Gauteng Treasury - CacheFly

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Gauteng Treasury

Provincial EconomicReview and Outlook

2009

2009 - PERO

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Provincial Economic Review and Outlook

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Provincial EconomicReview and Outlook

2009

Gauteng Provincial Government

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The Provincial Economic Review and Outlook, 2009 is compiled using the available 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 TreasuryGauteng Provincial GovernmentPrivate Bag X12, Marshalltown, 2107

Tel: 011 227 9000Fax: 011 227 9055

PR130/2009ISBN: 978-0-621-38680-6


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Mandla Nkomfe

MEC: Finance

ForewordIn May 2009, the fourth democratically elected President of the Republic of South Africa was inaugurated, signalling the start of organisational renewal across national, provincial and municipal levels of government. As such, the Gauteng Provincial Government (GPG) has reaffirmed commitment to a provincial renewal derived from Premier’s State Province Address that focussed on the implementation of the following seven key priorities for the 2009-2014 periods:

• Creating decent work and building a growing, inclusive economy• Promoting quality education and skills development• Better health care for all• Stimulating rural development and food security• Intensify the fight against crime and corruption• Building cohesive and sustainable communities• Strengthening the developmental state and good governance

The Provincial Economic Review and Outlook (PERO) provides in-depth analysis of the provincial economy with a view to informing the formulation and implementation of public policy at provincial level. The PERO serves as a foundation from which data-driven decision-making can be undertaken that will have economic and social impacts.

The PERO 2009 is the third annual publication of its kind, special emphasis has been placed on placing the provincial analysis within a global and national context so as to provide information that is particularly relevant and informative given the current economic recession.

The new provincial government will build on the foundations laid by the previous administration. The PERO will serve as a guide in the planning process for implementing policies that will enable us to halve poverty and unemployment thus improve the lives of the people of Gauteng.

Sincere thanks to Ms Nomfundo Tshabalala, Head of Gauteng Treasury and the Economic Analysis team who have ensured the successful completion of this publication.

Mandla NkomfeMEC: Finance

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Table of ContentsList of Figures

List of Tables

List of Abbreviations

Executive Summary

Chapter 1 – Economic Performance of South Africa 11.1 Introduction 11.2 The Global Economy 11.3 The South African Economy 21.3.1 National Production 21.3.2 Prices 41.3.3 International Trade 41.3.4 Investment & Infrastructure Spending 61.3.5 Household Consumption, Saving and Debt 81.4 Conclusion 11

Chapter 2 – Economic Performance of Gauteng 132.1 Introduction 132.2 Provincial Production 132.3 Sectoral Analysis 152.4 Trade Position 192.5 Investment and Saving 242.6 Household Income and Expenditure 272.7 Conclusion 30

Chapter 3 – The Provincial Labour Market 313.1 Introduction 313.2 Labour Force Profile 313.3 Unemployment Profile 343.4 Sectoral Employment 353.5 Informal Sector Employment 393.6 Provincial Labour Remuneration 413.7 Employment by Occupation and Skills Levels 413.8 Conclusion 43

Chapter 4 – Municipal Economic Performance 454.1 Introduction 454.2 Municipal Production 454.3 Sectoral Analysis 464.4 Trade Position 474.5 Household Income and Expenditure 504.6 Municipal Labour Market 524.6.1 Labour Force Profile 524.6.2 Unemployment Profile 534.6.3 Sectoral Employment 544.6.4 Municipal Labour Remuneration 554.6.5 Occupation and Skills Levels 564.7 Conclusion 57

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List of Figures

Chapter 1

Figure 1.1: CPI & the Repo Rate, Gauteng & South Africa, 2001-2008 4Figure 1.2: Balance on Current Account (% of GDP), South Africa, 2001-2008 5Figure 1.3: Export Composition, South Africa, 2008 5Figure 1.4: Import Composition, South Africa, 2008 6Figure 1.5: Investment Levels & Growth, South Africa, 2005-2012* 7Figure 1.6: Growth in Investment by Asset Type, 2005-2012* 7Figure 1.7: Consumption Expenditure Composition, South Africa, 2008 9Figure 1.8: Consumption Expenditure Patterns, SA, 2005-2012* 9Figure 1.9: Ratio of Household Savings and Debt to Disposable Income, South Africa, 2001-2008 10Figure 1.10: Consumer Credit Extension & the Repo Rate, 2005-2012* 11

Chapter 2

Figure 2.1: Gauteng’s Contribution to National GDP, Gauteng & South Africa, 2001-2008± 14Figure 2.2: Provincial Contributions to National GDP, 2008± 14Figure 2.3: GDPR and Average Annual Growth, Gauteng & South Africa, 2005-2012* 15Figure 2.4: Broad Sectoral Composition, Gauteng & South Africa, 2008± 16Figure 2.5: Sectoral Composition, Gauteng & South Africa, 2008± 16Figure 2.6: Growth in Primary Sector Production, Gauteng, 2001-2008± 18Figure 2.7: Growth in Secondary Sector Production, Gauteng, 2001-2008± 18Figure 2.8: Growth in Tertiary Sector Production, Gauteng, 2001-2008± 19Figure 2.9: Balance of Trade, Gauteng, 2001-2008 20Figure 2.10: Export Composition, Gauteng, 2001 & 2008 20Figure 2.11: Export Composition of Pearls, Precious Stones & Metals, Gauteng, 2008 21Figure 2.12: Major Trading Partners for Diamonds, Gold & Platinum, Gauteng, 2007 21Figure 2.13: Growth in Gold & Platinum Prices, 2005-2012* 22Figure 2.14: Import Composition, Gauteng, 2001 & 2008 22Figure 2.15: Import Composition by Country of Origin, Gauteng, 2008 23Figure 2.16: Import Composition of Mineral Products, Gauteng, 2008 23Figure 2.17: Investment Levels & Growth, Gauteng & South Africa, 2001-2007 24Figure 2.18: Household Savings by Province, 2007 26Figure 2.19: Household Savings Ratio by Province, 2001-2007 27Figure 2.20: Disposable Income, Gauteng, 2001-2007 28Figure 2.21: Composition of Household Consumption Expenditure, Gauteng, 2001-2007 28

Chapter 3

Figure 3.1: Trend in Labour Productivity and Capital Intensity, Gauteng, 2001-2007 33Figure 3.2: Employment Growth Rates, Gauteng, 2005-2012* 33Figure 3.3: Comparison of Sectoral Employment & GDPR Share, Gauteng, 2008 35Figure 3.4: Employment Intensity, Gauteng, 2008 36Figure 3.5: Comparison of Sectoral Employment, Gauteng & South Africa, 2008 37Figure 3.6: Employment Growth Rates in the Primary Sector, Gauteng, 2001-2008 37Figure 3.7: Employment Growth Rates in the Secondary Sector, Gauteng, 2001-2008 38Figure 3.8: Employment Growth Rates in the Tertiary Sector, Gauteng, 2001-2008 39Figure 3.9: Composition of Employment by Skills, Gauteng, 2001 & 2008 42


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Chapter 4

Figure 4.1: Municipal GDPR Growth Rates, 2001-2007 45Figure 4.2: Municipal Trade Balance, 2001-2007 48Figure 4.3: Municipal Net Exports as % of GDPR, 2001-2007 48Figure 4.3: Household Disposable Income by Municipality, 2001–2007 50Figure 4.4: Index of Buying Power by Municipality, 2007 52Figure 4.5: Labour Force Participation Rate (LFPR) by Municipality, 2007 53Figure 4.6: Unemployment Rate by Municipality, 2001–2007 53Figure 4.7: Municipal Employment by Skill Levels, 2007 56

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List of TablesChapter 1

Table 1.1: World Economic Indicators, 2007-2010* 1Table 1.2: Growth Rates for Economic Indicators, South Africa, 2007-2012 2Table 1.3: Gross Value Added by Sector, 2001-2008 3Table 1.4: Infrastructure Expenditure (R million), 2008/09-2011/12 8

Chapter 2

Table 2.1: Sectoral Composition, Gauteng, 2001-2008± 17Table 2.2: Sectoral Investment Growth Rate Forecasts, Gauteng, 2008± & 2009* 25Table 2.3: Composition of Investment by Project Type, Gauteng, 2005-2012* 25Table 2.4: Infrastructure Budget Allocations over the Medium Term Expenditure Framework(R million), Gauteng, 2009/10 – 2011/12 26Table 2.5: Composition of Household Consumption Expenditure, Gauteng, 2001 & 2007 29

Chapter 3

Table 3.1: Labour Force Profile, Gauteng, 2008 & 2009 31Table 3.2: Labour Market Statistics, Gauteng & South Africa, 2001 & 2008 32Table 3.3: Unemployment Rate by Province, 2008 & 2009 34Table 3.4: Informal Sector Employment by Gender, Gauteng, 2001–2008 40Table 3.5: Informal Employment by Sector, Gauteng, 2001-2008 40Table 3.6: Monthly Labour Remuneration by Sector, Gauteng, 2007 41Table 3.7: Employment by Occupation, Gauteng, 2001 & 2008 42Table 3.8: Sectoral Employment by Skill Level, Gauteng, 2001 & 2008 43

Chapter 4

Table 4.1: Municipal Contribution to Gauteng GDPR, 2001-2007 46Table 4.2: Gross Value Added (GVA) by Municipality, 2007 46Table 4.3: Tress Index by Municipality, 2001-2007 47Table 4.4: Municipal Import Composition, 2008 49Table 4.5: Municipal Export Composition, 2008 49Table 4.6: Household Expenditure Composition by Product Type, 2007 51Table 4.7: Formal Employment by Sector, 2007 54Table 4.8: Informal Employment by Sector, 2007 54Table 4.9: Municipal Labour Remuneration by Sectors, 2007 55Table 4.10: Municipal Labour Remuneration by Monthly Income Group, 2007 55Table 4.11: Employment by Occupation, 2007 56


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List of Abbreviations

BER Bureau for Economic ResearchBRT Bus Rapid TransitCoJ City of JohannesburgCoT City of TshwaneCPI Consumer Price IndexDoE Department of EducationDoH Department of HealthDPTRW Department of Public Transport, Roads and WorksGCR Global City RegionGDP Gross Domestic ProductGDPR Gross Domestic Product by RegionGEP Gauteng Enterprise PropellerGGDS Gauteng Growth and Development StrategyGPG Gauteng Provincial GovernmentGVA Gross Value AddedIBP Index of Buying PowerIMF International Monetary FundJIA Johannesburg International AirportJIPSA Joint Initiative on Priority Skills AcquisitionLFPR Labour Force Participation RateMTEF Medium Term Expenditure FrameworkOEC Original Equipment ComponentsPERO Provincial Economic Review and OutlookQLFS Quarterly Labour Force SurveySARB South African Reserve BankSMME Small, Micro and Medium EnterprisesStatsSA Statistics South AfricaUS United States

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Executive Summary

The Provincial Economic Review and Outlook (PERO) is an annual publication produced by the Gauteng Treasury. It provides an overview of activity within the provincial economy and serves as a source of information and a point of reference within the policy making process. This is the third annual PERO and it is of particular importance this year given the uncertain economic climate.

The global economy is currently experiencing turbulence last witnessed during the Great Depression of the late 1920s and early 1930s. It is a time for all countries to take stock and to tackle the new challenges with innovative solutions. Although South Africa has not been spared the negative effects of the international recession, the implementation of sound fiscal and monetary policy has allowed the space for government to respond to the economic downturn. First quarter results have revealed that the South African economy is in a recession as growth has contracted by 6.4%. There has thus been negative growth for two consecutive quarters.

Gauteng is the economic powerhouse of the South African economy, contributing over a third to the national Gross Domestic Product (GDP). Due to the relative size of the province’s economy, the impact on it of the global recession will mirror the impact that is felt within the South African economy. This impact will include a slowdown in provincial production, a rising provincial trade deficit, declining household consumption and rising household debt levels.

The 2009 PERO consists of four chapters covering topics ranging from the performance of the South African and Gauteng economies, the provincial labour market, and economic performance at municipal level. The PERO is a forward-looking publication, and contains forecasts of variables at national and provincial level.

Chapter One provides an overview of national economic performance. The South African economy is currently feeling the effects of the global economic slowdown. These effects are shown through a slow-down in output levels as well as a decline in employment levels. The chapter provides forecasts of economic indicators to 2012 as well as trends in prices and sectoral composition.

The chapter also details the national trade composition and identifies South Africa’s main trading partners. The country’s current account has exhibited a sustained and increasing deficit, beginning at just 1.1% of GDP in 2007, increasing to 7.4% in 2008 and projected to increase further to 8.8% and 9.1% in 2009 and 2012 respectively. The chapter contains a section on investment and public expenditure on infrastructural programmes. South Africa has an ageing public infrastructure that does not meet the needs of the population. The government has therefore embarked on a large infrastructure investment programme amounting to around R787 billion over the next three years. Lastly, the chapter analyses the economic situation at household level, looking at consumption expenditure trends, household debt and saving levels.

Chapter Two analyses the provincial economy and provides an outlook for future performance within the province. Gauteng is the driving force of the national economy and continues to grow in importance. The relative contribution of the province has increased from 33.9% in 2001 to 35% in 2007. The chapter begins with an outline of the structure of the provincial economy together with the sectoral composition of the province as a whole. Gauteng’s economy is dominated by a relatively large tertiary sector which constitutes 70% of the provincial economy, followed by the secondary sector (28%) and the primary sector which is relatively small, making up only 2%.

Details of the trade performance of Gauteng provide an idea of the composition of imports and exports as well as of Gauteng’s main trading partners. The largest export categories for Gauteng in 2008 were pearls, precious stones & metals (33%) and other (a range of other goods and services that each account for a very small share of total exports) at 16%. Investment activity and savings behaviour are also analysed and reference is made to the planned infrastructural spending on projects which include the creation of the City Deep Transport Logistics Hub; the improvement of the logistic processes at the Johannesburg International Airport (JIA) in order to attract more

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international business; the construction of the Gautrain Rapid Rail Link and stadia; the Bus Rapid Transit system; and the upgrading of provincial hospitals and schools. This chapter also analyses and compares household income and expenditure trends.

