and Support banner. Without proper mechanisation, the development of the Agriculture Hubs into competitive agricultural zones will be elusive and farmers will be compelled to change land use from agriculture to other lucrative uses.

3.6.9 Infrastructure Development This includes on and off farm infrastructure and agro-processing. GDARD provides agricultural infrastructure to land and agrarian reform initiatives to increase production capabilities at farm level and throughout the agricultural value chain. This will enhance mainstream participation throughout the value chain enhancing incomes and creating sustainable job opportunities throughout the value chain. The backward and forward linkages of agribusinesses within the value chain will enhance the provincial agricultural contribution towards the GDP of the country as a whole.

3.7 Conclusion

The contribution of agriculture towards GDP is still minimal, both in South Africa and Gauteng. In the country, it contributes about 3 percent towards the GDP, while in Gauteng agriculture contributes only 0.4 percent towards the GVA-R. This might be due to more focus on the service sector and community service in the province. However, the importance of agriculture towards the economy of South Africa and Gauteng cannot be ignored. It serves as a source of energy for human beings by providing food. It also serves as a source of income for many.

Agriculture provides many job opportunities, although the contribution is declining due to use of technology which is not labour-intensive and has replaced many labourers in the sector. It serves as a supply of raw material to manufacturing in the form of agro-processing. Agro-processing has experienced positive developments since 2002, as more jobs have been created, whilst there was a general decline in employment within agriculture. Therefore, agro-processing is one of the industries that have the potential to create jobs. However, it must be noted that it depends on the primary production of agriculture. Agriculture is still one of the sectors that needs more support as it has strong backward (purchase of fertilizers, diesel, machinery, etc.) and forward (agro-processing) linkages.

Decisions to invest in the agriculture and agro-processing sectors must be viewed as being on a knife-edge. If investment does not increase, the current declining trend in agriculture could continue. A range of recommendations and policy options are required to activate investment drivers, to address constraints, and to achieve growth.

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Chapter 4: Labour Market

CHaPtER 4: Labour Overview4.1 Introduction

The labour market constitutes the relationship that exists between workers, employers and work organisations. This market includes those who are employed, not employed and the not economically active population. Much of the discussion to follow will focus on the unemployed in order to determine the extent to which Gauteng is faced by this challenge. The higher the number of the employed, the better off citizens are in general and the less reliance there will be on government grants. Potentially, this will result in a better life for all and improved economic performance. The state of the labour market in South Africa will be benchmarked against markets in developed countries. The position of the country’s labour market will be outlined and compared to other emerging economies. The government initiatives towards addressing the challenge of unemployment are briefly explored, and the economic sectors that contribute the most to employment are examined. Much of the analysis will look at employment generated by both the formal and informal sectors in the different economic sub-sectors shown. Since the youth are the ones mostly challenged by limited participation in the economy, the chapter briefly outlines several reasons for this problem.

The labour market dynamics of the country with emphasis on Gauteng are also analysed. Compared to a few selected countries, South Africa has a high unemployment rate, with China having one of the lowest rates. From the economic downturn of 2008 to the second quarter of 2012, the trend in the unemployment rate has increased for both the country and the province. Gauteng has shown signs of jobless growth since the economy grew faster than employment, which resulted in sustained high unemployment. From the second quarter of 2009 to the second quarter of 2012, the unemployment rate in Gauteng has remained higher than the average of the country. In general, high unemployment is particularly prevalent amongst the youth.

4.2 Global Labour Review

This section examines global employment and unemployment trends and compares the unemployment in South Africa to that of several other countries. Labour statistics of several countries are examined and a group of WEO unemployment rates are compared.

4.2.1 Labour Statistics of Selected CountriesChina is one of the original members of BRICS. In 2010, it had an economically active population of 783.9 million. Of these economically active people, 761.1 million were employed and 9.1 million were registered as unemployed.48 In the same year, the primary sector in that country contributed 36.7 percent of employment, the secondary and tertiary sectors employed 28.7 percent and 34.6 percent respectively. Urban employed made up 347 million of the employed population in China while rural employed accounted for 414 million.

The economically active population of Russia, another BRICS member, was 75.4 million in 2010 and the total number of employed persons was 69.8 million. There were 5.6 million unemployed persons, of which 28.2 percent were registered at state establishments of employment service. The unemployment rate in Russia in 2010 was 7.5 percent.

According to the Bureau of Labour Statistics (BLS), 71.9 million people were employed in the USA in 2010 and 6.2 million were unemployed. The BLS also releases monthly Current Employment Statistics Highlights49 ; the April 2012 edition points to a recovery in the USA employment levels since the recession. The total non-farm employment of the country was approximately 5 million workers lower in April 2012 than the peak of 138 million enjoyed in February 2008. However, this was still an improvement of nearly 4 million workers above the February 2010 low point. The industries that enjoyed the most employment growth in the USA during the 26 months from February 2010 to April 2012 were professional & business services, education & health services and leisure & hospitality. Despite general employment growth, the USA government shed just over half a million jobs over the same period.

