EXECUTIVE SUMMARY Mindful of the importance of having access to up-to-date intelligence and data on the prevailing economic context in the Eastern Cape, the Eastern Cape Development Corporation (ECDC) commissioned short-term research to analyse key economic indicators of the Eastern Cape provincial economy. The focus of the analysis centered on provincial-level economic indicators that have direct implications for the operations of ECDC. The data and information used in the analysis was sourced entirely from secondary sources through an extensive desktop research process. This report presents the key findings from the analysis.
The economic context in the Eastern Cape The Eastern Cape is a province where severe underdevelopment and poverty is juxtaposed with an increasingly modern and export-oriented economy boasting significant potential for growth and industrialisation. The provincial economy is dominated by export-oriented manufacturing and the tertiary sector, while the primary sector makes only a marginal contribution to output and value-added. The province’s heavy reliance on the export-oriented automotive sector, and the resultant lack of diversity or depth in manufacturing activity, leaves the economy vulnerable to cyclical fluctuations stemming from changes in the external economic environment.
Macroeconomic Analysis Economic performance and projections 2008-2012 Gross domestic product (GDP) and real GDP growth trends in the province • • •
The rate of real GDP growth has fluctuated significantly over this period, declining sharply in 2009. This was reflected in the poor performance of several key sectors in 2009, with the agriculture, forestry and fishing; mining and quarrying; manufacturing; wholesale, retail and motor trade, catering and accommodation; finance, real estate and business services; and personal service sectors all registering negative real GDP growth in that year. Since then, economic growth in the province has gained momentum, recovering to 2.2 percent in 2010 and an estimated at 3.5 percent for 2011. The annual growth rate in real GDP in the province is projected to be between 2.5% and 3% in 2012.
The annual GDP growth rate for 2012 is projected to reach
3%
Analysis of fixed capital formation and investment • • • • •
Gross fixed capital formation by the public sector is predominantly targeted towards buildings and transport equipment, while that of the private sector is focused on machinery and equipment. In 2008, a sharp fall in value was recorded in investment in building and construction in the province. In 2009, gross fixed investment in the Eastern Cape contracted by 1.7 percent. Looking ahead, gross fixed capital formation is expected to expand alongside the broader global economic recovery. In 2012, gross domestic fixed investment (GDFI) in the Eastern Cape is projected to grow at a rate of 9.4 percent, and total more than R 24.6 billion. GDFI is forecast to account for 23.3 percent of provincial GDP in 2012.
Gross domestic fixed investment (GDFI) in the Eastern Cape (2012) PROJECTED TO GROW TO
R24.6 billion
Trends in provincial exports for 2008 to 2012 • • • • •
The Eastern Cape’s share of national exports remains small in comparison to Gauteng, KwaZulu-Natal and the Western Cape. The value of provincial exports declined significantly (by 42.1 percent) between 2008 and 2009. Since then, provincial exports have recovered somewhat, although forecasts of the total value of provincial exports for 2012 remain significantly lower than the value of exports for the Eastern Cape in 2008. In line with this trend, export activity at the province’s commercial ports has increased markedly since 2010. The value of provincial exports is projected to reach R 36.8 billion in 2012.
Provicial exports projected to reach
R36.8 billion in 2012
Analysis of provincial imports for 2008 to 2012 • • •
The manufacturing sector is responsible for the majority of imports in the Eastern Cape. Provincial imports declined sharply between 2008 and 2009. This was followed by a marginal decline in imports in the Eastern Cape between 2009 and 2010. The estimates for 2011 suggest that this trend has reversed: the provincial imports forecast has risen by 2.9 percent in 2011, and should rise by a further 3.2 percent to reach R 31.9 billion in 2012.
Analysis of labour market indicators for 2008 to 2012 • • •
The number of employed workers in the Eastern Cape fell by 32 000 in the four-year period between the fourth quarter of 2008 and the fourth quarter of 2011. This was accompanied by an increase in the number of unemployed individuals (which grew by 36 000) as well as those classified as not economically active or discouraged workseekers. The unemployment rate in the province remains alarmingly high at 27.1 percent as of the fourth quarter of 2011. Employment levels in the agriculture, manufacturing, trade and private households sectors all declined between 2008 and 2011.
Provicial imports forecast to reach
R31.9 billion in 2012
Employed workers in the Eastern Cape fell by
32 000 between 2008-2011
• At present, the dominant sectors in terms of employment in the province are the community and social services, trade, manufacturing, finance and construction sectors.
Trends in provincial inflation • • •
The annual inflation rate in the Eastern Cape exceeded headline inflation in each year between 2008 and 2010 with the exception of 2009. As of July 2011, the headline inflation rate in the Eastern Cape was the highest of the provinces in South Africa. The trend of rising headline inflation was expected to continue in the third quarter of 2011.