Chapter Three gives an overview of the provincial labour market. Unemployment remains one of the most pressing problems within Gauteng in particular, given the relatively large and growing population of working age. Between 2001 and 2008, the working age population in the province has grown by 29 percentage points. The unemployment rate for the fourth quarter of 2008 stood at 20.7% compared to 30.4% in in the same quarter of 2001. This implies that government interventions have had a positive impact in reducing unemployment. However, reaching the labour market targets set out in the Gauteng Growth and Development Strategy (GGDS) may be difficult in the context of the global recession. The chapter analyses the labour market in Gauteng and uses inter-provincial comparisons to provide a national context for provincial labour market trends. The chapter profiles the labour force and unemployment within Gauteng, where the economy is dominated by activity in the tertiary sector. There is thus a correspondingly high level of demand for skilled labour. However, the labour market is dominated by semi-skilled and unskilled individuals. The skills in demand are thus in short supply. The remainder of the chapter looks at sectoral employment (with specific emphasis on sectoral labour intensity), labour remuneration and employment in the informal sector.

Chapter Four analyses economic performance at municipal level, a level of analysis crucial in understanding the provincial economy as a whole. Gauteng includes three metropolitan municipalities: the City of Johannesburg (CoJ), the City of Tshwane (CoT) and Ekurhuleni. There are also three district municipalities: West Rand, Sedibeng and Metsweding. The chapter describes the characteristics and economic profile of these six municipalities, describing the relative size, sectoral and trade composition of each. The majority of municipalities in the province are dominated by activity in the tertiary sector. Metsweding and the West Rand are exceptions, with relatively large primary sectors constituting 15.7% and 22.4% respectively.

The chapter also analyses the unemployment rate, sectoral employment, labour remuneration and skills composition. From 2001 to 2007, there was a general decline in the unemployment rate with the highest rates in Sedibeng, Ekurhuleni and the West Rand. As might be expected, the metropolitan municipalities had the largest share of skilled workers but all municipalities’ labour markets were dominated by semi-skilled workers.


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Chapter 1: Economic Performance of South Africa

1.1 Introduction

The global financial crisis has led to the most severe downturn in the world economy in the last eight decades. All countries therefore need to take stock and to develop innovative solutions to tackle the challenges ahead. Although South Africa has not been spared the negative effects of the international recession, the implementation of sound fiscal and monetary policy has given government the space to respond to the downturn. From 2004 to 2007, the country’s annualised growth rate was over 4%; in 2008, however, it declined to 3.1%. In the third quarter of that year, growth was reduced to 0.2%, and in the fourth quarter the economy was in negative territory with a 1.8% contraction. First quarter results for 2009 show that the South African economy is in a recession, with growth contracting by 6.4%. There has thus been negative growth for two consecutive quarters.

The size of the first quarter contraction was larger than had been expected by many analysts. However, there are already signs of recovery within the international economy, with recent increases in global consumption spending as well as some positive movements in commodity prices and financial market indices. In addition, factors such as the momentum provided by large amounts of infrastructure spending implemented before the global recession have somewhat shielded South Africa’s provincial and national economies from the effects witnessed internationally.

This chapter starts with a review of the performance of the global economy. It then analyses selected key variables within the national economy. These include production performance, sectoral analysis, investment and infrastructure spending, household consumption and savings trends.

1.2 The Global Economy

The global economy is currently affected by a level of turbulence last witnessed during the Great Depression in the late 1920s and early 1930s. The financial market turmoil began as a crisis in the mortgage market in the United States (US) but became widespread. Its consequences are now being felt in the economies of many countries.

The International Monetary Fund (IMF) projects that world growth will decline to -1.3% in 2009, a rate of economic contraction last witnessed during the Second World War. It is widely believed that the global downturn will only be reversed once the functionality of the global financial sector and credit markets are restored.

Table 1.1: World Economic Indicators, 2007-2010*

Actual Forecast

2007 2008 2009* 2010*

World Output

Advanced Economies

Emerging & Developing Economies

Africa

5.2%2.7%8.3%6.2%

3.2%0.9%6.1%5.2%

-1.3%-3.8%1.6%2.0%

1.9%0.0%4.0%3.9%

World Trade Volumes 7.2% 3.3% -11.0% 0.6%

Oil Prices

Nonfuel Commodity Prices

CPI - Advanced Economies

CPI - Emerging & Developing Economies

6.4%9.6%2.2%6.4%

32.1%4.1%3.4%9.3%

-42.9%-23.2%-0.2%5.7%

21.4%5.4%0.3%4.7%

Source: IMF, World Economic Outlook April 2009Note: * Indicates forecast


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Table 1.1 provides an overview of some key world economic indicators as estimated by the IMF’s World Economic Outlook in April 2009. After the decline in the rate of growth from 5.2% in 2007 to 3.2% in 2008, it is projected that world output will decline further to -1.3% before recovering to 1.9% in 2010. The growth outlook for the advanced countries is particularly bad, with a contraction of 3.8% projected for 2009 followed by stagnation for 2010. Emerging/developing economies are expected to be negatively affected by the global downturn, although these negative effects are likely to be limited to a projected 2009 growth rate of 1.6% for emerging/developing countries generally and 2% for Africa. Emerging and developing countries are projected to experience mixed growth, with those which are largely dependent on commodity exports being the most vulnerable to the economic downturn as global demand for commodities slows and commodity prices decline accordingly.

World trade volumes are also expected to decline from a growth rate of 7.2% in 2007 to a contraction of 11% in 2009, with a recovery of 0.6% projected for 2010. As global demand slows, corresponding price levels are also projected to decline. Oil and commodities are expected to experience the most notable price declines, with projected 2009 declines of 42.9% and 23.2% respectively. The Consumer Price Index (CPI) for advanced economies is expected to contract by 0.2% for 2009 and then recover to 0.3% for 2010. Although the CPI for emerging/developing economies is projected to decline from 9.3% in 2008 to 5.7% and 4.7% in 2009 and 2010 respectively, this is still higher than the rate of decline in the CPI in the advanced economies, which are 3.4%, -0.2% and 0.3% for 2008, 2009 and 2010 respectively.

1.3 The South African Economy

The South African economy is feeling the effects of the global economic slowdown. These are seen in lower levels of national output as well as a decline in employment. Although the effects are felt economy-wide, some sectors, in particular the automotive sector, are especially vulnerable to international instability. Employment levels in these sectors have also been negatively affected.

The large infrastructure projects and thus the large public expenditure on infrastructure currently underway within South Africa generally and in Gauteng, serve as a buffer against the global recession. National government’s spending on infrastructure in the medium term, which includes the financial years 2009/10, 2010/11 and 2011/12, amounts to R787 billion. This provides a relatively large fiscal stimulus to the national economy.

1.3.1 National ProductionThe South African economy is affected by the global economic crisis through a declining demand for commodities, declining prices and a challenging financing environment. The global recession has highlighted the structural deficiencies within the economy. Despite relatively healthy pre-recession growth rates and reductions in the rate of unemployment, the country’s economy remains vulnerable due to the level of income inequality and skills constraints within the labour market.

Table 1.2: Growth Rates for Economic Indicators, South Africa, 2007-2012

Actual Estimate Forecast

2007 2008 2009 2010 2011 2012

Final Household Consumption 6.6% 2.6% 1.5% 3.6% 3.6% 3.4%

Gross Fixed Capital Formation 16.3% 11.2% 4.0% 4.9% 5.3% 5.1%

Gross Domestic Expenditure 6.1% 4.3% 2.4% 4.3% 4.1% 4.1%

Real GDP Growth 5.1% 3.1% 1.5% 4.9% 4.7% 3.6%

Headline CPI Inflation 7.1% 10.3% 6.5% 6.6% 6.8% 5.9%

Current Account Balance (% of GDP) -7.3% -8.0% -8.8% -8.8% -8.8% -9.1%

Source: Econometrix, 2009

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Table 1.2 provides an overview of actual and forecast growth rates for various economic indicators from 2007 to 2012. It is expected that households will be significantly affected by declining levels of disposable income and by rising prices, with growth in final household consumption having declined from 6.6% in 2007 to 2.6% in 2008. This decline can largely be attributed to the ten interest rate increases that occurred from 2006 to 2008. It is projected that there will be a decline in consumption of 1.1 percentage points in 2009. Consumption will recover in 2010 and 2011, but it is not expected to return to the level of growth witnessed in 2007. Growth in investment levels has declined, but remained positive and relatively high at 11.2% for 2008. It is projected that investment growth will decline to 4% in 2009 but, because of the large government investment in infrastructural projects mentioned earlier, should reach 5.1% in 2012.

GDP growth declined from 5.1% in 2007 to 3.1% in 2008 and is projected to decline further to 1.5% in 2009. Thereafter, it is projected that growth will recover to 4.9% by 2010. For 2007, CPI was 7.1% and, fuelled by massive increases in the prices of oil and food, exceeded the inflation target band of 3%-6%. CPI increased further to 10.3% in 2008, but is expected to decline to 6.5% for 2009. However, it is projected that CPI will remain outside the target range until 2012, when it should decline to 5.9%. For 2008, the current account deficit amounted to 8% of GDP; it is projected that this deficit will increase to 9.1% of GDP by 2012.

Table 1.3: Gross Value Added by Sector1 , 2001-2008

2001 2002 2003 2004 2005 2006 2007 2008

Primary Rm 89,883 92,219 94,202 95,446 98,432 96,084 96,853 97,737

Growth Rate -1.1% 2.6% 2.2% 1.3% 3.1% -2.4% 0.8% 0.9%

Secondary Rm 208,241 214,892 214,609 225,862 237,736 251,654 267,020 2,748

Growth Rate 2.6% 3.2% -0.1% 5.2% 5.3% 5.9% 6.1% 2.9%

Tertiary Rm 564,129 587,594 614,155 646,145 679,543 721,203 759,966 786,761

Growth Rate 3.6% 4.2% 4.5% 5.2% 5.2% 6.1% 5.4% 3.5%

Source: Quantec Research, 2009

Table 1.3 shows that the South African economy continues to be dominated by the tertiary sector which, experiencing a period of sustained growth, rose from 3.6% in 2001 to 6.1% in 2006. At the other end of the spectrum, the primary sector accounts for the smallest share of gross value added (GVA: this is the value added to the underlying cost of the product at every stage of the production process). In the primary sector, there has been a low level of GVA growth in the period under review, at 1.1% and 2.4% in 2001 and 2006 respectively. The secondary sector is the second largest sector and initially exhibited a low level of growth, contracting by 0.1% in 2003. The rate of growth then increased from 5.2% in 2004 to 6.1% in 2007. This increase can largely be attributed to enhanced growth in manufacturing, the driving force of the secondary sector. It should be noted that growth in both the secondary and tertiary sectors declined in 2008 by 3.2 and 1.9 percentage points respectively. This decline can be attributed to the impact of the global recession and the resulting decline in global demand felt within the domestic economy.

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1 Broad sectoral classification decomposes the economy into three sectors, namely the primary, secondary and tertiary sectors. The primary sector transforms natural resources into inputs that go into the production process within other sectors. The secondary sector takes raw materials from the primary sector and manufactures finished goods. The tertiary sector extends beyond the production of tangible goods and produces services.


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1.3.2 PricesIn 2007, the global economy was characterised by rising prices, particularly for oil and food. In July 2008, the price of Brent Crude Oil peaked at an unprecedented level of $147.27 per barrel. It then plummeted to $33.87 per barrel in December 2008 and failed to rebound, increasing to a mere $34 per barrel by mid-February 2009. The increase in the price of oil was one of the factors contributing to the increase in food prices in 2007 and 2008. They were also driven up by a combination of droughts in grain producing countries and increased demand for food products as a source of bio-fuels within developed countries.

Figure 1.1: CPI & the Repo Rate, Gauteng & South Africa, 2001-2008

Source: SARB, Quarterly Bulletins, 2009

Figure 1.1 shows the Consumer Price Index (CPI) for Gauteng and South Africa together with the repurchase (repo) rate over the period 2001 to 2008. CPI in Gauteng and South Africa follow a similar pattern, with CPI in the country as a whole being somewhat higher than in Gauteng for the last two quarters of 2008. The highest CPI growth rates were in the fi rst two quarters of 2008. To curb this trend, the South African Reserve Bank (SARB) responded with a counter-cyclical monetary policy, increasing the repo rate ten times between 2006 and 2008. From 6.5% in the fi rst quarter of 2006, the rate peaked at 12% in the second quarter of 2008. Because of the global economic climate and to ease the increased debt servicing burden on households, between December 2008 and May 2009 the SARB reduced the repo rate four times by a total of 450 basis points. The dampening effect of this on prices was seen in the slowing of CPI growth in the last two quarters of 2008.

1.3.3 International TradeInternational trade volumes have slowed signifi cantly due to reduced demand as a result of the global economic slump. The IMF2 projects a 14.3 percentage point contraction in international trade volumes between 2008 and 2009. For 2008, the National Treasury3 estimates that import growth exceeded export growth, at 3.2% and 2.1% respectively. For 2009, imports and exports are forecast to contract by 3.7% and 1.4% respectively.

________________________________________________________________________________________________

2. IMF, World Economic Outlook Update, 28th January 20093. National Treasury, Budget Review 2009

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Figure 1.2: Balance on Current Account (% of GDP), South Africa, 2001-2008


Figure 1.2 shows South Africa’s current account balance as a percentage of GDP for the period 2001 to 2007. For 2001 and 2002, the current account was in surplus. However, from 2003 onward it has shown a sustained and increasing defi cit which grew from 1.1% of GDP in 2003 to 7.4% in 2008. As shown in Table 1.2, this defi cit is projected to increase to 8.8% in 2009 and to 9.1% in 2012.

Figure 1.3: Export Composition, South Africa, 2008


Figure 1.3 shows the composition of South Africa’s exports for 2008. The largest export category by value was pearls, precious stones & metals (23%), followed by mineral products (19%) and base metals (18%). Total exports from South Africa amounted to R637 billion for 2008, with the country’s largest export markets being Japan (10%), the USA (10%), Germany (7%) and the UK (6%).