48 Data used for China and Russia in this section was accessed at www.ilo.org 49 See www.bls.gov/web/empsit/ceshighlights.pdf

50


Figure 4.1: unemployment Rate, selected Countries, 2002-2014


Figure 4.1 shows the unemployment rates of several countries for the years 2002 to 2010, with estimates for 2011 and forecasts from 2012 to 2014. South Africa and Greece are on a different axis than the other countries because their unemployment rates are much higher than the rest. Greece has been included due to its prominence in recent reports regarding the crisis in the Euro-area, China and Brazil are fellow members of BRICS with South Africa. The UK and the USA are major advanced economies.

The unemployment rate in Greece was comparatively low, starting the period at 10.3 percent in 2002. It then fell even lower, until it was struck by the global financial crisis. The unemployment rate increased quickly thereafter, receiving additional upward pressure from the recent sovereign debt crisis. It reached an estimated 17.3 percent in 2011. The unemployment rate is forecast to begin receding in 2014; possibly, because the IMF expects that by then the government in Greece and the European Central Bank will have the Greek economy back under control. The unemployment rate in China has remained consistently close to 4 percent, even though it increased in 2009 to 4.3 percent, as the world entered recession. The increase was only temporary as it returned to 4 percent in 2010. The unemployment rate for the USA rose from 4.6 percent in 2007 to 9.6 percent in 2010. It is forecast to fall again, reaching 7.5 percent in 2014.

The unemployment rate in the UK was less acutely influenced by the recession; it grew from 5.4 percent in 2006 to an estimated 8 percent in 2011. The UK is, however, forecast to continue experiencing rising unemployment until it reaches a peak of 8.3 percent in 2012. This would mean that its unemployment could be higher than that of the USA for the first time since 2008; and it is expected to remain so for the rest of the period. The forecast of improving figures for the USA may show that the IMF has some level of confidence in the current reinvention of that economy as mentioned in Chapter 1. The unemployment rate in South Africa started the period at 30.4 percent. While it has never returned to that level, the country has remained with the highest unemployment rate of the selected countries for the entire period under review. Unemployment for the country was falling before the recession and had reached 22.2 percent in 2007. The recession, however, cost many South Africans their jobs and unemployment rose to 24.9 percent in 2010. Unemployment has since marginally declined in 2011, to reach 24.5 percent, and is forecast to continue in that manner to reach 23.3 percent by 2014.50

4.3 National Labour Review

Unemployment is a significant challenge for South Africa. While limited recovery has been made since the recession, unemployment decreased in the second quarter of 2012. Over the long term, government aims to grow the economy so that all South Africans who wish to work can find employment. However, it may take some time before the goal of employment for all can be attained.

50 These estimates for South Africa were sourced from the IMF, the Stats SA figures are presented and analysed later in the chapter. The data from the two institutions is similar.

51


This section looks at different labour market indicators such as employment, sectoral shares of employment and unemployment, with special attention given to youth unemployment. The section also considers government employment-creation plans.

table 4.1: key Labour market indicators, sa, 2011Q2 and 2012 (Q1 & Q2)

2011Q2 (‘000) 2012Q1 (‘000) 2012Q2 (‘000)q-o-q

% changey-o-y

% change

Population, 15–64 years 32,435 32,786 32,903 0.4% 1.4%Labour force 17,663 17,948 17,916 -0.2% 1.4%Employed 13,125 13,422 13,447 0.2% 2.5%Formal sector (non-agricultural) 9,198 9,509 9,571 0.7% 4.1%Informal sector (non-agricultural) 2,213 2,106 2,085 -1.0% -5.8%Agriculture 598 656 638 -2.7% 6.7%Private households 1,117 1,151 1,153 0.2% 3.2%unemployed 4,538 4,526 4,470 -1.2% -1.5%not economically active 14,772 14,838 14,987 1.0% 1.5%Discouraged work-seekers 2,207 2,335 2,311 -1.0% 4.7%Other 12,566 12,503 12,675 1.4% 0.9%unemployment rate 25.7% 25.2% 24.9% -0.3 -0.8

Source: Stats SA, QLFS, 2012Note: Other includes students, homemakers and the disabled.

Table 4.1 shows several important labour market indicators from the Quarterly Labour Force Survey (QLFS) of Stats SA for the second quarter of 2012. The table compares the second quarter of 2012 to both the first quarter of 2012 and the second quarter of 2011. The working age population of South Africa is comprised of the population between the ages of 15 to 64 years. It has grown by much the same rate as the labour force, at 1.4 percent. The labour force includes those who are employed as well as the unemployed. It therefore includes persons who are part of the working age population but are outside of the Not Economically Active (NEA) category and are actively seeking work. Stats SA defines a person who is not economically active as one that is not working and either not seeking work or not available for work. The NEA includes full-time students, housewives, the disabled who cannot work, retired people and discouraged work-seekers.

The number of persons employed increased year-on-year (y-o-y) in the second quarter of 2012. Employment also increased by 0.2 percent quarter-on-quarter (q-o-q). The increase in employment can be attributed, amongst other reasons, to the Expanded Public Works Programme (EPWP) of the government.

