Local Economic Development Summit-

29 October 2012Recent Economic Developments in KwaZulu-Natal

by

Cosmas Hamadziripi, Economist

Contents

Global Economic Developments

Economic Growth Trends

Recent labour Market Developments

Catalysts for Local Economic Development

Global Economic Developments South Africa is a small open economy which is susceptible to changes in the

global economy.

In 2011, the global economy was characterized by slow growth with a growth rate of 3.8% being recorded. Factors that weighed down global economic growth include among others: Euro zone crisis Rising commodity prices especially food and energy

IMF expects the global economy to grow by 3.3% in 2012 and 3.5% in 2013 at the back of the aforementioned factors.

IMF expects the following average annual growth rates in 2012: USA (2.2% compared to 2.8% in 2011) Japan (2.2% compared to -0.8%) UK (-0.4% compared to 0.8% in 2012) Germany (0.9% compared to 3.1% in 2011) France (1.7% compared to 0.1% in 2011)

3

Growth Trends in Countries Industrialised

4

2009:Q1

2009:Q2

2009:Q3

2009:Q4

2010:Q1

2010:Q2

2010:Q3

2010:Q4

2011:Q1

2011:Q2

2011:Q3

2011:Q4

2012:Q1

2012:Q2

-6

-4

-2

0

2

4

6

USA Japan UK Germany France

Emerging Markets Emerging economies continue to drive

global economic growth Exports growth has continued to

contribute to China’s economic growth Buoyant commodity prices (gold,

platinum, oil) and relatively strong consumer demand are the major drivers of economic growth.

High food and fuel prices in low-income countries.

Sub-Saharan Africa has also been a major driver growth in emerging economies particularly Angola, Mauritius, Ghana and Nigeria

5

Country 2011 2012

Brazil 2.7% 1.5%

Russia 4.3% 3.7%

India 6.8% 4.9%

China 9.2% 7.8%

South Africa 3.1% 2.6%

IMF Growth Forecasts

Slow

er Grow

th

Growth Trends in Emerging Markets

6

20

08

:Q1

20

08

:Q2

20

08

:Q3

20

08

:Q4

20

09

:Q1

20

09

:Q2

20

09

:Q3

20

09

:Q4

20

10

:Q1

20

10

:Q2

20

10

:Q3

20

10

:Q4

20

11

:Q1

20

11

:Q2

20

11

:Q3

20

11

:Q4

20

12

:Q1

20

12

:Q2

-15

-10

-5

0

5

10

15

Brazil Russia India China South Africa

Growth Trends in South Africa and KwaZulu-Natal

South Africa’s growth trajectory post recession remained heavily subdued compared to pre-recession period. National downgraded growth forecasts from

2.8% to 2.5% (1% lower than the 2.6% expected by IMF).

KwaZulu-Natal economy depicted a similar growth trend in during the 1st half of 2012

Growth is lower than the range (5-7%) specified by the New Growth Path to achieve the 5 million employment target by 2020

Volatile and slow Minimal impact on

employment- Jobless growth;

Growth not consistent with trends observed in other emerging markets

Poverty has declined but impact minimal

Demand/Consumption driven growth.

Domestic demand driven High inequality

Characteristics of SA Economic Growth

South Africa and KwaZulu-Natal Economic Growth Trends

South Africa Quarter-on-Quarter Growth KwaZulu-Natal Quarter-on-Quarter Growth

2007

:Q1

2007

:Q2

2007

:Q3

2007

:Q4

2008

:Q1

2008

:Q2

2008

:Q3

2008

:Q4

2009

:Q1

2009

:Q2

2009

:Q3

2009

:Q4

2010

:Q1

2010

:Q2

2010

:Q3

2010

:Q4

2011

:Q1

2011

:Q2

2011

:Q3

2011

:Q4

2012

:Q1

2012

:Q2

-8

-6

-4

-2

0

2

4

6

8

6.5

3.1

5

6

2.9

4.5

1.8

-1.7

-6.3

-2.8

1.8 3.5

4

2.83.1

4.5

4.6

11.7

3.2

2.7

3.2

2008:Q3

2008:Q4

2009:Q1

2009:Q2

2009:Q3

2009:Q4

2010:Q1

2010:Q2

2010:Q3

2010:Q4

2011:Q1

2011:Q2

2011:Q3

2011:Q4

2012:Q1

2012:Q2

-8

-6

-4

-2

0

2

4

6

2.2

-2.3

-5.9

-3.7

2.5

3.8 3.84.4

2

4.2

5.2

0.6

2.3

3.33.7

2.1

Sectoral Growth Trends

Subdued growth in traditional economic drivers i.e. agriculture, mining and manufacturing;

Robust growth in service oriented sectors such as retail trade, finance and banking, transport and communication among others.