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Figure 1.4: Import Composition, South Africa, 2008


Figure 1.4 shows the composition of South African imports for 2008. The largest import category by value was machinery & mechanical appliances (25%), followed by mineral products (24%) and vehicles & transport equipment (10%). In 2008, South Africa imported goods to the value of R721 billion. These came mainly from Germany (11%), China (11%) and the USA (8%).

1.3.4 Investment & Infrastructure SpendingSouth Africa has an ageing public infrastructure that does not meet the needs of the population. The government has therefore embarked on a large infrastructure investment programme of around R787 billion over the next three years. Because of the infrastructure requirements for hosting the 2010 Soccer World Cup, a considerable part of this programme, including the Gautrain and the Bus Rapid Transit (BRT) system, was already planned and underway before the start of the global recession. This has provided some protection from the crisis and has been a stimulus for the country’s economy.

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Figure 1.5: Investment Levels & Growth, South Africa, 2005-2012*

Source: Econometrix, 2009Note: Years with a * indicate forecasts

Figure 1.5 shows levels of and growth in investment for South Africa from 2005 to 2008, with forecasts to 2012. It shows investment at almost R200 billion in 2005, increasing to over R290 billion in 2008. The annual rate of investment growth increased to 16.3% in 2007, followed by a decline to 11.2% in 2008. It is projected that the global recession will have a marked effect on investment spending, with its rate of growth projected to decline by 7.2 percentage points to 4% in 2009. It is then projected to recover somewhat to 5.1% in 2012. These projected fi gures look plausible given the decline in public infrastructure spending after the initial medium term planned spending. Figure 1.6: Growth in Investment by Asset Type, 2005-2012*



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Figure 1.6 shows the growth in investment by asset type from 2005 to 2012. From 2005 to 2007, the rate of growth in investment in construction assets increased, peaking at over 40% in 2007 and then declining to about 25% in 2008, with a forecast decline to just below 10% in 2009. Growth in investment in non-residential buildings follows a similar pattern, reaching a peak of 20% in 2007 and with a projected decline to about 3% in 2009. Growth in investment in machinery & equipment was stable at around 12% from 2006 to 2008. This is projected to stagnate in 2009 and to increase again in 2010. Investment in the residential property market has been highly affected by the bursting of the property bubble which began in the US property market and spread across the world. As a result, growth in investment in residential buildings fell from over 30% in 2005 to stagnation in 2007 and into negative territory in 2008. It is forecast to recover to relatively low but stable levels for the remainder of the period. Table 1.4: Infrastructure Expenditure (R million), 2008/09-2011/12

Actual Medium Term Expenditure Estimates

2007/08 2008/09 2009/10 2010/11 2011/12

National Departments 5,712 7,157 8,024 8,641 12,867

Provincial Departments 29,395 34,664 39,899 46,517 52,439

Municipalities 30,736 46,093 49,496 53,738 59,074

Public Private Partnerships 3,857 7,633 13,897 11,692 11,727

Extra-budgetary Public Entities 3,726 4,895 6,971 7,509 8,112

General Government 73,426 100,442 118,288 128,098 144,219

Non-financial Public Enterprises 56,765 90,192 119,585 131,335 145,842

Total 130,194 190,634 237,873 259,433 290,061

Percentage of GDP 6.3% 8.3% 9.6% 9.7% 9.8%

Source: National Treasury, Budget Review 2009

Table 1.4 shows infrastructure expenditure for 2007/08 and 2008/09 as well as estimates for the MTEF. Infrastructure expenditure will increase by R47 billion from 2008/09 to R238 billion in 2009/10. Over the MTEF period, the public sector infrastructure investment programme will be concentrated in disbursements to non-financial public enterprises, general government, municipalities and provincial departments. The public sector infrastructure programme includes investment in school buildings, roads, clinics, regional bulk water infrastructure and public transport infrastructure. A major factor is the stimulus provided by preparations for the 2010 Soccer World Cup soccer. As well the stadia and the hospitality facilities being built and refurbished, major work is underway to improve the condition of roads, and new transport systems are being developed.

1.3.5 Household Consumption, Saving and DebtHousehold consumption and debt patterns are important illustrators of the structure of an economy. Consumption patterns indicate society’s level of vulnerability and the extent to which it is affected by changes in the economy. Debt levels also point to household vulnerability and the extent to which households will be affected by changes in the interest rate and by increases in the cost of living. Household consumption has been declining as a result of interest rate increases between 2006 and 2008.

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Figure 1.7: Consumption Expenditure Composition, South Africa, 2008


Figure 1.7 shows the broad categories of South African consumption expenditure in 2008. The largest percentage of expenditure was on services (38%) followed closely by non-durable goods (35%), with semi-durable goods at 16% and durable goods at 10%. Consumption patterns change over time in line with changes in consumer tastes and in economic conditions. In 2009, Statistics South Africa (StatsSA) changed the basket of goods and services as well as the classifi cation of particular goods used in calculating the CPI. These changes were implemented to take account of changes in the composition of consumption, and the fact that some goods have become obsolete and others have emerged because of technological developments.

Figure 1.8: Consumption Expenditure Patterns, SA, 2005-2012*



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Figure 1.8 illustrates the changes in consumption patterns in South Africa over the period under review. Consumption expenditure on durable goods declined slightly from R98 billion in the fi rst quarter of 2007 to R89 billion in the third quarter of 2008. This can be attributed to the fact that durable goods are often fi nanced through loans and other forms of credit, and are therefore particularly sensitive to changes in the interest rate. These changes have had a dampening effect on this consumption category.

The savings rate within a country is commonly viewed as a prerequisite for economic growth. Savings are invested, and this stimulates economic growth. The South African economy has traditionally been characterised by a low level of savings, particularly within households.

Figure 1.9: Ratio of Household Savings and Debt to Disposable Income, South Africa, 2001-2008


Figure 1.9 shows the trend of household savings and debt in proportion to disposable income from 2001 to 2008. The savings ratio is the share of disposable income that households save. In 2001, South African households saved about 0.8% of their disposable income. This savings-disposable income ratio exhibited a downward trend and became negative in 2006. South African households have therefore been dissaving since 2006, which means that existing savings are being eroded and debt is being accumulated. The degree of dissaving declined in the second and third quarters of 2007 before deteriorating to almost -0.8% of disposable income in the fi rst quarter of 2008. It improved to -0.2% in the fourth quarter of 2008. This can be attributed to increases in interest rates which have dampened consumer spending.

The debt ratio is the relationship between a household’s debt and its disposable income. Figure 1.9 indicates a rising debt burden over the period 2001-2008, with savings rates declining as debt levels increase. The debt-disposable income ratio reached an all-time high of 78% in the fourth quarter of 2007.

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Figure 1.10: Consumer Credit Extension & the Repo Rate, 2005-2012*


Figure 1.10 shows the trend of credit extension and the repo rate. Growth in credit extension has responded markedly to the global fi nancial crisis. After peaking at 26% in 2005, it declined to 20% in 2008 and is forecast to fall to 15% in 2009. As the fi nancial sector responded to the global recession by reducing the amount of credit extended to households, the SARB increased the repo rate in order to dampen consumer spending. The repo rate peaked at 12% in 2008, and is forecast to decline to 9% in 2009. In line with international trends, the SARB has reduced the repo rate several times in order to ease the debt-servicing burden on households during this time of economic downturn.

1.4 Conclusion

The world is currently tackling the challenge of emerging from the most diffi cult economic period since the Great Depression. This global recession has been unique not only for its severity but also because it appears to mark the dawn of a new paradigm in economics. The South African economy has been somewhat shielded from the full impact of the global recession because of the infrastructural investment programme that had gained momentum by the time that the effects of the crisis became widespread. In providing an overview of global and national economic performance as well as forecasts for future economic performance, this chapter describes the international and national context of the trends within the Gauteng provincial economy. More detail on these is provided in the remainder of this publication.


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Chapter 2: Economic Performance of Gauteng

2.1 Introduction

Gauteng is the economic powerhouse of the South African economy, contributing over a third of the national Gross Domestic Product (GDP). Due to the relative size of the province’s economy, the impact of the global recession on the Gauteng economy inevitably mirrors the impact felt within national economy. The impact includes a slowdown in provincial production, an increasing provincial trade deficit, declining household consumption and rising household debt levels.

In 2005, the Gauteng Provincial Government (GPG) ratified the Gauteng Growth and Development Strategy (GGDS). The main goal of the strategy was to halve unemployment and poverty by 2014. It also aimed to increase the provincial growth rate to 8% by 2014. In light of the deterioration of the global economic climate, achieving these goals will be difficult and will require innovative solutions to the challenges faced by the province. However, the infrastructural development taking place should provide a foundation for interventions to address the negative impact of the global recession.

In 2006, the GPG initiated another development strategy: the Gauteng Global City Region (GCR). The main aim of this is to align the provincial and local government boundaries and jurisdictional demarcations, according to functionalities, with the national and global economy. In doing this, GPG aims to create an integrated and internationally competitive City Region. This strategy is well-timed as increased integration will enhance provincial efficiency which is particularly important in the current economic climate.

This chapter analyses Gauteng’s economic performance and gives the outlook for future performance. It begins with a description of the structure of the provincial economy and its sectoral composition. The province’s trade performance is decomposed to provide information about imports and exports. Investment activity and savings behaviour are analysed and specific reference is made to the planned infrastructural spending. Lastly, the economic situation at household level is described, with a detailed overview of household income and expenditure trends.

2.2 Provincial Production

The Gauteng economy has always played a significant role in the national economy and continues to grow in importance through its increased percentage contribution to the GDP. This section outlines the relative contribution of Gauteng to the South African economy, and provides an inter-provincial comparison as well as trends and forecasts for economic growth.


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Figure 2.1: Gauteng’s Contribution to National GDP, Gauteng & South Africa, 2001-2008±

Source: Global Insight, 2009Note: ± indicates an estimate

Figure 2.1 shows the relative contribution of the Gauteng economy to that of South Africa from 2001 to 2007, and the estimated share for 2008. The province’s relative contribution has increased steadily, from 33.9% in 2001 to 35% in 2007. It is estimated to have increased to 35.1% for 2008. As the following diagram shows, in that year the Gauteng economy made the largest economic contribution of any of the provinces.

Figure 2.2: Provincial Contributions to National GDP, 2008±

Source: Global Insight, 2009Note: ± indicates an estimate

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Figure 2.2 shows the estimated contributions to GDP by province for 2008. At 35.1%, Gauteng is estimated to have contributed the largest share, followed by KwaZulu-Natal (16.5%) and the Western Cape (15.1%). Limpopo (6.1%), the Free State (4.9%) and the Northern Cape (2.1%) are estimated to have contributed the smallest shares to national GDP in the year.

Figure 2.3: GDPR and Average Annual Growth, Gauteng & South Africa, 2005-2012*

Source: Econometrix, 2009Note: ± indicates an estimate, * indicate forecasts

Figure 2.3 shows the performance of the Gauteng economy from 2005 to 2007 with an estimate for 2008 and forecasts for 2009 to 2012. The Gauteng growth rate closely aligns with that of the country as a whole, illustrating the province’s role as the driver of the South African economy. Over the period under review, Gauteng’s Gross Domestic Product by Region (GDPR) is indicated as increasing from just over R400 billion in 2005 to over R500 billion in 2012. The rate of growth was relatively stable between 2005 and 2007, after which it declined from 5.2% in 2007 to 3.2% in 2008. It is projected that this growth rate will decline to 2.1% in 2009 due to the negative impact of the global recession, after which it should recover to 4.4% in 2012.

2.3 Sectoral Analysis

Sectoral analysis provides an insight into the structure of Gauteng’s economy by identifying the sectors that make the largest contribution to it. This assists in identifying strengths and weaknesses in the provincial economy. Sectoral analysis is also a useful tool for monitoring structural changes within an economy and hence for developing policy based on actual trends.


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Figure 2.4: Broad Sectoral Composition, Gauteng & South Africa, 2008±

Source: Quantec Research, 2009Note: ± indicates an estimate.

Figure 2.4 compares the broad sectoral composition of the Gauteng economy with that of South Africa. Gauteng’s economy is dominated by a relatively large tertiary sector, totalling 70%. This is followed by the secondary sector (28%) and a relatively small primary sector (2%). For South Africa as a whole, these fi gures are 68% (tertiary sector), 24% (secondary sector) and 8% (primary sector). The primary sector demonstrably makes a relatively small contribution to the province’s economy in comparison to that of the tertiary sector.

Figure 2.5: Sectoral Composition, Gauteng & South Africa, 2008±


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Figure 2.5 provides estimates of the contributions, by sector, to the Gauteng and South African economies for 2008. The largest sectors in the Gauteng economy in that year were finance & business services (25.2%), manufacturing (20.3%) and community, social & other personal services (19.7%). The structure of the South African economy shows a similar pattern with the largest sector being finance & business services (22.0%), followed by community, social & other personal services (19.7%) and manufacturing (17.4%). The three smallest sectors within the Gauteng economy were electricity & water (2.1%), mining (1.7%) and agriculture, forestry & fishing (0.4%). Compared with Gauteng, the South African economy included relatively larger shares from agriculture, forestry & fishing (2.9%) and mining & quarrying (5.5%). Table 2.1: Sectoral Composition, Gauteng, 2001-2008±

2001 2002 2003 2004 2005 2006 2007 2008±

Agriculture, forestry & fishing 0.5% 0.5% 0.5% 0.5% 0.5% 0.4% 0.4% 0.4%

Mining & quarrying 2.9% 2.8% 2.6% 2.4% 2.3% 2.1% 2.0% 1.7%

Primary Sector 3.4% 3.4% 3.1% 2.9% 2.7% 2.5% 2.3% 2.1%

Manufacturing 22.7% 22.4% 21.4% 21.3% 21.2% 21.1% 20.8% 20.3%

Electricity, gas & water supply 2.5% 2.5% 2.5% 2.4% 2.3% 2.3% 2.2% 2.1%

Construction 2.7% 2.9% 3.2% 3.4% 3.7% 4.0% 4.5% 5.1%

Secondary Sector 28.0% 27.8% 27.1% 27.1% 27.2% 27.4% 27.6% 27.6%

Wholesale & retail trade 15.0% 14.7% 15.3% 15.4% 15.9% 16.1% 16.1% 15.6%

Transport & communication 9.1% 9.4% 9.7% 9.8% 9.8% 9.8% 9.8% 9.9%

Finance & business services 22.5% 23.5% 23.5% 23.9% 23.9% 24.2% 24.5% 25.2%

Community, social & other personal services

22.1% 21.3% 21.3% 20.8% 20.5% 20.0% 19.6% 19.7%

Tertiary Sector 68.6% 68.9% 69.8% 70.0% 70.0% 70.1% 70.1% 70.4%


Table 2.1 gives the trends in sectoral composition in Gauteng from 2001 to 2007, with estimates for 2008. It shows clearly the decline in the importance of the primary sector, from 3.4% in 2001 to 2.1% in 2008. As Gauteng becomes more similar in economic structure to advanced economies, production moves away from the resource-based primary sector and toward the more skills-intensive tertiary sector. Although smaller, there has also been a decline in the importance of the secondary sector, from 28% in 2001 to 27.6% in 2008. Within the sector, there has been an increase in the relative share of construction, which grew by 2.4 percentage points over the review period. This growth can be attributed to Government’s commitment to the renewal of infrastructure, and improvements to business infrastructure in preparation for the 2010 Soccer World Cup and beyond that the creation of Gauteng as a Global City Region (GCR). The tertiary sector has grown in relative importance over the review period, from 68.6% in 2001 to 70.4% in 2008.


