Provincial economic review outlook 2012

GAUTENG PROVINCE
PROVINCIAL TREASURY
REPUBLIC OF SOUTH AFRICA
Hotline: 0860 4288364
www.gautengonline.gov.za

Provincial Economic Review and Outlook 2012

GAUTENG PROVINCE
i
Provincial Economic Review
and Outlook 2012
Gauteng Provincial Government
PROVINCIAL TREASURY
REPUBLIC OF SOUTH AFRICA

ii
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 Treasury
Gauteng Provincial Government
Private 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

iii
Mandla Nkomfe
MEC for Finance
FOREWORD
The 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

iv
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.
__________________
Hon. Mandla Nkomfe
MEC: Finance

v
Contents
FOREWORD iii
List of Figures vii
List of Tables ix
List of Abbreviations xi
Executive Summary xiii
CHAPTER 1: Global and National Economic Review and Outlook 1
1.1 Introduction 1
1.2 Global Economic Review and Outlook 1
1.3 South Africa in BRICS 3
1.4 Global Infrastructure Comparisons 4
1.4.1 Comparison to Selected OECD Countries 5
1.4.2 Comparison to SADC and SSA 6
1.4.3 Comparison to BRICS Countries 7
1.5 National Economic Review and Outlook 9
1.5.1 Sectoral Analysis 9
1.5.2 Purchasing Managers’ Index 10
1.5.3 Government Revenue and Expenditure 11
1.5.4 Prices 12
1.5.5 Savings, Investment and Consumption 13
1.6 Conclusion 17
CHAPTER 2: Gauteng Economic Review and Outlook 19
2.1 Introduction 19
2.2 Developments in the Gauteng Economy 19
2.2.1 Economic Sector Performance 21
2.2.2 Opportunities and Challenges 23
2.3 Trade Analysis 24
2.3.1 Trade Position 26
2.4 Saving, Investment and Consumption 28
2.5 Gauteng Infrastructure Overview 31
2.6 Conclusion 33
CHAPTER 3: Economic Overview of the Agricultural Sector 35
3.1 Introduction 35
3.2 Overview of Agriculture 35
3.3 Agriculture in South Africa 36
3.3.1 Sectoral Analysis 36
3.3.2. Economic Contribution 37
3.3.3. Employment in Agriculture 38
3.3.4. Employment in Agro-processing 38
3.3.5 Comparison to Other Provinces 40
3.4 Agriculture in Gauteng 41
3.4.1 Spatial Distribution of Agriculture 41
3.4.2. Sectoral Economic Contribution 42
3.4.3 Employment in Agriculture 43
3.4.4. Employment in Agro-processing 44
3.5 Challenges and Opportunities in Agriculture 45
3.5.1 Challenges 45
3.5.2 Opportunities 46
3.6 Development Programmes for Farmers 46
3.6.1 CASP 47
3.6.2 Land Care Programme 47

vi
3.6.3 MAFISA 47
3.6.4 Land Reform 47
3.6.5 HHFSP 47
3.6.6 Development of Flower Agri-Parks within Agriculture Hubs 47
3.6.7 Agricultural Cooperatives Development Programme 48
3.6.8 Agricultural Farm Mechanisation Programme 48
3.6.9 Infrastructure Development 48
3.7 Conclusion 48
CHAPTER 4: Labour Overview 49
4.1 Introduction 49
4.2 Global Labour Review 49
4.2.1 Labour Statistics of Selected Countries 49
4.3 National Labour Review 50
4.3.1 Employment 52
4.3.2 Unemployment 55
4.4 Gauteng Labour Market 57
4.4.1 Labour Force Overview 58
4.4.2 Employment 58
4.4.3 Unemployment 61
4.4.4 Not Economically Active Population 63
4.5 Conclusion 64