Declining trend observed in construction sector, government remains a significant player in the South African economy.

2010

q1

2010

q2

2010

q3

2010

q4

2011

q1

2011

q2

2011

q3

2011

q4

2012

q1

2012

q2

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

50.0

Agriculture, forestry and fishing Mining and quarrying Manufacturing

Electricity and water

SA Sectoral Trends

Industry

2010 2011 2012

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

Agriculture, forestry and fishing 5.8 13.7 18.2 13.6 -4.0 -7.8 -5.7 -4.2 2.8 4.8

Mining and quarrying 22.4 -17.0 39.8 22.2 -5.6 -5.4 -21.2 0.9 -20.0 39.0Manufacturing 7.7 8.3 -3.3 6.1 12.9 -8.9 -0.7 4.2 7.8 -1.1

Electricity and water 4.0 -2.2 -2.1 6.1 2.2 0.7 -1.8 0.8 -0.1 -2.9

Construction -1.8 0.6 0.3 2.1 0.9 0.6 1.3 1.4 2.8 3.2

Wholesale & retail trade; hotels & restaurants 4.0 6.2 3.7 3.6 2.7 5.9 7.0 6.0 3.4 3.3

Transport and communication 1.6 3.7 3.0 3.5 3.8 4.1 2.2 2.7 2.3 2.2

Finance, real estate and business services 1.9 2.1 -0.3 0.4 5.3 2.7 4.5 2.3 4.1 2.3

Community, social and other personal services 2.0 1.7 1.0 1.2 2.6 2.8 2.4 3.0 1.6 2.1

General government services 2.4 4.7 3.2 4.3 3.1 5.2 4.3 4.4 2.3 1.9

All industries at basic prices 3.8 4.7 1.7 4.1 5.1 0.2 2.1 3.3 3.7 2.0

Taxes less subsidies on products 3.2 1.9 3.7 4.8 5.7 3.6 3.6 3.3 4.2 3.3

GDPR at market prices 3.8 4.4 2.0 4.2 5.2 0.6 2.3 3.3 3.7 2.1

10

Sectoral Growth ConstrainsAgriculture

Declining investment Rezoning of agricultural land Infrastructural bottlenecks- e.g. rail to

transport bulk produce such as maize Lack of broader participation- sector

characterized by Ageing farmers

Transport and Logistics

Rail underdevelopment; Port capacity constraints; Lack of social Capital Congestion on the roads esp. N3 and its

feeder road networks

Mining Wild Cats Strike Shrinking global demand affecting

exports; Volatile commodity prices; Uncertainty surrounding ownership-

constraining investment;

Manufacturing Slow down in key export markets; High dependence on imported goods especially finished

goods, apparels, luxuries- Export of Jobs High dependence on commodity exports External competition External Shocks (Oil prices, recession, Japanese Crisis, EU

debt crisis). Increasing wages negatively impacting on international

competitiveness

11

Tourism

Unpalatable sentiments about crime and HIV;

Volatile commodity prices; Limited international flights

Services

Skills shortage High capital flight

Possible Mitigating MeasuresAgriculture

Farmer training institutions Protect high value agricultural land against rezoning Develop vibrant subsistence farming Optimise Dube Trade Port capacity with a view to

establishing a efficient and prosperous perishable product export industry

New Model for Land Reform

Transport and Logistics Speedy implementation of Strategic

Infrastructure Projects (SIPs) Road, rail and port infrastructure

Rehabilitate airport infrastructure- KZN Airport Strategy key

Mining

Increased beneficiation of KZN’s mineral products

Address uncertainty surrounding ownership- constraining investment;

Manufacturing

Zoning of land for industrial development Implementation of SEZs Develop capacity to export and broaden export bundle Encourage the production of import competing goods Address labour market rigidities