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Figure 2.6: Growth in Primary Sector Production, Gauteng, 2001-2008±


Figure 2.6 illustrates growth rates within the primary sector from 2001 to 2007, with an estimate for 2008. Agriculture, forestry & fi shing, and mining & quarrying, have exhibited relatively volatile growth over the review period, with mining contracting from 2003 to 2006. Between 2007 and 2008, mining is estimated to have contracted further by more than 10%, infl uenced by the decline in commodity prices due to the economic down-turn. Agriculture, forestry & fi shing contracted in 2003 and 2006.

Figure 2.7: Growth in Secondary Sector Production, Gauteng, 2001-2008±


Figure 2.7 shows the growth rates in the secondary sector from 2001 to 2007, with an estimate for 2008. The manufacturing sector exhibited healthy growth rates over the period. A contraction in 2003 was followed by a recovery in 2004, with a growth rate of around 5% in 2007. However, it is estimated that this declined to almost 0% in 2008, which could be the result of declining global demand for consumer goods. The growth rate in the electricity & water sector began in negative territory in 2001, after which it increased to just under 5% in 2002,

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maintaining a positive growth rate until 2007. It is estimated to have contracted in 2008. The growth rate in the construction sector out-performed the rest of the secondary sector, increasing from around 0% in 2001 to approximately 18% in 2008.

Figure 2.8: Growth in Tertiary Sector Production, Gauteng, 2001-2008±


Growth rates in the tertiary sector exhibited relative volatility with the community, social & other personal services sector trending upward. The rate of growth in the transport & communication sector has declined over the review period from a peak of about 9% in 2002 to 4% in 2008. Finance & business services were also relatively volatile, with two troughs of 4% and 5% in 2003 and 2005 respectively. The rate of growth in the wholesale & retail trade sector peaked at 8% in 2005, declining to 6% in 2007 and with an estimated dramatic fall in 2008 to 0.6%. This relates to the decline in consumer spending on goods produced within this sector. The retail survey by the Bureau of Economic Research (BER) has shown that the volume of retail sales in Gauteng declined in the fi rst, second & third quarters of 2008, and that profi tability in the retail sector declined in every quarter of 2008 (Quantec Research, 2009).

2.4 Trade Position

The Gauteng economy participates actively in the global economy, trading throughout the country and the region, and overseas. Trade activity within the province constitutes a large percentage of the country’s total, accounting for 63.7% of national exports and 56.5% of national imports.


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Figure 2.9: Balance of Trade, Gauteng, 2001-2008


Figure 2.9 shows the balance of trade for Gauteng from 2001 to 2008. In 2001, Gauteng’s trade defi cit was less than R5 billion, but it increased rapidly to R40 billion in 2007. In 2008, this defi cit declined to 2001 levels, at less than R 5 billion. This is due to the fact that provincial exports grew by over 40% (Quantec Research, 2009). The decrease in commodity prices and relative economic volatility in 2008 led to increased demand for gold, a product of the province. Another factor contributing to the increase in the value of provincial exports was growth of food exports. This was a result of declining commodity prices which increased the relative demand for food. The size of the province’s trade defi cit makes its economy particularly vulnerable to developments in the international economy, as a large share of its consumption is dependent on imported goods and services.

Figure 2.10: Export Composition, Gauteng, 2001 & 2008


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The value of exports from Gauteng has more than doubled since 2001, rising to over R405 billion in 2008 (Quantec Research, 2009). The composition of exports has also changed over the same period, as shown in Figure 2.10. In 2001, the largest export categories were pearls, precious stones & metals (36%) and other (consisting of a range of other goods and services each accounting for a small share of total exports) at 23%. The percentage contribution from base metals and mineral products increased between 2001 and 2008; that of pearls, precious stones & metals, and other, declined.

Figure 2.11: Export Composition of Pearls, Precious Stones & Metals, Gauteng, 2008


Figure 2.11 decomposes the pearls, precious stones & metals category to enable a more detailed understanding of the composition of exports from Gauteng. The largest shares of exports within this category are comprised of platinum (51.7%) and gold (34.4%), with diamonds and other goods totalling less than 15%. The large percentage of platinum exports has meant that Gauteng has been particularly affected by recent declines in platinum prices. It is however somewhat buffered by the safe-haven status of gold as an asset that can be utilised as a store of value during times of uncertainty.

Figure 2.12: Major Trading Partners for Diamonds, Gold & Platinum, Gauteng, 2007



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Figure 2.12 shows the composition of Gauteng’s three mineral exports (diamonds, gold and platinum) by destination of the exports. The United Arab Emirates, Switzerland, Germany and Japan are major importers. There is more concentration in export destinations for gold than for diamonds and platinum. Gold is seen as a safe investment in times of recession. Diamonds and platinum do not enjoy the same status and are viewed as luxury goods. Any decline in demand for them affects exports from Gauteng to the advanced industrialised countries. Figure 2.13: Growth in Gold & Platinum Prices, 2005-2012*

Source: Quantec Research & Econometrix, 2009

Figure 2.13 shows the growth in the gold and platinum price from 2005 to 2008 with projections to 2012. Between 2005 and 2008, they exhibit a similar, cyclical growth pattern. The growth rate in their prices peaked at approximately 45% in 2008. It is projected that the price of platinum will contract in 2009 by about 20%, and that the growth rate in the gold price will decline in 2009 and contract by 10% in 2010. Thereafter, the rate of growth for both prices is projected to recover. The decline in the price of platinum has serious consequences for the Gauteng economy as it is one of the province’s largest exports. The decline in the rate of growth in the gold price is not projected to be as extreme and to be more short-lived.

Figure 2.14: Import Composition, Gauteng, 2001 & 2008


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Figure 2.14 shows the composition of Gauteng imports and the changes in this composition between 2001 and 2008. The composition of imports has changed fairly dramatically during the period under review. Mineral product imports exhibited the most signifi cant change, increasing by 18 percentage points. Chemical product imports declined by 13 percentage points. There were also relatively small declines in the share of imports of wood & paper and clothing & footwear.

Figure 2.15: Import Composition by Country of Origin, Gauteng, 2008


Figure 2.15 shows the composition for 2008 of Gauteng’s three largest categories of imported products: minerals, chemicals, and plastics & rubber. It also shows the countries from which these products came. 31% of mineral products imported into Gauteng came from Saudi Arabia, 20% from Nigeria and 17% from Iran. The largest providers of chemical product imports were Germany (13%), the USA (12%) and China (9%). Plastic & rubber imports came mainly from Germany (12%), the US (10%) and China (10%). Figure 2.16: Import Composition of Mineral Products, Gauteng, 2008



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Figure 2.16 further decomposes imports within the mineral product category for 2008. The largest share of imports within this category are petroleum oils, oils from bituminous minerals & crude (67%), followed by oils petroleum, bituminous, distillates (12%). This illustrates Gauteng’s exposure to changes in international oil prices as this is the largest category of mineral imports into the province.

2.5 Investment and Saving

Another buffer in the current economic climate has been the increase in investment related to the large infrastructural development projects underway. Many of these projects are located within Gauteng and therefore contribute positively to the province’s economy.

In implementing the integration of economic activities within Gauteng, the GCR has aimed to ensure that infrastructure investment takes place in a manner that enhances the logical and functional links between the various parts of the provincial economy. These projects include the creation of the City Deep Transport Logistics Hub; improvements to the logistics processes at the Johannesburg International Airport (JIA) in order to attract more international business; construction of the Gautrain Rapid Rail Link and stadia; the Bus Rapid Transit system; and upgrading of provincial hospitals and schools.

Provincial and national levels of savings are low in comparison to savings levels in other countries. Savings rates in developing countries for the period 1985 to 1994 averaged over 15%, with China displaying the highest rates at over 35%4 . The savings rate in South Africa has been below 5% over the past decade, with negative savings at provincial level (Quantec Research, 2009). Investment requirements therefore cannot be met through domestic savings alone, and foreign investment is needed.

Figure 2.17: Investment Levels & Growth, Gauteng & South Africa, 2001-2007


Figure 2.17 compares investment levels and growth for Gauteng and South Africa from 2001 to 2007. Investment levels in Gauteng increased from R50 billion in 2001 to close to R150 billion in 2007. Investment in South Africa grew substantially from 15% in 2005 to 25% in 2006, increasing further to approximately 27.5% in 2007. Investment growth in Gauteng has followed a similar trajectory, from about 17.5% in 2005 to just over 27.5% in 2007.

________________________________________________________________________________________________4 Loayza, N., Schmidt-Hebbel, K. & Serveri, L. 2000. Saving in Developing Countries: An Overview, The World Economic Review, Vol. 14, No. 3

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Table 2.2: Sectoral Investment Growth Rate Forecasts, Gauteng, 2008± & 2009*

Sector 2008± 2009*

Agriculture, forestry & fishing 17% 29%

Mining & quarrying 9% 17%

Manufacturing 14% 18%

Electricity & water 25% 3%

Construction 14% 26%

Wholesale & retail trade 13% 21%

Transport & communication 24% 7%

Finance & business services 19% 18%

Community, social & personal services 13% 11%

Source: Econometrix, 2009Note: ± indicates an estimate. * indicates a forecast.

Table 2.2 provides an estimate of the 2008 growth of sectoral investment expenditure in Gauteng, with a projection for 2009. It is estimated that in 2008 investment in the electricity & water sector grew the most at 25%, declining to 3% in 2009. This substantial rate of growth can be attributed to the large investment plan that government has implemented in order to address the lack of electricity generation capacity. Investment in the transport & communication sector is estimated to have grown at 24% in 2008, with 7% projected for 2009. This can be attributed to the investment spending on construction of the Gautrain Rapid Rail Link project. For 2009, it is projected that investment growth in agriculture, forestry & fishing, followed by construction, will have the highest investment growth rates at 29% and 26% respectively. The high rate of investment growth in agriculture, forestry & fishing will mainly be driven by national government’s 2009/10 investment in the sector.

Table 2.3: Composition of Investment by Project Type, Gauteng, 2005-2012*

Project Type 2005 2006 2007 2008± 2009* 2010* 2011* 2012*

Residential buildings 5% 5% 10% 9% 9% 9% 9% 9%

Non-residential buildings 18% 10% 18% 9% 9% 9% 9% 9%

Civil works 59% 65% 30% 36% 36% 36% 36% 36%

Transport equipment 13% 15% 29% 35% 35% 35% 35% 35%

Machinery & equipment 6% 6% 13% 12% 12% 12% 12% 12%

Total 100% 100% 100% 100% 100% 100% 100% 100%

Source: Econometrix, 2009Note: ± indicates an estimate. * indicates a forecast.

Table 2.3 analyses the composition of investment by type of project for the period 2005 to 2012. Civil works constitutes the largest share of investment but exhibits a decline from 59% in 2005 to a projected 36% in 2012. It is estimated that the share of investment in transport equipment increased from 29% in 2007 to 35% in 2008; thereafter, this is projected to remain stable at 35% for the remainder of the period. The share of investment in residential and non-residential buildings is projected to remain constant at 9% from 2008 to 2012.


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Table 2.4: Infrastructure Budget Allocations over the Medium Term Expenditure Framework (R million),

Gauteng, 2009/10 – 2011/12

Provincial Department 2009/10 2010/11 2011/12

Department of Health (DoH) 1,561 1,963 2,206

Department of Education (DoE) 754 888 1,017

Social Development (DSD) 155 135 139

Department of Housing 3,432 3,860 4,415

Department of Public Transport, Roads & Works (DPTRW) 6,707 4,118 3,765

Agriculture, Conservation and Environment (GDACE) 19 13 11

Total 12,628 10,977 11,553

Source: Gauteng Treasury, 2009

Table 2.4 provides information on the Medium Term Expenditure Framework (MTEF) infrastructural budget from 2009/10 to 2011/12 for the province. For 2010, the largest allocation of R6.7 billion, or 53% of the total provincial infrastructure budget, has been allocated to the Department of Public Transport, Road & Works (DPTRW). This allocation is in accordance with priority development plans to improve the condition of roads for the volumes of traffi c anticipated during the 2010 Soccer World Cup. In the two outer years, this large expenditure on construction and improvement of roads and public works is expected to decrease. 2011/12 infrastructural development for the Department of Health (DoH) and the Department of Education (DoE) will grow to R2.2 billion and R1 billion respectively. At R11.7 billion, the Department of Housing has also been allocated a relatively large share of the provincial MTEF infrastructure budget.

Figure 2.18: Household Savings by Province, 2007


Figure 2.18 compares household saving levels by province for 2007, and shows the relatively low level of savings within South Africa as a whole. Three of the nine provinces exhibited dissaving, with Gauteng being the largest at R7 billion. It is important to note that the Eastern Cape and the North West, the other two provinces with negative savings, are among the poorest in the country. There is a paradox in the fact that Gauteng is the wealthiest province but has the highest level of negative saving in South Africa, indicating an unsustainable level of household consumption.