vii
List of Figures
Figure 1.1: Comparative Infrastructure Indicators, SA & SSA, 2011 7
Figure 1.2: Comparative Infrastructure Indicators for BRICS Countries, 2008 8
Figure 1.3: GDP Growth, 2007-2015 9
Figure 1.4: National Tax Revenue, 2002-2011 11
Figure 1.5: Government Surplus/Deficit as a % of GDP, 2002-2011 12
Figure 1.6: Inflation, CPI and PPI, SA & GP, 2002-2011 12
Figure 1.7: Gross National Savings, % of GDP, Selected Countries, 2002-2015 13
Figure 1.8: Total Investment, % of GDP, Selected Countries, 2002-2015 14
Figure 1.9: Household Consumption and Debt as % of Income, 2002-2011 15
Figure 1.10: Household Expenditure by Product, 2009-2011 16
Figure 1.11: Household Disposable Income, 2002-2011 16
Figure 2.1 Provincial Contributions to SA Economy, 2002 & 2011 20
Figure 2.2: GDP-R & Average Growth Rates, Municipalities, 2011 21
Figure 2.3: GVA-R Average Annual Growth by Sub-sector, 2008-2011 22
Figure 2.4: Provincial Contribution to Imports and Exports, 2011 25
Figure 2.5: Share of Imports and Exports, Provinces & SA, 2011 25
Figure 2.6: Share of Total Imports & Exports, 2002-2011 26
Figure 2.7: Import Share by Key Countries, 2010 & 2011 26
Figure 2.8: Export Share by Key Destination, 2010 & 2011 27
Figure 2.9: Balance of Trade Account, 2002-2011 27
Figure 2.10: APS, Gauteng, 2002-2011 28
Figure 2.11: Investment as % of GDP-R, 2002-2011 29
Figure 2.12: Gross Domestic Fixed Investment, Gauteng & SA, 2002-2011 30
Figure 2.13: Consumption Expenditure, 2002-2011 31
Figure 2.14: Nominal Value of Contracts Awarded, Provinces, April 2011-March 2012 32
Figure 3.1: Contribution Share of Agriculture to GDP, 2002-2011 37
Figure 3.2: Agricultural Employment, 2002-2011 38
Figure 3.3: Employment in Agro-processing, 2002-2011 39
Figure 3.4: Contribution of Agro-processing towards Manufacturing Employment, 2002-2011 40
Figure 3.5: Contribution of Provinces to Agriculture, 2011 40
Map 1: Distribution of Grains and Oil Seeds, Gauteng, 2009 42
Figure 3.6: Contribution of Agriculture towards GVA, 2002-2011 43
Figure 3.7: Agricultural Employment, 2002-2011 44
Figure 3.8: Employment in Agro-Processing, 2002-2011 44
Figure 3.9: Employment Contribution of Agro-processing towards Manufacturing, 2002-2011 45
Figure 4.1: Unemployment Rate, Selected Countries, 2002-2014 50
Figure 4.2: Total Employment, 2008Q1-2012Q2 52
Figure 4.3: Sectoral Share of Employment, 2002 & 2011 53
Figure 4.4: Share of EPWP Work Opportunities, Provinces, 2011/12 55
Figure 4.5: Total Unemployment, SA 2008Q1-2012Q2 55
Figure 4.6: Unemployment Rate by Province, 2011Q2 and 2012Q2 56
Figure 4.7: Youth Labour Force Status, 2012Q2 57
Figure 4.8: Formal and Informal Employment, 1997-2011 58
Figure 4.9: Employment Growth vs. GDP-R Growth, 1997-2011 59
Figure 4.10: Employment by Broad Sectors, 2011Q1-2012Q2 60

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

ix
List of Tables
Table 1.1: GDP, Selected Regions, 2011-2014 2
Table 1.2: CPI Inflation, Selected Regions, 2011-2014 2
Table 1.3: Other World Economic Indicators, 2011-2014 3
Table 1.4: GDP, Population and Current Account Balance, BRICS, 2009-2011 3
Table 1.5: Infrastructure Rankings, SA & Selected OECD Countries, 2011-2012 5
Table 1.6: Infrastructure Rankings by SADC Region Countries, 2011-12 6
Table 1.7: BRICS Infrastructure Rankings, 2011-12 7
Table 1.8: Sectoral Contributions to GVA, 2007-2015 9
Table 2.1: GDP-R and Growth Rates, Gauteng & SA, 2007-2015 20
Table 2.2: Sectoral Composition of the Economy, Gauteng, 2007-2015 21
Table 2.3: Sectoral Contribution of GVA-R, Municipalities, Gauteng, 2011 23
Table 2.4: Economic Opportunities by Municipalities 23
Table 3.1: GVA-R Contribution, 2011 43
Table 4.1: Key Labour Market Indicators, SA, 2011Q2 and 2012 (Q1 & Q2) 51
Table 4.2: Change in Formal, Non-agricultural Employment by Sub-sector, 2011Q2 & 2012Q2 53
Table 4.3: Labour Statistics, Gauteng, 2011Q2 and 2012 (Q1 & Q2) 58

x

xi
List of Abbreviations
ABC Agricultural Business Chamber
AEI Adcorp Employment Index
Agri-BBBEE Agricultural Economic Empowerment
ANC African National Congress
APS Average Propensity to Save
ASGISA Accelerated and Shared Growth Initiative for South Africa
BBBEE Broad Based Black Economic Empowerment
BLS Bureau of Labour Statistics
BRIC Brazil, Russia, India and China
BRICS Brazil, Russia, India, China and South Africa
BRT Bus Rapid Transit System
BUSA Business Unity South Africa
CASP Comprehensive Agricultural Support Programme
CPI Consumer Price Index
CoJ City of Johannesburg
CoT City of Tshwane
CWP Community Works Programme
DAFF Department of Agriculture, Forestry and Fisheries
EC Eastern Cape
EPWP Expanded Public Works Programme
FIFA Fédération Internationale de Football Association
FS Free State
GCR Gauteng City-Region
GDARD Gauteng Department of Agriculture and Rural Development
GDFI Gross Domestic Fixed Investment
GDP Gross Domestic Product
GDP-R Gross Domestic Product by Region
GNS Gross National Savings
GP Gauteng
GVA Gross Value Added
GVA-R Gross Value Added by Region
HIV/AIDS Human Immunodeficiency Virus/Acquired Immunodeficiency Syndrome
HHFSP Household Food Security programme
HPAL High Potential Agricultural Land
ICT Information Communication Technology
IDC Industrial Development Corporation
IDP Integrated Development Plan
IMF International Monetary Fund
KZN KwaZulu-Natal
LP Limpopo
MAFISA Micro Agricultural Finance Institution of South Africaa
MDGs Millennium Development Goals
MEC Member of the Executive Council
MP Mpumalanga
MTEF Medium Term Expenditure Framework
NC Northern Cape
NW North West
NCA National Credit Act, No 34 of 2005
NCR National Credit Regulator
NCT National Consumer Tribunal
NDA National Department of Agriculture
NEA Not Economically Active
NGP New Growth Path
NYP National Youth Policy
OECD Organisation for Economic Co-operation and Development

