March 28, 2007
By Ndaba Dlamini
JOHANNESBURG is the economic powerhouse of Africa, where massive construction projects, both private and public, are taking place.
These add to the figures of the latest Gauteng Business Barometer (GBB) report, which shows that the trade and construction industries in the whole province recorded increased business activity in February. They prop up the province's economic standing, which has shown a general slump in economic conditions overall.
This is reflected in the February 2007 GBB, the first provincial business statistical index in South Africa that measures business activity in various economic sectors.
Developed through a partnership between Gauteng Business, a fortnightly provincial newspaper focusing on small and medium enterprises, Standard Bank and economist Mike Schussler, the GBB shows the construction and trade industries as the province's top performers, with increased activity levels recorded for February this year.
Business activity levels in the trade sector, which includes wholesalers, retailers and tourism businesses, were 3 percent higher than in January and a significant 13 percent higher than in February last year. All this is because of higher wholesale and retail sales, as well as more arrivals at OR Tambo International airport and strong fuel sales, according to Schussler.
Speaking at a breakfast meeting organised by GBB and Standard Bank in Germiston on Tuesday, 27 March, Schussler said activity levels in the construction industry were 3,1 percent higher compared to January and 3,9 percent higher than in February last year.
He was optimistic about the future performance of the sector, bearing in mind the construction of the Gautrain. "The outlook for this sector remains fairly good enough."
The GBB is based on 19 sets of data dating back to 2002. Individually, the data provide a snapshot of a particular industry, but combined and weighed according to their relevance in the Gauteng economy, they paint an accurate picture of the pulse of South Africa's economic hub.
Complementing the trade and construction industries, the GBB rose 2 percent to 151 index points in February compared to January. Year-on-year, however, the index was 6,5 percent lower than the 162 index points achieved in February 2006. This can be attributed to a rise in negative factors, such as interest rates and inflation and a decline in job creation.
Commenting on the February results, Schussler said that if negative figures were discounted, business activity increased by about 5 percent.
"The Economic Stress Index in which these unfavourable elements are outlined reveals that current levels were last seen in 2003. Although it is slightly lower than January, the index for February was 12,1 percent higher than that recorded at the same time last year."
The Gauteng Economic Stress Index supplements the GBB and gives a good indication of the problems faced by the province's businesses and consumers. It includes elements such as inflation and debt defaults and shows how easy it is to conduct business in the province.
Turning to other sectors, Goolam Ballim, Standard Bank's chief economist, said the mining sector continued to slip, declining by 2,8 percent over January's level. The manufacturing sector also slipped 0,3 percent month-on-month, but was 6,1 percent higher than activity levels recorded in January 2006.
Ballim said manufacturers expected single digit growth this year, and few would record the growth rates of 20 percent they had had in recent years. "Manufacturers may, however, see different growth trajectories, particularly those that focus on the export market."
Projecting the economic future of the manufacturing industry in Gauteng, Ballim said manufacturers focusing primarily on the South African market would feel the squeeze as the slowdown in household expenditure would negatively affect product demand.
"Hence, manufacturers have to be nimble and agile to survive the next 20 years … Manufacturers looking to export markets only will perform better following a weaker rand, which has provided some price competition not seen in recent years. Manufacturers catering for local and foreign markets will also outpace their counterparts if they are flexible and shift production resources to service foreign demand."
Ballim said post-Soviet markets and Africa were potentially lucrative destinations, particularly those that demonstrated solid income growth, stable political environments and larger populations.
Asked about the future of the rand in relation to the survival of manufacturers in Gauteng, Ballim said the South African currency would remain volatile.
"Generally I am positive on the rand but it is safe to suggest that there will be increased rand volatility than felt in the last few years and that manufacturers dependent on imported capital in their assembly systems should investigate currency hedging strategies.
"With the sector's capacity use currently sitting at an all-time high of 86 percent, we anticipate several manufacturers having to purchase capital equipment this year. They should do so when the rand is strong in order to curtail the possible impact of anticipated volatility," he said.
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