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Figure 2.19: Household Savings Ratio by Province, 2001-2007


The savings ratio is the ratio of savings to disposable income, which is the share of disposable income that households save. Figure 2.19 provides an inter-provincial comparison of the household savings ratio from 2001 to 2007. For all the provinces, the savings ratio trends downward for the review period, and for the North West and the Eastern Cape the ratio entered negative territory in 2007. The savings ratio for Gauteng is unique in that it is negative for the entire review period, with a sustained decrease from -1% in 2003 to over -2% in 2006. Between 2006 and 2007, the saving-disposable income ratio levelled out. This could potentially be attributed to the reduction of household debt as a result of the introduction of the National Credit Act which requires more stringent credit checks prior to the approval of credit for consumers.

2.6 Household Income and Expenditure

Real levels of disposable income have increased over the last decade due to the increase in the size of the middle class, with their potential to earn higher incomes. Households are able to increase their consumption expenditure. However, in the context of the global recession and the national economic downturn, incomes and expenditure are negatively affected. As the national and provincial economies slow down, companies respond by cutting jobs. Households earn less, and have less money to spend on goods and services. The composition of expenditure changes in line with changing priorities.


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Figure 2.20: Disposable Income, Gauteng, 2001-2007


Figure 2.20 shows that disposable income levels in Gauteng have increased steadily from about R240 billion in 2001 to about R320 billion in 2007. The rate at which disposable income grew was greatest in 2003 (3.5%) and 2004 (5.9%). Between 2006 and 2007, this decreased from 7.3% to 7.1%. Growth in consumption expenditure follows a similar trend due to the close correlation between disposable income and consumption spending. Growth in consumption spending increased from 2001 to 2006, but then declined by approximately one percentage point from 8% in 2006 to 7% in 2007. This could be the result of interest rate increases and rising prices, both of which have constrained household spending power. Figure 2.21: Composition of Household Consumption Expenditure, Gauteng, 2001-2007


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Figure 2.21 compares the composition of consumption expenditure for 2001 with that of 2007. The preference ordering is the same for both years but the relative shares of consumption changed notably. The shares of durable and semi-durable goods increased and there was a corresponding decline in the shares of non-durable goods and services. Analysing consumption over time enables understanding of changes in its composition. Table 2.5: Composition of Household Consumption Expenditure, Gauteng, 2001 & 2007

Goods & Services 2001 2007

Furniture & household appliances 1.8% 2.3%

Personal transport equipment 4.9% 5.7%

Recreational & entertainment goods 1.4% 3.1%

Other durable goods 0.8% 0.8%

Durable 8.9% 11.9%

Clothing & footwear 5.3% 9.9%

Household textiles, furnishings & glassware 1.4% 2.0%

Motor car tyres, parts & accessories 1.3% 1.5%


Miscellaneous goods 0.5% 0.5%

Semi-Durable 9.5% 15.3%

Food, beverages & tobacco 24.0% 21.8%

Household fuel & power 2.6% 2.3%

Household consumer goods 3.3% 3.7%

Medical & pharmaceutical products 1.7% 1.2%

Petroleum products 3.5% 2.8%


Non-durable 36.1% 32.8%

Rent 9.4% 7.8%

Household services (including domestic servants) 3.2% 2.7%

Medical services 6.8% 5.7%

Transport & communication services 10.3% 10.4%

Recreational, entertainment & educational services 4.5% 3.8%

Miscellaneous services 11.3% 9.7%

Services 45.5% 40.1%

Total 100.0% 100.0%


Table 2.5 compares the composition of household consumption expenditure in 2001 and 2007. In 2007, food, beverages & tobacco accounted for the largest share of consumption expenditure (21.8%), followed by transport & communication (10.4%) and clothing & footwear (9.9%). Between the two years, the share of durable goods and semi-durable goods increased by 3 and 5.8 percentage points respectively. In contrast, the share of consumption of non-durable goods and services declined. The share of non-durable goods consumption declined by 3.3 percentage points and the most notable decline within this category was that of food, beverages & tobacco.


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2.7 Conclusion

Because of the deterioration in 2008 and 2009 in the international and domestic economic climate, economic activity within the province is projected to decline from the 2007 rate of 5.7%. The impact of the global recession has been felt, albeit somewhat later than in other parts of the world.

Although the Gauteng economy is not completely shielded from the downturn in the global economy, it represents a tremendous opportunity nationally and within Gauteng itself due to the hosting of the 2010 World Cup and planned infrastructure expenditure. Expenditure on large infrastructure programmes, much of it taking place within Gauteng, was planned prior to the onset of the global recession and will serve to stimulate the national and provincial economies.

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Chapter 3: The Provincial Labour Market

3.1 Introduction

In 2004, the Gauteng Provincial Government (GPG) ratified the Gauteng Growth and Development Strategy (GGDS). This sets provincial economic targets, and aims to halve provincial unemployment by 2014. This would mean reducing the 2004 unemployment rate of 28% to 14% by 2014, and creating approximately 800,000 jobs. As 2014 approaches, it is time to review the progress made toward achieving the targets. In the 2009 provincial Budget Speech, MEC for Finance Mr. Mandla Nkomfe stated, “the GPG created an estimated 200,000 short to long-term jobs in infrastructure development, property management, creative industries, tourism, safety and security, community development and healthcare during this term of government”. The unemployment rate for the fourth quarter of 2008 was 20.7% compared with 30.4% in the same quarter of 2001, indicating that government interventions have had some positive impact. However, achieving the labour market targets as set out in the GGDS will be difficult in the context of the global recession.

Unemployment remains one of the most pressing problems in Gauteng in particular, given the large and growing working age population. There is considerable emphasis on finding ways to tackle it in innovative and holistic ways. This chapter analyses the labour market in the province, in many instances making use of inter-provincial comparisons to provide a national context. The chapter profiles both the labour force and unemployment, and highlights the causes and costs of unemployment. It also analyses employment intensity and labour remuneration within sectors of the provincial economy, and looks at employment in the informal sector.

3.2 Labour Force Profile

The labour market is important as it affects the lives of everyone. Labour market analysis makes a distinction between the narrow and broad classifications of the labour force. The broad labour force includes individuals who are employed and the unemployed who are actively searching for work as well as discouraged work seekers. The narrow labour force does not include discouraged work seekers. Individuals who are unemployed and have ceased the search for work are considered to be outside the labour force. The narrow definition is the official definition of unemployment in South Africa.

Table 3.1: Labour Force Profile, Gauteng, 2008 & 2009

2008 2009

Q1 Q2 Q3 Q4 Q1

Number % Number % Number % Number % Number %

Employed 4,019 77% 4,016 77% 4,063 78% 4,079 79% 4,030 78%

Unemployed 1,177 23% 1,134 22% 1,131 22% 1,062 21% 1,119 22%

Labour force 5,196 100% 5,195 100% 5,194 100% 5,141 100% 5,149 100%

Source: Stats SA, Quarterly Labour Force Survey (QLFS), 2008 & 2009

The labour force profile for Gauteng, as provided in Table 3.1, indicates that 77% of the labour force was employed in the first quarter of 2008. This increased to 79% in the fourth quarter of that year and thereafter slightly declined to 78% in the first quarter of 2009.


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Table 3.2: Labour Market Statistics, Gauteng & South Africa, 2001 & 2008

2001 2008 Change % Change

Gauteng

Working Age Population 5,401,656 7,085,320 1,683,664 31%

Narrow Labour Force 4,238,798 5,351,504 1,112,706 26%

Broad Labour Force 3,958,501 5,181,455 1,222,954 31%

Employed 2,757,934 4,055,525 1,297,590 47%

Narrow Unemployed 1,480,863 1,295,979 -184,884 -12%

Broad Unemployed 1,200,566 1,125,930 -74,636 -6%

Discouraged Workseekers 280,297 170,049 -110,248 -39%

South Africa

Working Age Population 27,159,332 30,751,868 3,592,536 13%

Narrow Labour Force 18,821,813 18,911,609 89,796 0%

Broad Labour Force 16,057,202 17,787,981 1,730,779 11%

Employed 10,841,101 13,712,823 2,871,722 26%

Narrow Unemployed 7,980,712 5,198,786 -2,781,925 -35%

Broad Unemployed 5,216,101 4,075,158 -1,140,943 -22%

Discouraged Workseekers 2,764,611 1,123,628 -1,640,983 -59%


Table 3.2 gives a comparative overview of changes in labour market statistics for Gauteng and South Africa between 2001 and 2008. All the percentage point changes in Gauteng were higher than for South Africa, with the exception of narrow and broad unemployment. The near doubling of the number of employed individuals in Gauteng indicates that relative to South Africa more job creation is taking place within the province compared to the country as a whole. Over the review period, the working age population5 in Gauteng has grown by 31 percentage points in comparison to South Africa as a whole which had a 13 percentage point increase. By both the narrow and broad definitions, in the review period the number of unemployed individuals decreased while the labour force has increased.

Kingdon and Knight6 explain that “higher unemployment rates tend to discourage workseekers and they may actively stop searching for work”. Discouraged work-seekers are individuals who have become discouraged from actively seeking work and are measured as the difference between broad and narrow unemployment. Between 2001 and 2008, the number of discouraged workseekers in Gauteng and South Africa declined by 39 and 59 percentage points respectively.

________________________________________________________________________________________________5 Working age population is defined as the working population between the ages of 15 and 65.6 Kingdon, G. & Knight, J. 2000. Are Searching and Non-searching Unemployment Distinct States when Unemployment is High? The Case of South Africa, Centre for the Study of African Economies,WPS/2000-2, pg.2

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Figure 3.1: Trend in Labour Productivity and Capital Intensity, Gauteng, 2001-2007


Figure 3.1 compares the trend in capital intensity and labour productivity from 2001 to 2007. Labour productivity is measured as the ratio of output to total employment or the amount of labour required to produce a unit of output. Capital intensity is measured as the ratio of fi xed capital stock to total employment, and shows the amount of capital required to produce a unit of output. Gauteng labour productivity shows an increasing trend throughout the period, meaning that the province is more productive as more output is produced with fewer people employed. As total employment is made up of a combination of labour and capital, it is important to analyse these variables together in order to determine structural changes within the labour market.

In the period described in the fi gure, capital intensity also increased. This means that more capital was used to produce output relative to the amount of labour needed, which means that the province is undergoing a process of capital deepening. This indicates that the increased labour productivity was not due to the amount of labour used but to the increased use of technology. This does not necessarily mean that employment was decreasing. It increased, but not at the same rate as capital and output. Gauteng is a capital-intensive province as indicated by the increases in labour productivity and capital intensity.

Figure 3.2: Employment Growth Rates, Gauteng, 2005-2012*



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Figure 3.2 analyses employment growth rates for Gauteng from 2005 to 2008, and forecasts the rates to 2012. Between 2005 and 2007, the rate fell. Much of this can be attributed to capital deepening. Although output has been increasing, it was driven by relatively capital-intensive methods of production which increased productivity but not employment. However, since 2007 employment growth has increased and is projected to grow to over 5% by 2010 before falling to under 4% in 2011. Much of the projected growth in employment is due to capital investment for the 2010 Soccer World Cup. Thousands of jobs have been created in the construction of stadia and other infrastructure projects such as airports, roads and railways. It will however be interesting to assess the impact of this on provincial employment after 2010.

3.3 Unemployment Profile

The unemployment rate remains a great challenge and addressing it is therefore a key provincial and national priority. Unemployment has economic and social costs. According to Kingdon and Knight7, “unemployment reduces economic well-being, lowers output and erodes human capita”. Social costs include social exclusion and the deterioration of family lives because of increased poverty.

South Africa and Gauteng in particular are characterised by structural unemployment linked to deficiencies in the structure of the economy and the labour market; there is a demand-supply labour mismatch. The Gauteng economy is dominated by the tertiary sector and there is thus a correspondingly high demand for skilled labour. However, available labour is largely semi-skilled and unskilled. The skills demanded are thus in short supply. Part of the problem lies within the primary and secondary education system, where insufficient numbers of learners take programmes for which there is a high demand, such as science and mathematics. It is here that they should acquire mathematical and scientific foundations which can be built on at tertiary level. Pauw, Oosthuizen & van der Westhuizen8 write that “most students enrol for business, commerce and management studies at the tertiary level and also account for the largest share in unemployment rate because they don’t have the skills needed to participate in the labour market”. However, unemployed graduates only make up a small percentage of the overall unemployed.

Table 3.3: Unemployment Rate by Province, 2008 & 2009

2008 2009

Province Q1 Q2 Q3 Q4 Q1

Western Cape 18.1% 19.1% 19.7% 16.9% 18.4%

Gauteng 22.7% 21.8% 21.8% 20.7% 21.7%

Kwazulu-Natal 22.7% 22.2% 22.0% 20.8% 22.6%

Northern Cape 24.9% 24.7% 22.7% 21.6% 27.4%

Free State 25.0% 25.9% 22.9% 22.6% 25.4%

Mpumalanga 23.7% 24.8% 23.2% 23.1% 24.7%

North-West 22.3% 22.9% 26.7% 25.2% 26.9%

Eastern Cape 28.1% 24.8% 27.4% 25.7% 28.4%

Limpopo 31.7% 30.6% 29.5% 28.9% 28.1%

South Africa 23.1% 23.1% 23.2% 21.9% 23.5%

Source: Stats SA, Quarterly Labour Force Survey (QLFS), Q1-Q4 2008 & Q1 2009

________________________________________________________________________________________________

7 Kingdon, G. & Knight, J. 2000. Are Searching and Non-searching Unemployment Distinct States when Unemployment is High? The Case of South Africa, Centre for the Study of African Economies,WPS/2000-2, pg.18 Pauw, K., Oosthuizen, M. & van der Westhuizen, C. 2006. Graduate Unemployment in the Face of Skills Shortages: A Labour Market Paradox, DPRU Working Paper 06/114, November 2006

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Table 3.3 compares 2008 unemployment rates across provinces. These tend to differ due to the socio-economic characteristics of the provinces which in turn are the result of historical factors. Provinces which are largely rural, such as Limpopo and the North West, had the highest unemployment rates. The more urbanised provinces had lower unemployment rates. The Western Cape had the lowest rate at 16.9% in the fourth quarter of 2008, increasing to 18.4% in the fi rst quarter of 2009. In that quarter, the rate in Gauteng was 21.7% and in Kwazulu-Natal 22.6%. The table shows that in all provinces there has been an increase in the rate of unemployment between the fourth quarter of 2008 and the fi rst quarter of 2009. The decrease in unemployment in the fourth quarter of 2008 results from the increased demand for labour during the festive seasons. When comparing year on year unemployment for the fi rst quarter in Gauteng, the unemployment rate decreased by only one percentage point. With the second lowest unemployment rate in South Africa, Gauteng is moving towards decreasing unemployment. However, achieving employment targets will be diffi cult in the context of the global recession.