xii
PMI Purchasing Managers’ Index
PPI Producer Price Index
q-o-q quarter-on-quarter
QLFS Quarterly Labour Force Survey
SADC Southern African Development Community
SADCC Southern African Development Coordination Conference
SAICE South African Institution of Civil Engineering
SARB South African Reserve Bank
SIC Standard Industrial Classification
SMME’s Small Medium and Micro Enterprises
SoNA State of the Nation Address
SPFS Special Programme for Food Security Projects
SSA Sub-Saharan Africa
Stats SA Statistics South Africa
UK United Kingdom
US$ United States Dollars
USA United States of America
WC Western Cape
WEF World Economic Forum
WEO World Economic Outlook
WTO World Trade Organisation
y-o-y year-on-year

xiii
Executive Summary
The 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.

xiv
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.

xv
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.

xvi

1
Chapter 1: Global and National Economic Review and Outlook
CHAPTER 1: Global and National Economic Review
and Outlook
1.1 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”.

2
Table 1.1: GDP, Selected Regions, 2011-2014
2011 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, 2012
Note: ■ 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, 2011-2014
2011 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 5.1
Source: WEO, 2012
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.

3
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, 2011-2014
2011 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 -
Source: WEO, 2012
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, 2012
Note: * 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.

4
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.com
5 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.pdf
6 This is according to http://www.civils.org.za/Portals/0/pdf/publications/IRC2011-landscape-1-final-lr.pdf
7 This is according to http://www.dbsa.org/feature/Documents/Section%2001%20Infrastructure.pdf
8 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

5
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 OECD
The 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 Countries
The 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 23
France 4 New Zealand 34
Switzerland 5 Uruguay 49
Netherlands 7 South Africa 62
USA 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.pdf
10 Effective modes of transport included quality roads, railroads, ports, and air transport.
Box 1.2: The Global Competitiveness Report
The 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

Box 1.3: SADC
The 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.
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.
Information according to http://www.sadc.int/index/browse/page/52
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, 2011-12
Stage 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.pdf
12 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/109
13 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.

Total telephone
subscribers (%)
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.
7
Figure 1.1: Comparative Infrastructure Figure 1.1: Comparative InfrastrIuncdticuarteor sI,n ASdic &a tASSors, ,2 S0A11 & SSA, 2011
100%
80%
60%
40%
20%
0%
Access to electricty
(% of population)
Improved water
source (% of
population with
access)
Improved sanitation
facilities (% of
population with
access)
South Africa Sub-Saharan Africa Average
Source: World Bank, Private Participation in Infrastructure, 2012
Figure 2.5: Share of Imports and Exports, Provinces & SA, 2011
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
WC EC NC FS KZN NW GP MP LP SA
Exports Imports
1.4.3 Comparison to BRICS Countries
South 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, 2011-12
Infrastructure 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 to
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:22386904~pagePK:146736~piPK:146830~theSitePK:258644,00.html
15 Information according to http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/SOUTHAFRICAEXTN/0,,contentMDK:22854475~menuPK:50003484~pagePK:2865066~piPK:2865079
~theSitePK:368057,00.html
16 This is according to http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/0,,contentMDK:21951811~pagePK:146736~piPK:146830~theSitePK:258644,00.html
17 This is according to http://www.globalsherpa.org/bric-countries-brics
18 Information according to http://www.helio-international.org/Helio/anglais/reports/africa.html

8
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, 2012
Notes: 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 Definitions
Access 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

9
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, 2012
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 Analysis
South 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, 2007-2015
2007 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%

Box 1.5: NCA
In 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.
10
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’ Index
The 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

11
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 Expenditure
On 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

12
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 Prices
Relatively 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

13
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 Consumption
Savings 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
Source: WEO, 2012
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.

14
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
Source: WEO, 2012
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

15
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.html
28 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

16
Figure 1.10: Household Expenditure by Product, 2009-2011
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

17
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.

18

19
Chapter 2: Gauteng Economic Review and Outlook
CHAPTER 2: Gauteng Economic Review and Outlook
2.1 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.

Provincial economic review outlook 2012

Provincial economic review outlook 2012

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Was ist angesagt?

Was ist angesagt? (18)

Andere mochten auch

Andere mochten auch (15)

Ähnlich wie Provincial economic review outlook 2012

Ähnlich wie Provincial economic review outlook 2012 (20)

Provincial economic review outlook 2012