At 9.5 million persons, employment in the formal, non-agricultural sector was 4.1 percent higher in the second quarter of 2012 than the second quarter of 2011; q-o-q employment in this sector also increased. Although not shown in the table, formal employment gains, y-o-y, came almost entirely from the mining & quarrying, finance & business services and government, social & personal services sub-sectors. Informal non-agricultural employment has fallen, both y-o-y and q-o-q, to 2.1 million persons. Job losses in the informal sector, y-o-y, were almost entirely accounted for by the manufacturing, construction, transport & communications and finance & business services sub-sectors. Employment in agriculture fell by 2.7 percent q-o-q; however, it grew y-o-y by 6.7 percent. Unfortunately, employment growth in agriculture is from a comparatively low base and thus even y-o-y, the actual number of additional persons employed is relatively low. Employment by private households grew both y-o-y and q-o-q. While private households employ significantly more people than agriculture does, the growth in employment by households was only 0.2 percent q-o-q and 3.2 percent y-o-y. In this way, the number of additional persons employed was again comparatively small.

From the first quarter of 2012, the number of unemployed persons in the country has decreased by 56,000 persons to 4.4 million in the second quarter. This was a 1.2 percent decrease. The y-o-y decrease was larger, at 1.5 percent. The NEA population has risen by 215,000 people y-o-y, standing at 15 million in the second quarter of 2012. Approximately half of the increase in the NEA can be attributed to the rise in the number of discouraged work-seekers. Discouraged work-seekers increased by 104,000 persons y-o-y, from 2.2 million in the second quarter of 2011 to 2.3 million in the second quarter of 2012.

52


With the number of employed persons increasing and that of the unemployed decreasing, the unemployment rate fell to 24.9 percent in the second quarter of 2012 from 25.2 percent in the first quarter. The unemployment rate refers to the proportion of the labour force that is unemployed. The unemployment rate reported for the country is based on the official narrow definition, which excludes discouraged work-seekers. The broad definition of unemployment includes the discouraged work-seekers.51

4.3.1 EmploymentAccording to Stats SA, employed people are considered to be those aged 15 to 64 years, who in a week do some type of work for at least an hour. South Africa is, however, faced with the problem of having a significant share of its citizens without employment. Approximately 4.5 million persons were looking for work in the second quarter of 2012. From these, 3 million have been without employment for a year and longer. Higher employment is thus needed to support the sustainable economic development of the country.

Figure 4.2: total Employment, 2008Q1-2012Q2

Source: Stats SA, QLFS, 2012

Figure 4.2 shows the total number of people employed in the country from the first quarter of 2008 to the second quarter of 2012. About 13.8 million people were employed in the first quarter of 2008, rising by 277,000 by the fourth quarter of the same year. The recession experienced in the first quarter of 2009 led to a massive decline in jobs, reaching 13.1 million in the third quarter of 2009. Since then, South Africa has been showing signs of recovery, and a return to employment creation has been evident. By the fourth quarter of 2011, approximately half of the jobs that were lost since the first quarter of 2008 were regained. Although the first quarter of 2012 saw a decline when compared to the preceding quarter, employment grew once more in the second quarter.

Although the statistics from Stats SA show what appears to be the start of an upward trend for employment, recent data from Adcorp shows a gloomy outlook. The Adcorp Employment Index (AEI) for August 2012 fell at an annualised rate of 0.23 percent. This follows slow growth of 0.23 in July and prior declines of 2 percent in June and 3.1 percent in May. According to Adcorp, South Africa faces a real prospect of a jobs recession as employment numbers have fallen in three months. A jobs recession is defined by the organisation as six consecutive months of employment declines. The job losses in August were mainly from the formal sector, which had shed 14,382 jobs.

51 All definitions are according to the second Quarterly Labour Force Survey 2012 of Stats SA.

Box 4.1: Discouraged Work-SeekersThese are people in the labour force who have lost hope of finding employment and have not taken any active steps to try to find work

for at least a month. Reasons behind their despondency include the lack of skills for the required job, insufficiency of job availability

in their surrounding areas or that they have been without employment for so long that they have eventually lost all hope of finding

employment.

53


table 4.2: Change in Formal, non-agricultural Employment by sub-sector, 2011Q2 & 2012Q2

sub-sector Change

Mining & quarrying +77,000

Manufacturing -6,000

Electricity, gas & water 7,000

Construction -11,000

Wholesale & retail trade +27,000

Transport & communication +37,000

Finance & business services +56,000

Government, social & personal services +183,000Source: Stats SA QLFS, 2012

Table 4.2 shows the net number of jobs created or lost between the second quarters of 2011 and 2012, in the formal, non-agricultural economy. The share of employment contributed by the tertiary sector is growing. Its sub-sectors enjoyed the highest employment increases between the two quarters. The largest increase in employment was in the government, social & personal services, at 183,000 jobs. The expansion of employment in this sub-sector is probably connected to the increase in government expenditure to combat recession. Finance & business services enjoyed the second largest rise in the number of persons employed, supported by the robust performance of the sector in contributions to GVA, as shown in Table 1.8.