Although provincial unemployment rates are declining, when compared to other countries South Africa as a whole still has a relatively high unemployment rate. The 2008 rates in some other developing countries were: China (4%), Brazil (8%) and Botswana (7.5%)9. South Africa’s relatively high and sustained rate is rooted in the structural nature of unemployment nationally and provincially, as outlined above.

South Africa is now focusing on increasing the number of skilled individuals. One of the policy initiatives aimed at addressing the shortage of appropriate skills is the Joint Initiative on Priority Skills Acquisition (JIPSA), launched in March 2006. Another major national and provincial initiative is the creation of an environment that encourages the establishment of Small Micro and Medium Enterprises (SMME’s). These can be used as a vehicle for employment creation in the informal sector; they are discussed further in Section 3.5.

3.4 Sectoral Employment

This section describes employment in different economic sectors of the provincial economy. Employment in Gauteng has changed, in line with structural economic changes from the primary sector to the tertiary sector. In this section, the relative sectoral employment share is compared with the relative sectoral Gross Domestic Product by Region (GDPR) share. This provides insight into the relative labour intensity at sectoral level and may help in identifying sectors that can increase labour absorption in Gauteng.

Figure 3.3: Comparison of Sectoral Employment & GDPR Share, Gauteng, 2008

Source: Quantec Research, 20099CIA World Factbook, 2009


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Figure 3.3 compares the relative shares of employment and GDPR at sectoral level for 2008. Comparing the GDPR contribution with the employment contribution, it is evident that the community, social & personal services sector and the wholesale & retail trade sector are relatively labour intensive, accounting for large employment shares (26% and 23% respectively) relative to the GDPR share. The employment share and GDPR share were lowest in mining & quarrying, agriculture, forestry & fi shing and electricity, gas & water supply. For these sectors, there was little difference between their employment and GDPR shares. The correlation between the employment share and GDPR is further explained below using employment intensity as a measure.

Figure 3.4: Employment Intensity, Gauteng, 2008


Figure 3.4 shows the relative employment intensity of each sector, where employment intensity measures the elasticity of employment share with respect to real GDPR. This shows responsiveness of employment relative to GDPR at sectoral level. Elasticities with values of more than 1 indicate more responsiveness where employment grows more than the GDPR share. A one percentage point increase in GDPR is associated with an increase of more than one percentage point in employment. Sectors with elasticities of less than 1 are less responsive, with the employment share growing less than the proportional increase in GDPR share. Altman10 highlighted the time-lag between changes in GDP and the effect on employment. This means that economic growth may occur for a period of time before it has a noticeable impact on the labour market.

The agriculture, forestry & fi shing sector experienced zero ratio of employment intensity as a result of 0% from the GDPR. Mining & quarrying (0.5), electricity, gas & water supply (0.5), fi nance & business services (0.7), transport & communication (0.7) and manufacturing (0.9) exhibited less responsiveness to increasing employment when there is an increase in GDPR. This suggests that these sectors are relatively less labour intensive. Construction (1.6), wholesale & retail trade (1.4) and community, social & personal services (1.3) are more labour intensive sectors with employment more responsive to changes in GDPR.

________________________________________________________________________________________________

10 Altman, M. 2003. The state of employment in South Africa. HSRC Press. 158-183

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Figure 3.5: Comparison of Sectoral Employment, Gauteng & South Africa, 2008


Figure 3.5 compares the sectoral employment composition of Gauteng and South Africa for 2008. For both, the sectors employing the largest share of individuals were wholesale & retail trade, followed by community, social & personal services and manufacturing. Electricity, gas & water supply and mining & quarrying contributed the smallest share of employment for both Gauteng and South Africa. The share of individuals employed in fi nancial & business services, transport & communication, wholesale & retail trade and manufacturing was higher in Gauteng than in South Africa. A larger share of individuals in South Africa was employed in the mining & quarrying and agriculture, forestry & fi shing sectors. Figure 3.6: Employment Growth Rates in the Primary Sector, Gauteng, 2001-2008



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Figure 3.6 illustrates employment growth rates within the primary sector for the period 2001 to 2008. Growth in the agriculture, forestry & fi shing sector exhibited the most volatility, fl uctuating from -36% in 2001 to 120% in 2004. This could be attributed to the fact that the sector is highly dependent on weather conditions, which are beyond the control of the farmer. Also contributing to cyclical fl uctuations in employment are the subsidies provided to the agricultural sector in developed countries. These can negatively affect external demand for South African agricultural products. Employment levels improved between 2005 and 2007, mirroring the strong growth in Gauteng and in South Africa generally. Following the peak in 2007, employment levels have declined. This could be explained by droughts, high input costs such as fuel, and the erosion of agricultural land by developments such as country estates and golf estates.

Employment growth in the mining & quarrying sector was negative from 2001 to 2005. In 2006, there was a small but positive increase in the growth rate. Mining has been affected by a low level of investment in new capacities. Even though commodity prices have risen considerably in the last fi ve years, with exception of 2008 they have failed to lead to an increase in employment in the mining & quarrying sector. Figure 3.7: Employment Growth Rates in the Secondary Sector, Gauteng, 2001-2008


Figure 3.7 illustrates employment growth rates within the secondary sector for the period 2001 to 2008. The increase in the rate in manufacturing has been lower than that in the other sectors. The lower rate of employment growth in manufacturing can be attributed to the increasing importance of the tertiary sector. The importance of manufacturing as an engine of growth and industrial development has been eroded by the tertiarization of the economy. Its employment levels have thus declined. Employment growth in the construction sector could be attributed to investment expenditure as part of the public sector infrastructure programme. This includes building stadia and upgrading public roads and the transportation system. The fl uctuation in the growth rate in electricity, gas & water supply can be attributed to its relationship to the activities of other industries. Strong performance in manufacturing or mining, for instance, will lead to a substantial increase in the use of energy and water.

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Figure 3.8: Employment Growth Rates in the Tertiary Sector, Gauteng, 2001-2008


Gauteng has a relatively dominant tertiary sector. The employment growth rate in this sector is illustrated in Figure 3.8. Industries that have performed relatively well are fi nance & business services and wholesale & retail trade. Finance & business services are an essential part of a modern economy and are required for its development. This increase in employment is closely correlated with strong growth rates which the province experienced within the sector over the last eight years. Other sectors followed the same trend, with transport & communication experiencing a boom in 2006 before declining through 2007 to negative growth in 2008.

3.5 Informal Sector Employment

In 2008, 138,460 individuals (86%) were employed in the formal sector and 521,369 (14%) in the informal sector. Offi cially, this indicates that the informal sector employment plays a small part in overall employment. However, the contribution of the informal sector to employment is underestimated due to the nature of the sector, as it is diffi cult to quantify accurately the number of informal jobs. This is as a result of the absence of monitoring and regulation of the informal sector.

The establishment of SMMEs has been encouraged in order to absorb and accommodate previously informal businesses within the formal sector. At provincial level, the establishment and development of SMMEs are facilitated by the Gauteng Enterprise Propeller (GEP). This is a provincial government agency that provides non-fi nancial support to SMMEs, and coordinates stakeholders for the benefi t of SMMEs in Gauteng. GEP provides entrepreneurs with business support, technical assistance and business tools. Through the support of GEP, the GPG aims to move toward the 2014 target of halving unemployment.


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Table 3.4: Informal Sector Employment by Gender, Gauteng, 2001–2008

Formal Informal

Male Female Total Male Female Total

2001 62.6% 37.4% 100.0% 60.2% 39.8% 100.0%

2002 62.2% 37.8% 100.0% 60.9% 39.1% 100.0%

2003 63.3% 36.7% 100.0% 61.5% 38.5% 100.0%

2004 66.3% 33.7% 100.0% 71.1% 28.9% 100.0%

2005 65.4% 34.6% 100.0% 65.3% 34.7% 100.0%

2006 65.2% 34.8% 100.0% 65.7% 34.3% 100.0%

2007 61.2% 38.8% 100.0% 70.4% 29.6% 100.0%

2008 61.6% 38.4% 100.0% 61.0% 39.0% 100.0%


Table 3.4 compares male and female employment in the formal and informal sectors for the period 2001 to 2008. It shows that males dominated the employment share in the formal and informal sectors, accounting for more than 60% in both. Within the informal sector, the share of males employed increased from 61.2% in 2001 to 70.4% in 2007. The share of females employed in the informal sector decreased from 38.8% in 2001 to 29.6% in 2007.

The reason given by Casale11 for the relatively smaller employment shares for females is that “females are crowded into occupations which involve low pay, little prospect of promotion or on-the-job training”. This is shown clearly in the field of domestic work which is mainly a female occupation. This sector falls largely within the informal sector, and individuals earn low incomes. Table 3.5: Informal Employment by Sector, Gauteng, 2001-2008

2001 2002 2003 2004 2005 2006 2007 2008

Agriculture, forestry & fishing 2% 6% 1% 4% 2% 2% 3% 0%

Mining & quarrying 0% 0% 0% 0% 0% 0% 0% 0%

Manufacturing 11% 11% 11% 9% 9% 10% 8% 9%

Electricity, gas & water supply 0% 0% 0% 0% 0% 0% 1% 0%

Construction 11% 11% 10% 19% 17% 19% 14% 14%

Wholesale & retail trade 49% 45% 53% 46% 50% 46% 43% 47%

Transport & communication 6% 7% 10% 7% 7% 6% 12% 10%

Finance & business services 9% 6% 5% 6% 3% 7% 4% 8%

Community social & personal services 12% 13% 10% 9% 12% 10% 14% 14%

Private households 0% 0% 0% 0% 0% 0% 0% 0%

Total 100% 100% 100% 100% 100% 100% 100% 100%


Table 3.5 analyses informal employment by sector from 2001 to 2008. Wholesale & retail trade employed the largest share of individuals. This declined steadily from a peak of 53% in 2003 to a low of 47% in 2008. Construction and community, social & personal services also employed relatively large shares of individuals over the review period, averaging 13% and 10% respectively. Community, social & personal services forms part of government. Its high employment share results from the fact that almost all national government departments are based in Gauteng. Employment in the construction sector showed a relatively large increase, almost doubling its share from 10% in 2003 to 19% in 2004. No informal employment was recorded within mining & quarrying and electricity, gas & water supply during the period. ________________________________________________________________________________________________

11 Casale,D. 2004. What has the Feminisation of Labour Market ‘Bought’ Women in South Africa? Trends in Labour Force Participation, Employment and Earnings, 1995-2001, DPRU Working Paper 04/84, March 2004

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3.6 Provincial Labour Remuneration

Labour remuneration is the cost of labour. Skilled occupations generally attract higher remuneration. Labour remuneration of Gauteng is scattered across different income categories, with the largest share of employed individuals falling into the R1,501 to R3,500 monthly income category. The number of employed individuals tends to decrease as income categories increase. Individuals with lower level of skills are found in the lower income categories, with the highly skilled in the higher income categories.

Table 3.6: Monthly Labour Remuneration by Sector, Gauteng, 2007

Sectors

R1-R500 R501-

R1,500

R1,501-

R3,500

R3,501-

R6,000

R6,001-

R11,000

R11,001-

R30,000

R30,000

or more

Total



Manufacturing 3% 13% 35% 23% 10% 11% 5% 100%


Construction 2% 26% 43% 22% 4% 3% 0% 100%




Community, social & personal

services

2% 6% 23% 26% 20% 13% 9% 100%

Private Households 14% 62% 20% 2% 1% 0% 0% 100%

Total 4% 21% 32% 18% 10% 9% 6% 100%


Table 3.6 analyses labour remuneration by sector in Gauteng for 2008. Agriculture, forestry & fishing and private households were the only sectors where the largest share of individuals earned between R501 and R1,500 per month. These sectors tend to employ relatively unskilled individuals. The electricity, gas & water sector employed the largest share of individuals earning between R11,001 and R30,000 per month. Those employed in the sectors are mainly skilled technicians (see Table 3.8). The remaining sectors employed the largest share of individuals in the R1,501-R3,500 income category, which includes 66% of employees in the mining & quarrying industry.

3.7 Employment by Occupation and Skills Levels

Examining employment by occupation makes it possible to determine skills groupings such as skilled, semi-skilled and unskilled. Section 3.7 looks at employment by occupation between 2001 and 2007. This is further grouped into skill categories.


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Table 3.7: Employment by Occupation, Gauteng, 2001 & 2008

2001 Share (%) 2008 Share (%)

% Point

Change

Legislators, senior offi cials & managers 240,828 10% 422,282 11% 2%

Professionals 158,192 6% 312,607 8% 2%

Technicians & associate professionals 327,625 13% 462,731 12% -1%

Clerks 363,388 14% 535,940 14% 0%

Service workers & shop & market sales workers 394,103 16% 496,306 13% -3%

Skilled agricultural & fi shery workers 50,618 2% 13,547 0% -2%

Craft & related trades workers 358,778 14% 556,398 15% 0%

Plant & machine operators & assemblers 249,546 10% 343,585 9% -1%

Elementary occupations 368,673 15% 627,432 17% 2%

Total 2,511,751 100% 3,770,827 100%


Table 3.7 lists the shares of employment by occupation between 2001 and 2008. Employment doubled between 2001 and 2008, with employment shares increasing in the legislators, senior offi cials & managers, professionals and elementary occupations. For both years, the largest numbers of individuals were employed in elementary occupations, while the smallest were in skilled agricultural & fi shery workers, a sector not of major signifi cance in the province. The largest decline in employment occurred among service workers & shop & market sales workers.

