Gauteng will continue to dominate SA’s economy until 2017

Gauteng’s leadership role as the economic powerhouse of South Africa’s economy will continue with the province contributing nearly 35% to national GDP.

May 14, 2014

Gauteng’s leadership role as the economic powerhouse of South Africa’s economy will continue with the province contributing nearly 35% to national GDP until at least 2017. This will be the case – even though economic challenges could see today’s dominant sectors being surpassed by others when it comes to contributing to future growth, says Standard Bank.

So says Amrei Botha, Head of Business Segment: Business Banking at Standard Bank, when reviewing research undertaken by the bank into the present state of the provincial economy, the business banking environment and the outlook until 2017.

The research reveals that Gauteng’s leadership position in South Africa is driven by its dominance of 19 of 34 detailed economic sectors, and currently accounts for approximately:

  • 40.3% of manufacturing.
  • 33% of electricity and gas production, and water output.
  • 43.8% of the construction sector.
  • 35.2% of the wholesale and retail trade, as well as catering and accommodation activities.
  • 33% of  transport, storage and communication assets.
  • 35.2% of personal and community services activities.
  • 40.5% of finance, real estate and business service activities

When breaking the sectors down at a provincial level, dominant industries in Gauteng comprise mainly of tertiary sector industries including trade (16%), transport (9.3%), finance (26.6%) and community services (23.1%), which make up 75% of the provincial economy.

The province is also regarded as the natural destination for international investors wishing to establish a springboard into the African continent.

“Since 1997, Gauteng’s average annual growth rate has, with a few minor exceptions, exceeded that of South Africa as a whole,” says Ms Botha. The top three sectors showing growth between 2007 and 2012 were construction at 4.7%; finance, insurance, real estate and business services at 4.1%; and community, social and personal services at 3.7%.

We can expect to see this picture alter for the period 2012 to 2017, with the finance sector growing by 5.0% taking top spot. This is followed by transport, storage and communication with an anticipated growth rate of 4.9%. Taking third position will be construction improving to 4.8%.

Challenges in the lead up to 2017

Manufacturing capacity

Ms Botha says that Gauteng’s diversified manufacturing sector, which produces more than 50% of South Africa’s manufactured exports, and is also a key driver of employment, faces several major challenges in next three years.

“These range from energy security, skills shortages, underinvestment in capital equipment and technology, through to ageing foundry and tooling industries, uncompetitive pricing of raw materials and failure to attract foreign direct investment.

“The impact of these factors could be exacerbated by the economic downturn, decreases in consumers’ disposable income and therefore lower sales, strikes and industrial action, and increased shipping costs.

Energy demand

Turning to energy costs, Gauteng will be responsible for a considerable portion of the expected doubling in the country’s energy demand by 2030.

“These growing energy demands are occurring within a supply-constrained environment. The province will have to be a key player in the process to reduce the country’s heavy dependence on the use of coal and find ways to diversify the country’s power-generating capacity,” says Ms Botha.

Finance, insurance, real estate and business services

It is expected that 26.6% – more than a quarter – of Gauteng’s economic activity will stem from this sector, with growth of about 5.0%.

“The province’s strength in this area is further secured in the forecast period in that it is the only province anticipated to reflect an increase in the size of its contribution (41.7%) to the national economy,” says Ms Botha.

Transport, storage and communication

The transport sector supports growth across all other sectors of the provincial economy.

The province’s proposed 25-year integrated transport master plan (ITMP25), set to guide the Gauteng government in its transport development and planning, will have massive benefits for the sector if executed. Key proposals of the programme include building specialised freight bypass roads through the province, and upgrading and expanding the existing commuter rail network.

Transnet has implemented a R300 billion capital expenditure programme for the period 2013 to 2019, with many planned improvements identified for Gauteng.

Key challenges facing the transport sector include loss of large customers, contracts and revenue due to:

  • Derailments, collisions and accidents.
  • Strikes and industrial action.
  • Weather conditions, especially with regard to freight.
  • The effects of Administrative Adjudication of Road Traffic Offences (AARTO) demerit points, which have the potential to see temporary suspension of operators’ permits.

Further to this, Gauteng boasts the best telecommunications and technology on the continent. “The South African Information and Communication Technology (ICT) industry is set to boom during the next four years, as it is anticipated that internet traffic will increase four-fold,” says Ms Botha.

Construction

The future of the construction industry is largely tied to government’s planned multi-million-rand infrastructure programme. However, the industry remains uncertain due to the lack of capacity to deliver projects.

Other major challenges identified in this sector are:

  • Increased input costs linked to electricity and fuel hikes.
  • Power shortages, disruptions and electricity embargos placed on new developments.
  • Inadequate supplies of building materials to meet demand, for example bitumen.
  • Rising labour costs due to scarcity of adequately qualified graduates.
  • Absenteeism and loss of skills due to HIV/Aids and tuberculosis.

“Although challenges will be experienced across all major sectors, the economic strength and diversification of the Gauteng economy will continue to ensure it remains the leading province in South Africa,” says Ms Botha.