By contrast, both the manufacturing and construction sub-sectors of the secondary sector shed jobs. However, the electricity, gas & water sub-sector experienced growth by 7,000 jobs created. Employment in mining & quarrying increased by 77,000 jobs over the same period; the sub-sector was likely buoyed by commodity prices. The manufacturing sub-sector was hard hit by the recession; it is still reeling from this event and lost 6,000 jobs y-o-y. Employment in construction continues to decline. The major infrastructure projects planned by government are expected to help the sub-sector turn around in the near future. In his State of the Nation Address (SoNA) in February 2012, the President, Honourable Jacob Zuma, announced a massive infrastructure development plan that listed integrated projects that cut across rail, road and hospital construction. The projects cover a range of economic and social infrastructure across all the provinces of South Africa, with poorer regions given more focus. Government has identified 43 key infrastructure programmes around the country, which would cost a total of R3.2 trillion. The rollout of these programmes will create opportunities for the development of related jobs and skills. In addition, over the next three years, approved and budgeted infrastructure plans amount to R845 billion, of which just under R300 billion is in the energy sector and R262 billion in transport and logistics projects. Approximately a quarter of the major projects mentioned are in the building phase. All others are at different stages52 and are due to begin implementation between 2012 and 2020.

Figure 4.3: sectoral share of Employment, 2002 & 2011Figure 4.3: Sectoral Share of Employment, 2002 & 2011

Figure 4.5: Total Unemployment, SA 2008Q1-2012Q2

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52 About 33 percent of these mega-projects are at the concept stage and 29 percent are at the pre-feasibility or feasibility stages. Only 6 percent are at the financing stage; 3.4 percent at detailed design and 6 percent are out on tender. This

information is according to http://www.moneyweb.co.za/mw/view/mw/en/page302588?oid=562844&sn=2009+Detail. Also see http://www.fm.co.za/Article.aspx?id=173062

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Figure 4.3 shows the percentage share of total employment in South Africa, contributed by the various sub-sectors which make up the economy, for the years 2002 and 2011. Table 4.2 shows that employment in the country is dominated by the tertiary sector. This information is also reflected in Figure 4.3 where the tertiary sector industries contribute the most to employment, even more so in 2011 as the economy of the country matures through time. As such, it is not surprising that in 2002 agriculture, forestry & fishing accounted for 9 percent of employment in South Africa but fell to 6 percent by 2011, one of the smallest shares. The share of employment by the manufacturing industry also fell, from 14 percent to 12 percent, because it was one of the industries hardest hit by the global recession. The employment share held by government, social & personal services increased from 20.2 percent in 2002 to 22 percent in 2011. It remained the largest employer in the country. The share contributed by the wholesale & retail trade increased slightly by 0.6 percentage points, at 21.8 percent in 2011, putting it in second place, less than half a percentage point behind government, personal & social services. The finance & business services sub-sector accounts for a large share of GVA for the country and its share of employment has been on the rise. It contributed a 10.4 percent share to employment in 2002 and this increased by 2.7 percentage points to 13.1 percent in 2011. In spite of this increase, the share of employment by the sector is still much lower than its share of GVA, estimated at 21.3 percent in 2011. The sub-sector is more skills-intensive than labour-intensive, with a smaller number of more skilled people each contributing a larger average share of the sub-sector’s production than in other sectors of the economy.

Employment Created through the EPWPThe EPWP is a countrywide government initiative that was established with the aim of alleviating unemployment and poverty. The programme is oriented towards labour-intensive methods and aims to build and maintain infrastructure while also attracting the unemployed into productive work opportunities. The establishment of the EPWP was announced by the former President of South Africa, the Honourable Thabo Mbeki in his SoNA in 2003. The first phase of the EPWP commenced in the 2004/05 financial year. By 2008, the target of one million work opportunities was attained. This was a year ahead of the envisaged plan of creating these jobs by 2009.53

Phase two of the EPWP was launched in April 2009. The goal of the second phase of EPWP is to create 2 million full-time-equivalent jobs with the purpose of contributing to halving unemployment by 2014.

Linked closely to the EPWP is the Community Works Programme (CWP), which was established to contribute to the goals of government in addressing high unemployment and poverty. The CWP is an area-based employment programme offering work in poor communities. The programme is targeted at unemployed women and men within the working age group in these communities. The work done through the programme involves repairing community assets like schools, roads and parks and establishing food gardens. Residents of the particular communities decide on the type of work that is needed, and prioritise accordingly.