Figure 3.9: Composition of Employment by Skills12, Gauteng, 2001 & 2008


Figure 3.9 builds on the previous table and groups occupation categories into skills grouping. The fi gure shows a decline of fi ve percentage points within the semi-skilled category between 2001 and 2008. Over the same period, the skilled level increased from 29% in 2001 to 32% and the unskilled level from 15% to 17%.

________________________________________________________________________________________________12 Skilled: Legislators, senior offi cials & managers, professionals, technicians & associate professionalsSemi-skilled: Clerks, service workers & shop & market sales workers, craft & related trades workers and plant & machine operators & assemblersUnskilled: elementary occupations

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Table 3.8: Sectoral Employment by Skill Level, Gauteng, 2001 & 2008

2001 2008

Skilled

Semi-

skilled Unskilled Total Skilled

Semi-

skilled Unskilled Total



Manufacturing 22% 61% 16% 100% 23% 63% 14% 100%


Construction 12% 79% 9% 100% 18% 66% 16% 100%




Community, social & personal services 50% 41% 9% 100% 49% 40% 11% 100%

Private households 0% 100% 0% 100% 0% 5% 94% 100%


Table 3.8 compares skill intensity at sectoral level between 2001 and 2008. Occupations in private households had the largest share of unskilled employees in 2008. This was followed by agriculture, forestry & fishing, with 42% in 2001 increasing to 52% in 2008. The remaining sectors employed mostly semi-skilled individuals, with the largest share in mining & quarrying and construction. In mining & quarrying, there was a decline of 17% at semi-skilled level and an increase of 19% at skilled level. Transport & communication and electricity, gas & water supply also experienced a decline at semi-skilled and an increase at skilled level. Employment in the finance & business sector was mainly at the skilled and semi-skilled level. Community & social services employed the largest share at skilled level. In 2008, there was a slight increase from semi-skilled to skilled in most sectors. This suggests that skill levels in the province are increasing.

3.8 Conclusion

As indicated by the labour force profile, this chapter shows that there has been an increase in the number of people employed in Gauteng. This improvement has been higher than for the country as a whole. The larger decrease in the unemployment rate in Gauteng as compared to South Africa also supports this statement. The largest single occupation categories were community, social services & personal services and wholesale & retail trade.

The fundamental problem identified as the cause of unemployment is the mismatch of skills. This occurs where individuals acquire skills not needed in the economy and are not employed. Employment intensity shows the relationship between employment share and GDPR, with the highest intensity in wholesale & retail trade. The informal sector caters for those who cannot be accommodated within the formal sector and may be characterised by SMMEs. Employment by occupation indicated a higher growth rate between 2001 and 2008, especially in the elementary occupations. There was an increase in the share of skilled employment and a decrease in unskilled. Sectoral employment by skill-level indicates that most individuals in Gauteng are in the semi-skilled category.


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Chapter 4: Municipal Economic Performance

4.1 Introduction

Municipalities are primarily responsible for the implementation of public policy, and are therefore at the forefront of service delivery. Economic performance at municipal level is crucial to the understanding of the provincial economy as a whole. This chapter provides information about the characteristics and economic profi le of each of the six municipalities within Gauteng. Gauteng includes three metropolitan municipalities: the City of Johannesburg (CoJ), the City of Tshwane (CoT) and Ekurhuleni, and the three district municipalities of West Rand, Sedibeng and Metsweding.

The global recession has largely been manifested in a decline in global demand and an international economic slowdown. This decline in demand has cascaded down from international to national, provincial and municipal levels. The negative effects of the global recession are currently being felt at municipal level. Quantifying the effects on municipal economies is diffi cult, due to the time lag between events and the release of municipal-level data. Therefore, it will only be possible to quantify and analyse the extent on municipal economies of the negative effects of the recession when the effects have worked their way through them.

The chapter outlines the relative size, sectoral and trade composition, of each municipality. It also analyses unemployment rates, sectoral employment, labour remuneration and skills composition, and compares each municipal economic structure to that of the provincial economy.

4.2 Municipal Production

Analysis of municipal production provides a broad overview of the size of each municipality. This enables an understanding of the composition of each part of the economy and provides the basis for identifying potential sources of and constraints to enhancing economic growth.

Figure 4.1: Municipal GDPR Growth Rates, 2001-2007

Source: Global Insight, 2009


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Figure 4.1 illustrates the GDPR growth rate at municipal level from 2001 to 2007. With the exception of Metsweding, all of the municipalities had a similar growth pattern in the period. In 2001, each municipality had a growth rate of less than 4% and Metsweding and the West Rand contracted. All of the municipalities then trended upward to growth rates of between 4% and 6% in 2007. Metsweding followed a unique growth path, with the growth rate of about 4% in 2003 increasing to over 14% in 2007. This could be attributed to the fact that Metsweding was previously a relatively underdeveloped municipality and is undergoing large infrastructural development in the form of housing and roads construction.

Table 4.1: Municipal Contribution to Gauteng GDPR, 2001-2007

2001 2002 2003 2004 2005 2006 2007

Ekurhuleni 19.1% 19.0% 18.9% 18.8% 18.6% 18.4% 18.4%

CoJ 47.6% 47.6% 47.9% 48.1% 48.0% 47.9% 47.8%

CoT 26.0% 26.1% 26.1% 26.1% 26.4% 26.6% 26.7%

Sedibeng 3.7% 3.7% 3.6% 3.6% 3.5% 3.6% 3.7%

Metsweding 0.6% 0.6% 0.6% 0.6% 0.6% 0.7% 0.7%

West Rand 3.1% 3.0% 2.9% 2.9% 2.8% 2.8% 2.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Table 4.1 shows the contribution of each municipality to provincial GDPR for the period 2001 to 2007. The composition of municipal contributions was similar throughout the period. The CoJ made the largest annual contribution of 48%, followed by CoT and Ekurhuleni at 27% and 18% respectively. The three district municipalities contributed the smallest share with Sedibeng contributing 4%, followed by the West Rand (3%) and Metsweding (1%).

4.3 Sectoral Analysis

This section analyses the sectoral composition of the economy of each of Gauteng’s municipalities. The growth rates and relative performance of the economic sectors are also analysed.

Table 4.2: Gross Value Added (GVA) by Municipality, 2007

Ekurhuleni CoJ CoT Sedibeng Metsweding West Rand

Agriculture, fishing & forestry 0.6% 0.4% 0.5% 1.5% 6.6% 2.3%

Mining & quarrying 1.6% 2.2% 0.7% 0.3% 9.2% 20.2%

Primary Sector 2.2% 2.6% 1.2% 1.9% 15.7% 22.4%

Manufacturing 32.8% 19.3% 17.0% 45.5% 23.2% 23.1%

Electricity, gas & water 2.6% 2.4% 1.7% 3.3% 1.1% 1.9%

Construction 3.7% 3.8% 4.0% 2.9% 3.9% 3.1%

Secondary Sector 39.1% 25.5% 22.7% 51.6% 28.2% 28.1%

Wholesale & retail trade 11.7% 16.1% 13.1% 7.5% 11.4% 10.5%

Transport & communication 8.8% 7.4% 10.4% 4.4% 6.7% 5.4%

Finance & business services 21.1% 28.5% 23.5% 14.9% 17.7% 15.6%

Community & personal services 17.2% 19.9% 29.2% 19.7% 20.2% 17.9%

Tertiary Sector 58.7% 71.9% 76.2% 46.5% 56.1% 49.4%

Total Industries 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


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Table 4.2 shows the Gross Value Added (GVA) by sector for each municipality in 2007. CoJ and CoT both show the sectoral profile of relatively advanced economies, with small primary sector contributions of less than 3% and dominance by the tertiary sector, accounting for 71.9% (CoJ) and 76.2% (CoT). Ekurhuleni and Sedibeng had similar sectoral profiles, with relatively small primary sector contributions and secondary sector contributions of 39.1% and 51.6% respectively. Metsweding and the West Rand are exceptions in having relatively large primary sectors at 15.7% and 22.4% respectively. These municipalities also have relatively large secondary sectors, driven by manufacturing activity.

The Tress Index indicates the level of production concentration or diversification in an economy. Concentration refers to the focussing of production on a few sectors, and diversification refers to an economy where production is spread amongst many sectors. A Tress Index of zero represents a totally diversified economy, with 100 indicating a completely concentrated economy.

Table 4.3: Tress Index by Municipality, 2001–2007

2001 2002 2003 2004 2005 2006 2007

Ekurhuleni 56.1% 56.2% 56.3% 56.2% 56.0% 55.9% 55.6%

COJ 52.3% 52.3% 52.6% 52.9% 52.8% 52.4% 52.2%

COT 55.8% 55.7% 56.1% 55.6% 55.7% 55.3% 55.2%

Sedibeng 65.1% 65.5% 65.3% 65.4% 65.4% 65.2% 64.4%

Metsweding 45.0% 43.6% 43.9% 42.0% 42.0% 41.4% 39.9%

West Rand 45.3% 48.3% 44.8% 44.2% 44.4% 44.3% 43.1%

Gauteng 51.1% 50.8% 51.2% 51.3% 51.2% 51.2% 51.1%


Table 4.3 indicates the level of concentration or diversification in the economic activities of the municipalities in Gauteng from 2001 to 2007. An increase in a municipality’s Tress Index indicates an increase in the dependence of the local economy on a narrower range of economic activities. The table shows that Metsweding and West Rand have the lowest Tress Index and were therefore the most diversified municipal economies for the period under review. CoJ, CoT and Ekurhuleni had the highest levels of economic concentration. This suggests that the largest share of economic production within the metropolitan municipalities are derived from a few sectors, with Ekurhuleni recording 55.6%, CoJ 52.2% and CoT 55.2% in 2007.

4.4 Trade Position

From December 2008 to February 2009, the provincial trade deficit increased from R1.6 billion to R17.4 billion. It then decreased significantly to R570 million in February 2009, as inventories of goods were replenished after the festive season. The timing of measurement of imports and exports resulted in a sharp improvement in February. This was not related to any large deterioration in the terms of trade.


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Figure 4.2: Municipal Trade Balance, 2001-2007


Figure 4.2 shows the municipal trade balance for 2001 to 2007. CoJ and Ekurhuleni had trade defi cits over the period, with the defi cit for Ekurhuleni increasing. This indicates a growing excess of imports into Ekurhuleni. From 2001 to 2004, Sedibeng had balanced trade, moving into surplus in 2005. CoT had a trade surplus for the entire period, with the West Rand and Metsweding having balanced trade.

Figure 4.3: Municipal Net Exports as % of GDPR, 2001-2007


Figure 4.3 shows net exports (the difference between imports and exports) as a percentage of GDPR for Gauteng municipalities from 2001 to 2007. South Africa, and Gauteng and its municipalities, both export primary products. Net exports as a percentage of GDP did not exceed 60% except for the Sedibeng which recorded a high of 96% between 2004 and 2005. This was due to the sale of the parastatal steel company, Iscor, to an international company, effectively increasing steel exports between 2004 and 2005.

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Table 4.4: Municipal Import Composition, 2008

Ekurhuleni COJ COT Metsweding Sedibeng West Rand

Mineral Products 0.8% 16.1% 4.6% 0.0% 39.0% 0.3%

Chemical Products 10.7% 10.9% 5.9% 10.9% 5.9% 1.7%

Base Metals 9.8% 4.7% 12.9% 1.9% 10.8% 2.5%

Machinery & Mechanical

Appliances

43.5% 37.2% 24.3% 35.9% 22.2% 14.9%

Vehicles & Transport Equipment 15.6% 6.7% 13.8% 10.2% 7.4% 46.3%

Optical, Photographic & Medical

Instruments

2.9% 4.1% 5.1% 20.1% 2.2% 2.4%

Original Equipment Components

(OEC) for Motor Vehicles

3.6% 0.4% 16.1% 0.0% 0.0% 24.7%

Other 13.2% 19.9% 17.2% 20.9% 12.6% 7.2%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


The nature of imports reveals the composition of municipal consumption as well as the types of goods and services used as inputs in the production processes in particular municipalities. For all of them, with the exception of the West Rand, machinery & mechanical appliances is either the largest or the second largest import category. In Ekurhuleni, this category constitutes 43% of imported products, followed by vehicles & transport equipment at 16%. In COJ, machinery & mechanical appliances is the largest imported product at 37% followed by mineral products at 16%. In CoT, 24% of imported products are machinery & mechanical appliances followed by original equipment components (OEC) for motor vehicles at 16%. With mineral products making up 39% of imports in Sedibeng, machinery & mechanical appliances are second at 22% of total imports. Machinery & mechanical appliances make up 36% of imported goods in Metsweding, followed by optical, photographic & medical instruments at 20%. The West Rand has a unique composition of import goods, with vehicles & transport equipment making up approximately 46% and motor vehicles approximately 25%.

Table 4.5: Municipal Export Composition, 2008

Ekurhuleni COJ COT Metsweding Sedibeng West Rand

Mineral Products 5% 23% 55% 2% 6% 11%

Pearls, Precious Metals & Stones 12% 43% 0% 0% 8% 1%

Base Metals 22% 16% 29% 3% 69% 2%

Machinery & Mechanical

Appliances

26% 4% 3% 12% 8% 32%

Vehicles & Transport Equipment 10% 1% 6% 18% 5% 39%

Optical, Photographic & Medical

Instruments

2% 0% 1% 36% 0% 0%

Other 23% 13% 5% 28% 5% 15%

Total 100% 100% 100% 100% 100% 100%


Table 4.5 shows export composition by municipality. The percentages shown are of that product as compared with total exports in that specific municipality for the year 2008. The largest categories of products exported from Ekurhuleni are machinery & mechanical appliances which make up 26% of exports, followed by base metals at 22%. CoJ’s two largest exports are pearls, precious stones & metals (43%) and minerals (23%). In CoT, 55%


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of products exported are mineral products and 29% are base metals. The largest export sector for Sedibeng is base metal, at 69% of exports. Metsweding is unusual as its largest exports are not related to mining; 36% are optical and medical instruments, followed by vehicle & transport equipment at 18%. The West Rand also had fewer mining-related exports, with 39% of its exports being vehicle & transport equipment and 32% machinery & mechanical appliances.