12

Tourism Attract more direct international flights to King Shaka International; Aggressively market the province and especially the two world

heritage sites as an alternative to the typical Cape Town – Kruger, foreign tourist

Develop a dedicated passenger liner terminal and hub (Durban or Richards Bay)

Develop an iconic, internationally ‘must-see’ tourist attraction (i.e. giant Shaka Statue)

Develop an upmarket beach resort; develop an overnight coastal hike

Labour Market Developments

Low employment creation and high unemployment;

High number of discouraged work seekers

High discouraged work seekers

Scarcity of Skills

Brain drain

Declining employment in the traditional sectors (agriculture, mining and manufacturing) vis-à-vis the services sector

Labour market rigidities- Labour Laws

Characteristics of South African labour market

The weak global economic recovery, together with the prevailing uncertainty about the global economy, is still weighing significantly on job creation.

However, KZN economy created 123,000 new jobs in the 2011 compared to 265,000 jobs nationally. The KZN economy only created 1,000 new jobs in the 2nd quarter of 2012

Sectors that continue to drive employment growth are wholesale & retail, Community and Social Services (including government).

Labour market developments

Employment

20

08

:Q3

20

08

:Q4

20

09

:Q1

20

09

:Q2

20

09

:Q3

20

09

:Q4

20

10

:Q1

20

10

:Q2

20

10

:Q3

20

10

:Q4

20

11

:Q1

20

11

:Q2

20

11

:Q3

20

11

:Q4

20

12

:Q1

20

12

:Q2

-250000

-200000

-150000

-100000

-50000

0

50000

100000

-31000

48000

-48000-57000

1000

-49000

9000

-57000

-35000

38000

-10000

71000

10000

36000

-43000

1000

W/Cape KZN Gauteng

Sector 2011:Q2 2012:Q1 2012:Q2 Quarterly change

Annual change

Agriculture 99,000

91,000

91,000

-

-8,000

Mining 6,000

18,000

19,000

1,000

13,000

Manufacturing 397,000

386,000

389,000

3,000

-8,000

Utilities 18,000

9,000

13,000

4,000

-5,000

Construction 235,000

210,000

211,000

1,000

-24,000

Wholesale and Retail Trade

555,000 570,000

545,000

-25,000

-10,000

Transport 181,000

180,000

196,000

16,000

15,000

Finance 274,000

276,000

282,000

6,000

8,000

Community and social services

509,000 540,000

544,000

4,000

35,000

Private households

226,000 239,000

229,000

-10,000

3,000

Comparative Employment Sectoral Employment

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

100000

200000

300000

400000

500000

600000

Employment Trends per Sector 1995 - 2010

Agriculture, forestry and fishing

Mining and quarrying

Manufacturing

Electricity, gas and water

Construction

Wholesale and retail trade, catering and ac-commodation

Transport, storage and communication

Finance, insurance, real estate and business services

Community, social and personal services

General government

Year

No.

of J

obs

Region Official/Strict Expanded

Q2:2011 Q1:2012 Q2:2012 Q2:2011 Q1:2012 Q2:2012Western Cape 21.8 22.8 23.2 23.6 24.5 25.0

Eastern Cape 28.9 28.3 28.6 42.6 43.1 42.4

Northern Cape 28.8 24.9 29.9 37.3 33.8 37.1

Free State 28.2 32.2 32.9 37.0 38.9 39.6

KwaZulu-Natal 20.3 20.5 19.8 39.1 39.3 38.5

North West 27.3 26.2 26.2 46.3 45.4 45.1

Gauteng 28.2 26.0 25.4 31.9 30.3 29.8

Mpumalanga 30.4 30.3 28.9 43.8 45.2 42.8

Limpopo 21.1 21.9 20.2 46.0 44.2 43.7

South Africa 25.7 25.2 24.9 36.9 36.6 36.2

Unemployment Rates (Official and Expanded) per province (%)

Source: StatsSA, Aug 2012

Hope is not Lost

Catalysts for Local Economic Growth

Local Economy

Export Development

Investment Promotion

Infrastructure Development

Industrial Development

Skilled Labour Force

Trade Balance as % of GDP (2001-2011)

Export Development as a Catalyst for LED

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

-6

-4

-2

0

2

4

6

8

10

12

South Africa KwaZulu-Natal

Grow Exports- It is scientifically proven that Every 0.01% increase in (X+M)/GDP raises income over the subsequent 20 years by an estimated 3%.