By the second quarter of the 2011/12 financial year, the infrastructure industry of the EPWP had created 241,000 work opportunities out of a target of 440,000. These work opportunities were created from 2,800 projects worth R63 billion from all spheres of government. A total of 521,831 work opportunities were created nationally by the end of October 2011 through the EPWP. Job opportunities for more than 80,000 people were also created under the CWP.54

53 This was according http://www.epwp.gov.za/downloads/EPWP_Five_Year_Report.pdf See also http://www.epwp.gov.za/54 This information was sourced from http://www.info.gov.za/events/2012/sona/sona-delivery.html

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Figure 4.4: share of EPWP Work Opportunities, Provinces, 2011/12

Source: Department of Public Works, 2012

Figure 4.4 shows the share of work opportunities created through the EPWP in each province, from April in 2011 to March in 2012. From a total of 829,408 work opportunities created by EPWP during this period, the Eastern Cape and KwaZulu-Natal accounted for 19 percent and 17 percent, respectively. Limpopo and Gauteng accounted for 15 percent and 14 percent shares. The EPWP was projected to create 122,940 job opportunities in total for Gauteng for the 2011/12 financial year.55

Thus, the EPWP created about 97.4 percent of the projected jobs. The provinces with fewer employment opportunities generated were the Free State and the Northern Cape at 45,126 and 38,330 jobs respectively, each accounting for approximately 5 percent of the total.

4.3.2 Unemployment Unemployment is a hindrance for any economy as it deprives citizens of the realisation of the potential they may possess to contribute to the economy. This interferes with the creation of improved living conditions that would otherwise foster growth and overall progress for the country. South Africa, though not yet fully successful, has initiated several projects that demonstrate a drive towards the elimination of unemployment. These include the Jobs Fund and the development of Small Medium and Micro Enterprises (SMME’s).

Figure 4.5: total unemployment, sa 2008Q1-2012Q2

Figure 4.3: Sectoral Share of Employment, 2002 & 2011

Figure 4.5: Total Unemployment, SA 2008Q1-2012Q2

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55 This is according to http://www.did.gpg.gov.za/Publications/Documents/Microsoft%20Word%20-%20MEC%20Budget%20Vote%20Speech-%20DRAFT%208%20July%202011_.pdf

56


Figure 4.5 shows the total number of the unemployed population on a quarterly basis from 2008 to the second quarter of 2012. The review period corresponds to that of total employment, as shown in Figure 4.2. The figure shows that the total number of unemployed people decreased in the last quarter of 2008 when compared to the first quarter of the same year. Due to the recession, the progress made in bringing unemployment down was not sustained, with an even higher figure of people that were without work during 2009 and part of 2010. It was in the last quarter of 2010 when significant recovery from job losses was made, as the total number of the unemployed fell to its lowest level since that of the fourth quarter of 2008. Unemployment rose thereafter reaching the peak of 4.5 million in the second quarter of 2011, before falling again in the last quarter of the same year. The year 2012 has, however, shown signs of job recovery. A trend to be noticed is that in the fourth quarter of every year in the period under review, unemployment levels drop, in some years more significantly than in others. This indicates that more people are employed over the Christmas holiday season. This is due to the rise in economic activity that occurs during the month of December when households increase their spending for the festive season and producers supply this increased demand with increased output. Although the unemployment level of South Africa has declined somewhat, it was still far too high in the second quarter of 2012.

Figure 4.6: unemployment Rate by Province, 2011Q2 and 2012Q2

Source: Stats SA, QLFS 2012

Figure 4.6 shows the unemployment rate in the provinces for the second quarters of 2011 and of 2012. All other provinces except for the Northern Cape, Western Cape and the Free State experienced declines in unemployment rates in the second quarter of 2012, when compared to that of 2011. The unemployment rate for Gauteng decreased from 28.2 percent to 25.4 percent over that period. Although a marginal decline at 2.8 percentage points, the province experienced the largest fall in the unemployment rate when compared to all other provinces. The largest increase in the unemployment rate was in the Free State, at 4.7 percentage points from 28.2 percent to 32.9 percent.

A large share of the unemployed in the country consists of the youth. In the second quarter of 2012, from a total of 4.5 million who were without work, 3.2 million56 were the youth. This makes the youth dominant in the unemployed at approximately 71 percent. In an attempt to address this challenge, the National Youth Policy (NYP) 2009-2014 was introduced. It is a planning tool in South Africa that assists in offering direction on the approach of the country to youth development. The goal of this policy is to harness the hidden potential of the youth. This is enacted by providing opportunities and support where necessary.57

56 For the total number of the youth that is unemployed see http://www.statssa.gov.za/news_archive/press_statements/QLFS_Q2_2012_Press_statement.pdf57 See http://www.thepresidency.gov.za/MediaLib/Downloads/Home/Publications/YouthPublications/NationalYouthPolicyPDF/NYP.pdf

57


Box 4.2: Definitions of the YouthWhen defining the youth, age is used as an indicator for one’s developmental stage and level of independence. The United Nations

defines the youth as those who are between 15 and 24 years of age. However, the youth definition varies from region to region and

there is no universally accepted definition. According to the African Youth Charter by the African Union, youth are those who are

between the ages of 15 to 35 years. This chapter will refer to the youth according to the accepted definition in South Africa. The NYP of

2009-2014, defines the youth as those between the ages of 14 to 35 years of age.

This was according to http://social.un.org.youthyear/docs/UNPY.presentation.pdf. Also see http://www.africa-union.org/root/au/

Documents/Treaties/Text/African_Youth_Charter.pdf

The reasons cited for the high youth unemployment are of a structural nature including the mismatch between the skills of those who seek employment and the types of jobs available. High youth unemployment means that the youth are not acquiring the necessary skills that could positively contribute to driving the economy to greater heights. Employers are therefore reluctant to hire the inexperienced youth as they foresee the risk of decreasing returns to scale58 for their investment in labour.