4.5 Household Income and Expenditure

To understand the economies of Gauteng’s municipalities at the household level, it is necessary to analyse disposable income and expenditure trends. In line with the national and provincial experiences, the economic downturn has had a negative impact on household consumption patterns. Increases in debt servicing costs have also added to the fi nancial burden on households and have thus served as a constraining factor.

Figure 4.3: Household Disposable Income by Municipality, 2001-2007


Figure 4.3 shows household disposable income by municipality for 2001 to 2007. Population spread, levels of remuneration and the standard of living of the municipalities play a role in the overall level of disposable income. The relative standing of each municipality has remained the same over the period with CoJ, CoT and Ekurhuleni displaying the highest levels of disposable income at R180 billion, R120 billion and R110 billion respectively for 2007. In comparison, Sedibeng, the West Rand and Metsweding had signifi cantly lower levels of disposable income over the review period. Growth in disposable income was also low.

The household expenditure of any municipality is related to the level of disposable income, defi ned as net income after deductions. Expenditure exhibits the same trend as disposable income. In other words, an increase in income will result in an increase in expenditure. Expenditure in Gauteng amounted to R10.3 billion in 2001 and increased to over R453 billion in 2007.

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Table 4.6: Household Expenditure Composition by Product Type, 2007

Ekurhuleni COJ COT Sedibeng Metsweding West Rand

Accommodation 11.9% 12.3% 12.8% 11.6% 11.9% 11.6%

Holiday 0.6% 0.6% 0.7% 0.6% 0.6% 0.6%

Domestic workers 1.9% 1.9% 2.1% 1.8% 2.0% 1.9%

Food 16.1% 15.7% 14.2% 17.2% 16.2% 16.9%

Restaurants 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%

Non-alcoholic beverages 1.3% 1.3% 1.2% 1.4% 1.3% 1.4%

Alcoholic beverages 3.6% 3.5% 3.4% 3.7% 3.6% 3.6%

Smoking 1.5% 1.4% 1.2% 1.6% 1.6% 1.7%

Personal care 2.5% 2.5% 2.3% 2.6% 2.5% 2.6%

Household Services 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%

Household Fuel 0.4% 0.4% 0.4% 0.5% 0.4% 0.5%

Clothing 4.7% 4.7% 4.3% 4.9% 4.7% 4.9%

Furniture 2.2% 2.3% 2.3% 2.3% 2.2% 2.2%

Household Textiles 0.6% 0.6% 0.6% 0.7% 0.6% 0.6%

Appliances 0.9% 0.9% 0.9% 0.9% 0.9% 0.9%

Medical 7.8% 7.5% 7.6% 7.5% 7.7% 7.8%

Transport 14.9% 15.1% 15.3% 14.7% 14.8% 14.7%

Computer 0.6% 0.6% 0.6% 0.5% 0.6% 0.6%

Communication 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%

Education 3.2% 3.2% 3.2% 3.1% 3.2% 3.1%

Recreation 1.5% 1.4% 1.6% 1.4% 1.5% 1.4%

Taxes 11.9% 12.3% 12.9% 11.4% 11.8% 11.5%

Finance 5.8% 5.9% 6.4% 5.5% 5.8% 5.6%

Other expenditure 2.9% 2.9% 3.0% 2.9% 2.9% 2.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Source: Global insight, 2009

Table 4.6 shows the expenditure composition of households in Gauteng by product type for 2007. In the present economic context and as the purchasing power of households is eroded, it is expected that they will reduce expenditure on luxury goods and transfer consumption to essential goods. In Sedibeng, households spent 17.2% of their income on food, followed by West Rand and Metsweding at 16.9% and 16.2% respectively. The second largest item of expenditure was transport followed by accommodation, taxes and finance. In CoT, the largest share of expenditure was on transport, at 15.3% of the total. This expenditure in CoJ was 15.1%. The third largest expenditure category across all the municipalities was taxes, at 11% of the total. Accommodation was the fourth largest expenditure category, with little variation across the municipalities.

The Index of Buying Power (IBP) is a measure of a region’s general capacity to absorb products and services. This depends on the size of the population, total income and total retail sales.


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Figure 4.4: Index of Buying Power by Municipality, 2007


Figure 4.4 shows the buying power of municipalities in Gauteng for 2007. At 39%, the CoJ has the largest IBP. This can largely be attributed to the relative size of the population and the relatively high levels of disposable income. This is followed by CoT (26%) and Ekurhuleni (24%), with the remaining three district municipalities having the lowest IBP.

4.6 Municipal Labour Market

The composition of the labour market is essential in informing analysis of progress towards achieving provincial labour market goals. It also provides information about prevailing economic and social conditions. The following analysis of the labour market at municipal level contributes to understanding regional composition and trends and to providing a more nuanced view of the labour market dynamics at work.

4.6.1 Labour Force Profi leThe Labour Force Participation Rate (LFPR) is the share of the working-age population who are employed or unemployed and are still actively searching for work. Given the sharp slowdown in economic growth in the fourth quarter of 2008, it was expected that the unemployment rate would have risen. The decline in unemployment for the last quarter of 2008 can be attributed to seasonal factors, such as more individuals being employed in retail in the festive season.

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Figure 4.5: Labour Force Participation Rate (LFPR) by Municipality, 2007


Figure 4.5 shows the LFPR by municipality for 2007. CoJ had the highest participation rate at 95%, followed by Ekurhuleni at 87.6%. The LFPR for West Rand and Metsweding was higher than that of CoT (78%), at 87.3% and 80.3% respectively.

4.6.2 Unemployment Profi leOne of the primary objectives of the GPG is to reduce unemployment and alleviate poverty. 74,000 jobs were lost in the third quarter of 2008, with further losses expected in the fourth quarter. However, 189, 000 jobs were created during that quarter.

Figure 4.6: Unemployment Rate by Municipality, 2001–2007



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Figure 4.6 illustrates the trend in municipal unemployment rates from 2001 to 2007. All of the municipalities exhibited a similar unemployment pattern over the period. An initial rise in the unemployment rate from 2001 to 2002 was followed by a decrease. Sedibeng had the highest unemployment rate throughout the period, followed by Ekurhuleni and West Rand with 27.1% and 23.7% respectively for 2007.

4.6.3 Sectoral EmploymentAnalysing formal and informal sectoral employment makes it possible to measure their contributions to the economy. Formal employment refers to employment within the regulated formal sector whereas informal employment is unregulated. Table 4.7 shows formal employment by sectors, for each municipality. Table 4.7: Formal Employment by Sector, 2007


Agriculture, hunting & forestry 1.0% 0.6% 0.9% 3.4% 6.8% 5.4%


Primary Sector 2.1% 1.2% 1.0% 3.4% 10.2% 22.3%

Manufacturing 21.9% 14.6% 12.2% 25.2% 13.7% 12.9%


Construction 6.2% 6.1% 6.4% 5.1% 7.4% 5.7%

Secondary Sector 29.2% 21.6% 19.2% 32.5% 21.8% 19.4%




Community services 15.3% 15.3% 21.8% 19.4% 15.1% 16.8%

Households 10.2% 9.3% 10.0% 15.4% 12.4% 11.1%

Tertiary Sector 68.7% 77.1% 79.8% 64.1% 68.0% 58.3%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


The primary sector recorded the largest share of formal employment in the West Rand at 22.3%. The largest share of individuals in CoT and CoJ were employed within the tertiary sector, at 79.8% and 77.1% respectively. In Ekurhuleni, Metsweding and Sedibeng, the percentages employed in that sector were 68.7%, 68% and 64.1% respectively.

Table 4.8: Informal Employment by Sector, 2007


Manufacturing 12.3% 9.5% 8.6% 13.9% 18.1% 15.0%

Construction 18.4% 19.7% 24.1% 22.2% 29.5% 22.8%

Trade 44.1% 49.0% 46.6% 37.0% 35.9% 40.6%

Transport 7.4% 6.3% 6.1% 6.2% 5.7% 4.9%

Finance 3.9% 4.3% 3.3% 4.2% 2.8% 3.4%

Community

services

13.9% 11.2% 11.2% 16.5% 7.9% 13.1%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


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Table 4.8 shows sectoral employment within the informal sector by municipality for 2007. The existence of the informal sector has enabled employment of a large number of individuals unable to find work in the formal sector. CoJ had the largest percentage in trade, at 49%. The figures for CoT and Ekurhuleni were 46.6% and 44.1% respectively. At over 20% for CoT, Sedibeng, Metsweding and the West Rand, the construction sector employed the second largest share of informal-sector individuals. Community services and manufacturing also employed relatively large shares of individuals, at 12.3% and 12.9% respectively.

4.6.4 Municipal Labour Remuneration

Table 4.9: Municipal Labour Remuneration by Sector, 2007


Agriculture, hunting & forestry 0.2% 0.2% 0.3% 0.5% 2.3% 1.1%


Manufacturing 32.1% 18.8% 17.3% 41.8% 23.2% 20.6%


Construction 4.1% 3.8% 4.0% 3.6% 4.2% 3.5%




Community services 27.7% 31.4% 43.6% 32.0% 31.4% 29.4%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%


Table 4.9 shows the labour remuneration by sector for 2007, and gives the relative remuneration for each sector. This reflects the number of individuals employed within the sectors together with the actual wages paid. For CoJ, CoT, Metsweding and the West Rand, the largest remuneration share went to the community services sector. In Ekurhuleni and Sedibeng, the largest remuneration share went to the manufacturing sector.

Table 4.10: Municipal Labour Remuneration by Monthly Income Group, 2007

R1-

R500

R501-

R1500

R1501-

R3500

R3501-

R6000

R6001-

R11000

R11001-

R30000

R30001-

More

Sedibeng 12.4% 30.9% 25.5% 12.0% 7.7% 10.5% 1.0%

Metsweding 3.3% 35.2% 21.3% 10.2% 2.4% 2.7% 25.0%

West Rand 5.9% 27.7% 41.9% 11.7% 7.8% 4.4% 0.5%

Ekurhuleni 3.7% 21.9% 31.7% 19.8% 12.0% 9.3% 1.6%

COJ 3.8% 18.4% 34.0% 12.9% 10.4% 9.1% 11.3%

COT 3.3% 21.7% 28.6% 25.6% 10.4% 9.5% 1.0%


Table 4.10 shows labour remuneration according to income groups for each municipality for 2007. In any labour market, it is expected that individuals with scarce skills will be remunerated at a higher level, as their skills will be in demand. In the West Rand, Ekurhuleni, CoJ and CoT, the largest single percentage of individuals earn between R1,501 and R3,500 per month. In Sedibeng and Metsweding, the largest share of individuals earn between R501 and R1,500 per month. Metsweding has the largest share of individuals in the highest income group, earning over R30, 001 per month.


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4.6.5 Occupation and Skills LevelsSkills shortages are at the heart of the structural unemployment that exists at national, provincial and municipal level. Analysing the skills composition within each municipality enables the identifi cation of areas where skills interventions can be made.

Table 4.11: Employment by Occupation, 2007

Sedibeng Metsweding West Rand Ekurhuleni CoJ CoT

Legislators, senior offi cials & managers 8.1% 9.4% 10.3% 11.9% 13.7% 12.5%

Professionals 12.5% 9.8% 12.2% 13.5% 16.4% 17.1%

Technicians & associate professionals 6.6% 4.1% 8.6% 9.2% 8.8% 9.2%

Clerks 10.0% 6.5% 9.3% 11.5% 11.4% 12.3%

Service workers, shop & market sales workers 11.6% 9.3% 9.7% 10.1% 12.7% 12.9%

Skilled agricultural & fi shery workers 1.9% 7.8% 3.9% 1.5% 1.5% 1.6%

Craft & related trades workers 13.7% 16.6% 18.4% 13.7% 11.1% 11.9%

Plant & machine operators & assemblers 12.3% 12.0% 12.8% 12.5% 8.0% 6.3%

Elementary occupations 23.2% 24.4% 14.9% 16.1% 16.5% 16.3%

Total 100% 100% 100% 100% 100% 100%


Table 4.11 shows the percentage spread of employment in various occupations by municipality. The table shows that 23.2% of people employed in Sedibeng were in the elementary occupations, 13.7% in craft & related trade workers and only 1.9% in the category of skilled agricultural & fi shery workers. Of those employed in Metsweding, 16.6% were craft & related trade workers. Employment in elementary occupations in the West Rand and Ekurhuleni was 14.9% and 16.1% respectively. As the larger urban areas attract people by offering them higher wages, it is expected that they will have a larger share of professional, senior offi cials and managers. CoJ and CoT had a share of professionals of 16.4% and 17.1% respectively.

Figure 4.7: Municipal Employment by Skill Levels, 2007


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Figure 4.7 shows employment by skill level for all six municipalities in Gauteng. At 31%, CoJ has the highest percentage of skilled employed, followed by CoT with 30%. Across the province, the majority of individuals employed were semi-skilled. At 64%, the West Rand is the municipality with the largest proportion of semi-skilled individuals. This is followed by Ekurhuleni with 59% and Sedibeng with 57%. Between 55% and 52% of employees in the rest of the municipalities were semi-skilled. Only two municipalities employed more than 20% of unskilled labours. These were Metsweding at 23% and Sedibeng at 23%. The rest of the municipalities have 18% or fewer unskilled individuals employed.

4.7 Conclusion

This chapter has analysed the economies of the three metropolitan municipalities and the three district municipalities. It is clear that the three metropolitan municipalities play a pivotal role within the provincial economy, contributing 92.9% to provincial GDPR in 2007. Sectoral composition across the municipalities was similar, with dominance by the finance & business services sector and, with the exception of the West Rand and Metsweding which have relatively large primary sectors. Although the rate of unemployment continues to decline in all of the municipalities, it remains a challenge. The skills profile of the municipalities reveals that the largest percentages of skilled individuals are employed in the metropolitan municipalities.


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Gauteng Treasury

94 Main Street, Matlotlo House, Marshalltown, 2107 • Private Bag x12, Marshalltown, 2107Tel : 011 355 8259 • Fax : 011 355 8228 • web: www.treasury.gpg.gov.za

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