Sustained growth in the non-tradable sector viz. the tradable sector

Large contribution of raw and semi-manufactured goods in the total exports

Capitalise on regional integration as traditional markets are constrained

Beneficiation/ value addition key to sustained export growth- economic growth and job creation

Lobby national government to protect key job creation sectors such as clothing and textiles

China India Russia Brazil South Africa

US Japan UK Germany France Italy Canada Australia0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

40%

22%

28%

14%

25%

13%15%

32%

50%

27%29% 29%

27%

Exports-GDP Ratio (%)- Average (2007-2011)

Exports as Catalyst for LED

Optimise the benefits of Regional Integration for export growth

Over the past year, South Africa has gained some ground in

becoming a more attractive investment destination.

South Africa has improved its ranking on the ease of doing business from ranking 74 in 2011 to 44 out of 183 countries in 2012. (Doing Business 2012 by the World Bank)

Overall, South Africa was ranked number one in ease of obtaining credit; number one in Auditing Standards; and number one in the regulation of the securities exchange.

Positive Investment Climate Critical for Local Economic Growth

In Standard and Poor’s downgraded South Africa’s government bond rating from BBB+ to BBB o An obligation rated 'BBB' exhibits adequate

protection parameters. o However, adverse economic conditions or

changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.

o Deteriorating credit worthinesso Macroeconomic instability- Wild Cat strikes in

the mining sector In the first half of 2012, global FDI fell by 8%

to an estimated US$668-billion, down from US$729-billion in first half of 2011. South Africa suffered a significant fall in FDI inflows in the first half of 2012 due to slower economic growth.

Positive Developments Negative Developments

Foreign Direct Investment

Industrial Development as an engine for LED

Business Retention

BusinessExpansion

BusinessAttraction

KZN Industrial Development

InnovationBeneficiation

Regional Industrial HubsKZN SEZs

Regional Comparative Advantage Sectors

Spatial Economic Development

Other Initiatives Developing

Sectors

Capital Equipment Electronics

Transport and Logistics

Growth Potential

Renewable Energy

Agro-processing

Chemicals

Categories of Comparative Advantages

Sectoral Advantage:Transport &

Logistics

Locational:Durban –

Gauteng Corridor

Resource:i.e.: coal

Cultural heritage: Diversity

Natural:Bay of Durban

Infrastructural:Port/Airport

Institutional:Business capital

Human Capital:Tertiary

Institutions

27

Proposed SEZs and Feeder Industrial Hub

28

29

National Legislative and Policy Environment

Provincial Growth and Development

Provincial Spatial Economic Development Strategy (PSEDS)

Industrial Development Strategy (PSEDS)

Maritime StrategyExport Strategy Investment StrategyKZN Tourism Master PlanRural Development StrategyHuman Settlement StrategyGreen EconomyAirportFreight and Logistics

New Growth Path (NGP)National Development Plan

(NDP)SEZs Bill IPAP2

Unemployment- YouthPoverty- Youth Inequality- YouthSustainable Economic

Growth

Catalytic Interventions

Infrastructure Development Special Economic Zones Corridor Development Small Town Rehabilitation Industrial Hubs Aerotropolis Enterprise Development Green Economy Maritime Industry

Development

Policy Targets

Robust implementation of Policies ingredient for LED

Ro

bu

st I

mp

lem

enta

tio

n C

riti

cal

YEES

UnemploymentPoverty InequalitySustainable economic

growth

Infrastructure Development as a Catalyst to LED

R845-billion has been budgeted for public infrastructure projects

17 strategic projects prioritised by Presidential Infrastructure Coordinating Commission's (PICC’s) t be implemented over 20 years.

Some of the SIPS critical for LED development on KZN include: Durban- Free State– Gauteng Logistics and Industrial Corridor (SIP2) SIP 3: South Eastern node & corridor development (including N2) Rural Development (SIP 11) SIP 9: Electricity Generation to support socioeconomic development SIP 8: Green Energy in support of the South African economy SIP 6: Integrated Municipal Infrastructure Project SIP 11: Agri-logistics and rural infrastructure SIP 17: Regional Integration for African cooperation and development

THANK YOU