Figure 4.7: youth Labour Force status, 2012Q2

Source: Stats SA, QLFS 2012

Figure 4.7 shows that a significant share of the youth is not actively seeking employment; this is the youth who are not actively participating in the economy. While 31 percent are employed, about 16.4 percent are without work despite actively seeking employment. Although not indicated in the table, according to the second 2012 QLFS data from Stats SA, 51 percent of the youth in the country have not completed their secondary schooling. Also, only 28 percent have gone through to matriculation and obtained a pass. A very small proportion of the youth have some form of tertiary education. This could explain why the majority of the youth, at 52.5 percent, is not economically active.

4.4 Gauteng Labour Market

The labour market of the province has experienced hardships due to the number of jobs lost during the recession of 2008/09. According to Stats SA, Gauteng recorded the second largest number of job losses at 49,000 (after KwaZulu-Natal at 117,000) between the fourth quarter of 2008 and the first quarter of 2009. Recovery from these job losses has been sluggish. This sub-section looks at the prevailing labour market conditions in the province by analysing employment, unemployment and the not economically active population.

58 Decreasing returns to scale happens when a given proportionate increase in resources yield less increase in production, thus leading to lower production levels. This definition was according to http://glossary.econguru.com/economic-term/

decreasing+returns+to+scale

58


4.4.1 Labour Force Overview

table 4.3: Labour statistics, gauteng, 2011Q2 and 2012 (Q1 & Q2)

2011Q2 (‘000) 2012Q1 (‘000) 2012Q2 (‘000) q-o-q % Change y-o-y % change

Population 15-64 years 7,793 7,873 7,899 0.3% 1.4%

Labour force 5,523 5,596 5,527 -1.2% 0.1%

Employed 3,965 4,140 4,125 -0.4% 4%

Unemployed 1,558 1,456 1,402 -3.7% -10%

Not Economically Active 2,270 2,277 2,372 4.2% 4.5%

Discouraged Work-seekers 231 293 284 -3.1% 23%Rates (%) % Point change

Unemployment 28.2 26 25.4 -0.6% -2.8

Employed/Population Ratio 50.9 52.6 52.2 -0.4% 1.3

Labour Force Participation Rate 70.9 71.1 70 -1.1% -0.9Source: Stats SA, QLFS, 2012

Table 4.3 provides the labour force profile of Gauteng, for the second quarter of 2011 and the same quarter in the year 2012 as well as for the first quarter of 2012. The labour force has increased by 0.1 percent y-o-y. At the same time, the number of unemployed people in the province has reduced by 10 percent. This led to the unemployment rate for the province declining to 25.4 percent in the second quarter of 2012. The labour force participation rate decreased from 70.9 percent in the second quarter of 2011 to 70 percent for the same quarter of 2012. Decreased labour force participation raises public reliance on government grants, thereby depriving government of the opportunity to invest more in the economy of country.

4.4.2 EmploymentA person can be either formally or informally employed, but in both cases they offer services in return for remuneration. Therefore, persons in informal employment consist of all persons in the informal sector, some employees in the formal sector and persons working in private households who are not entitled to basic benefits such as pension or medical aid contributions from their employer, and who do not have a written contract of employment.

Figure 4.8: Formal and informal Employment, 1997-2011


Figure 4.8 shows the number of people in formal and informal employment in the province from 1997 to 2011. The number of people who were employed in the formal sector was the largest over the reviewed period. This number increased from 2.9 million in 1997 to 3.9 million people in 2011. A peak was reached in 2008 at 4 million. This was before the recession, which led to huge job losses. In 2011, informal employment contributed 474,000, a share of only 11 percent to total employment in the province. Between 1997 and 2005, the number of informal employment opportunities increased, and thereafter remained fairly steady.

59


Figure 4.9: Employment growth vs. gDP-R growth, 1997-2011


Figure 4.9 shows the growth rate of the total number of people who were employed against GDP-R from 1997 to 2011. A reasonably moderate positive correlation of 0.57 exists between employment and economic growth in the province. This is considered a moderate correlation because it is between 0.4 and 0.7. A correlation of over 0.7 is considered strong.59 The relationship between employment and economic growth is encouraging, as it indicates that even though the unemployment rate in the province is high, employment growth does somewhat trail economic growth. Thus, one can expect more jobs to be created in the province when economic performance improves. It is safe to say that the economy of Gauteng is on a sustainable job creation growth path. Though a relationship exists between these variables, in some cases, the economy of Gauteng grew faster than the growth in employment. Although there is a relationship, it is not as strong as could be preferred. Economic growth does not always translate into employment growth. The growth experienced by the provincial economy can be described as being partially jobless. Jobless growth happens when unemployment remains high even when the economy is showing signs of growth. This normally happens when a relatively large number of people have lost their jobs and the recovery in new jobs created is not enough to absorb the unemployed.60 Jobless growth is visible despite the comparatively high economic growth rate in Gauteng. This is because the province still faces a significant challenge in long-term unemployment, as shown further on in Figure 4.15. To address the high unemployment rate in the province, much higher economic growth is required in addition to ensuring that this growth is more closely accompanied by higher employment growth.