Eastern Cape
HEADLINE INFLATION
HIGHEST of the provinces in SA
Analysis of provincial GINI coefficients for 2008 to 2010 • •
In terms of income distribution, while the GINI coefficient in the Eastern Cape was high in each year, the figures were below the national average in each of the three years. Within the province, the level of inequality is highest in the Amathole District Municipality, followed by the Cacadu District Municipality and Nelson Mandela Bay Metropolitan Municipality.
Analysis of total household savings for 2008 to 2010 • • •
Total household saving in the province amounted to R262 million in 2008. Thereafter, the levels of consumption expenditure in the province exceeded the levels of disposable income in 2009 and 2010, resulting in dissaving of R262 million and R 449 million, respectively. The level of dissaving in the provincial economy in 2010 amounted to nearly 32 percent of provincial GDP and 2.4 percent of national GDP.
Business and consumer confidence (BCI) levels • •
The BCI for the manufacturing sector in the province has fluctuated significantly since the start of 2010. Consumer confidence in the Eastern Cape remained low during the period between the second quarters of 2010 and 2011.
Total household saving of
R262
million in 2008
Performance Trends and prospects in priority sectors In the agriculture sector, much of the current focus is on the development of agro-processing within the context of the province’s food, beverages and tobacco sub-sector. The subsector in the Eastern Cape is currently valued at R 11.3 billion and is estimated to contribute close to 14.1 percent of total employment in the province’s manufacturing sector. Furthermore, there remains significant potential to develop agro-processing activity in the Eastern Cape. Deepening industrial activity in the agro-processing industry is seen as an important element of efforts to drive economic growth and reduce the downside risk of trade. Furthermore, the development of agro-processing in the Eastern Cape can play a significant role in enhancing local beneficiation of primary products within the province. At present, the manufacturing base in the Eastern Cape is dominated by the automotive sector, which remains a major catalyst for economic growth, manufacturing activity and job creation in the province. The sector currently contributes more than half of the province’s manufacturing value added and 30 percent of total employment in the manufacturing sector. As many as 150 companies are estimated to be involved in the automotive value chain within the province. In terms of oil refining in the province, the proposed development of a R 90 billion oil refinery by PetroSA at the Coega Industrial Development Zone (IDZ) in the Eastern Cape is expected to vastly improve the capacity for primary fuel production in the province, and open up new opportunities in upstream and downstream industries in the Eastern Cape. Similarly, there are notable opportunities to develop manufacturing centres and production facilities for renewable energy within the Eastern Cape, particularly in the areas of wind and solar energy. This boasts significant potential for job creation, particularly through the development of renewable energy components and plant manufacturing.
The sub-sector is currently valued at
R11.3 BILLION
The AUTOMOTIVE SECTOR contributes more than
HALF of the province’s manufacturing value
Finally, the labour-intensive tourism sector represents a key growth sector in the Eastern Cape economy. The sector already accounts for approximately 10 percent of total employment in the provincial economy, and it is anticipated that as many as 45 000 new job opportunities could be created in the sector in the Eastern Cape each year.
Key growth sector.
45 000
NEW JOB
opportunities each year
Conclusion The analysis presented in this report indicates that that the performance of the provincial economy has fluctuated between 2008 and 2011 amid the turbulent global economic environment. After declining sharply in 2009, the province’s real GDP growth rate has recovered and is showing signs of gaining momentum. However the projected economic growth rate for 2012 remains below the forecast for the country as a whole. Similarly, after plummeting in 2008, the recovery in provincial exports from the Eastern Cape has been slow, but steady. Encouragingly, the province is expected to record a good trade surplus in 2012. Unemployment in the provincial economy remains worryingly high. Indeed, the unemployment rate of 27.1 percent recorded at the back end of 2011 is well above the national average. Looking ahead, the agro-processing, renewable energy, tourism and oil refining sectors in the province all boast strong job creation potential, and the development of these sectors should go some way to reducing unemployment within the provincial economy. In particular, the track record for renewable energy and in particular, wind and solar, holds promise. Four independent power producers have successfully bid for projects in the Eastern Cape. Furthermore, the Joule, South Africa’s first locally designed electric car, is to be built in the East London Industrial Development Zone. Furthermore, the provincial economy is likely to be boosted by national government’s announcement in February 2012 that it will invest billions in supporting the Eastern Cape’s anchor industries - the automotive, ports and agricultural sectors.
South Africa’s 1st ELECTRIC CAR the
JOULE is to be built in the
East London IDZ
SMGAFRICA_7770
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