Figure 4.10 shows the share of employment by broad sectors in Gauteng, for the first quarter of 2011 to the second quarter of 2012.

59 This is according to http://www.bized.co.uk/timeweb/crunching/crunch_relate_expl.htm60 Definition of jobless growth was according to http://www.investopedia.com/articles/economics/10/jobless-growth-economy.asp

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Figure 4.10: Employment by broad sectors, 2011Q1-2012Q2


In the province, significantly large shares of those employed are in the formal sector (non-agricultural), an average of 77 percent. Informal sector employment has the second largest share, though it appears to have been declining in the three consecutive quarters beginning with the third quarter of 2011 to the first quarter of 2012. The second quarter of 2012 saw employment in the sector increasing, reaching 13.2 percent. The share of employment by private households is about 8.8 percent. The smallest share of employed people is found in agriculture. In 2011, the share of employment by agriculture increased from 0.9 percent in the first quarter to 1.6 percent in the fourth quarter. The first quarter of 2012 saw the share of employment in agriculture fall to 1.5 percent, this further slowed down to 0.9 percent in the second quarter. Both the private households and the informal sector experienced an increase q-o-q when compared to the first quarter of 2012.

Figure 4.11: Employment by sector, 2012Q2

Source: Stats SA, QFLS, 2012

Figure 4.11 illustrates the share of employment in Gauteng by economic sub-sector for the second quarter of 2012. The three sub-sectors with the largest shares of employment were government, social & personal services (24 percent), wholesale & retail trade (22 percent) and finance & business services (21 percent). Manufacturing also offers many employment opportunities, currently securing a 16 percent share of total employment. The sub-sector with the lowest share of employment is electricity, gas & water. Of the sub-sectors with high employment shares, government, social & personal services is situated mostly in the CoT, which is the administrative centre of government. The high share held by finance & business services can be attributed to the province being the

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financial capital of Africa; more than 70 foreign banks have their head offices in the province.61 There are several different activities included in the manufacturing sub-sector. These comprise industries that supply appliances and electrical machinery, basic iron & steel, chemical products, fabricated & metal products, food, machinery, motor vehicle parts and others. Employment in the wholesale & retail sub-sector grew due the expansion of the retail industry which sees more shopping centres being built in the province.

4.4.3 UnemploymentThis section compares the unemployment rate of the province against that of the country. The duration of unemployment is also assessed with the unemployment rate of the province compared to those of its municipalities. Insight is also provided into the profile of the unemployed.

Figure 4.12: unemployment Rates, gauteng & sa, 2008Q1-2012Q2


Figure 4.12 compares the unemployment rate of Gauteng against that of South Africa from the first quarter of 2008 to the second quarter of 2012. The unemployment rate for the province was below that of the country until the second quarter of 2009, thereafter it overtook that of the country and has remained higher. The unemployment rate in Gauteng reached its peak of 28.2 percent in the second quarter of 2011. During this time the unemployment rate for the country was 25.7 percent. The lowest unemployment rate that the province has reached in the review period was 20.7 percent in the fourth quarter of 2008. This was one quarter before the country went into recession, and experienced negative GDP growth, which then grew more severe in the following quarter. At that time, the unemployment rate for the country was 24 percent. Due to the recession, many jobs were lost and this then led to an increase in the unemployment rate of the country and the province. The QLFS reveals that a total of 208,000 people lost their jobs in the country, between the last quarter of 2008 and the first quarter of 2009. Gauteng was one of the provinces that shed numerous jobs. Since then, the province has been struggling to reduce its high unemployment rate. The first quarter of 2012 recorded an unemployment rate for the province as 26 percent. This fell slightly, however, to 25.4 percent in the second quarter of 2012.

In Figure 4.13, the unemployment rates of the metropolitan municipalities are analysed against the average for the province. The metros, though at varying levels, collectively contributed to the goal of achieving low unemployment rates. Data from Stats SA does not disaggregate the district municipality unemployment rates; hence the two districts are not presented in the analysis.

61 This was according to http://www.southafrica.info/business/investing/opportunities/gauteng.htm

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Figure 4.13: unemployment Rates, 2008Q2-2012Q2 Figure 4.13: Unemployment Rates, 2008Q2-2012Q2

Figure 4.15: Unemployment Duration, 2011Q1-2012Q2

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Figure 4.13 shows the unemployment rate from the second quarter of 2008 to that of 2012 for Gauteng and its metros. For the province, the unemployment rate decreased by 2.8 percentage points y-o-y in the second quarter of 2011 to 25.4 percent in the second quarter of 2012. Amongst the metros, Ekurhuleni has consistently from year to year had the highest unemployment rate, above that of the province (at 32.3 percent in the second quarter 2012). For the second quarter of 2008, the unemployment rate in CoJ increased from 22 percent to 26.1 percent, this further increased in the second quarter of 2012, reaching 31.4 percent. Meanwhile, the unemployment rate in CoT increased from 19.6 percent to 24.4 percent. Despite experiencing an increase throughout the review period, the unemployment rate for this metro decreased in the second quarter of 2012 to 20.4 percent.

Figure 4.14: Profile of the unemployed, 2011Q1-2012Q2


Figure 4.14 shows the profile of the unemployed in Gauteng for the first quarter of 2011 to the second quarter of 2012. New entrants to the job market make up a larger share of the unemployed in the province. Their share was 47.9 percent in the first quarter of 2011, and ended at 45.4 percent in the fourth quarter. The share of new entrants decreased by 13.7 percentage points in the second quarter of 2012, this was after an increase to 58.8 percent in the first quarter. Although lower in the second quarter of 2012, job losers make up the second largest share of the unemployed in the province, averaging to 28.7 percent.

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Figure 4.15: unemployment Duration, 2011Q1-2012Q2

Figure 4.13: Unemployment Rates, 2008Q2-2012Q2

Figure 4.15: Unemployment Duration, 2011Q1-2012Q2

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Figure 4.15 shows the number of people in the province who have been unemployed from the first quarter of 2011 to the second quarter of 2012, for both long- and short-term unemployment. People who are considered to have been unemployed in the long-term are those who have been unemployed for one year or longer. Short-term unemployment refers to less than a year of unemployment. During the reviewed period, more than a million of the unemployed people had been unemployed over the long-term whilst about 350,000 people had been unemployed over the short-term. The large number of people who have endured long-term unemployment, despite rising GDP-R, suggests the inability of the economy of Gauteng to match its economic growth with employment. The fourth quarter of 2011 saw long-term unemployment numbers decreasing, but the numbers increased again in the first quarter of 2012. The numbers fell once more in the second quarter of 2012 to reach 1.043 million. Over the review period, long-term unemployment in Gauteng had been experiencing slight variations.

4.4.4 Not Economically Active PopulationThe NEA population are persons who do not have employment but, unlike the unemployed, are not seeking work. Their reasons for not looking for employment vary. In this section, the NEA is broken down according to the different reasons.

Figure 4.16: not Economically active Population, 2011Q2 & 2012Q2 Figure 4.16: Not Economically Active Population, 2011Q2 & 2012Q2

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2011Q2 2012Q2Source: Stats SA, QLFS, 2012

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Figure 4.16 shows that in the second quarter of 2011, students accounted for the largest share (46.6 percent) of the NEA population. During the same period, home-makers accounted for the second largest share, at 17.1 percent, followed by discouraged-work seekers (12 percent). A year later, students still made up the largest share of the NEA in the province at 47.5 percent, a 0.9 percent point increase from 2011. The share accounted for by discouraged work-seekers was reduced by 1.8 percentage point to 10.2 percent.

4.5 Conclusion

Comparison with several selected countries has shown South Africa to have a substantially higher unemployment rate than the major economies. The unemployment rate for the country is forecast to remain at a far higher rate than that of these countries. Within the borders of South Africa, government has initiated various programmes to curb unemployment. The EPWP created jobs in many places around the country over the period from April 2011 to March 2012, particularly in the Eastern Cape and KwaZulu-Natal provinces. Various major planned infrastructure programmes will also contribute to generating more employment opportunities. Over a ten-year period, the tertiary sub-sector of the economy has contributed the most to employment creation.

From the second quarter of 2011 to that of 2012, the number of persons employed in South Africa has been rising and the working age population of the country has also risen. Fortunately, the number of the unemployed decreased, resulting in the unemployment rate falling in the second quarter of 2012, reaching 24.9 percent. This was preceded by an increase in the unemployment rate to 25.2 percent in the first quarter of 2012 from 23.9 percent in the last quarter of 2011, despite an increase in the number of people who were employed. Of those who are unemployed, the youth make up the largest portion at 71 percent. Gauteng is slowly recovering from job losses incurred during the recession in 2008. In the province, both the size of the labour force and the number of employed persons decreased in the second quarter of 2012 when compared to the first quarter of 2012. Unemployment has also decreased, for the same period. While higher economic growth levels are needed to pave the way for employment creation, this is not sufficient on its own. Economic growth in the country has not always been matched by employment creation.

The unemployment rate in Gauteng was below that of the country until the second quarter of 2009, when the recession emerged. The recession led to the unemployment rate of the province overtaking that of the country. This is likely due in part to the fact that the recession harmed the manufacturing sub-sector more than most, as manufacturing is one of the larger employers in Gauteng. Since the second quarter of 2008, Ekurhuleni has had the highest unemployment rate compared to other metropolitan municipalities, reaching 35.2 percent in the second quarter of 2012. The share of new entrants in the labour market accounts for the highest proportion of the unemployed, at 45.1 percent in the second quarter of 2012. The majority of the unemployed, however, have remained without work for longer than a year. Students accounted for the largest share of the NEA. While the country is still suffering from high unemployment, new jobs are being created, but not at a rate that will make a dent in unemployment levels.

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PR307/2010 ISBN: 978-0-621-39724-6

PR302/2012 ISBN: 978-0-621-41361-8

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