Regional eXplorer (ReX) update -  1^st quarter of 2019

IHS Markit is glad to announce another quarterly update of Regional eXplorer (ReX) – the South African knowledge base of municipal level insight.  Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics. 

MAIN DATA RELEASES INCORPORATED IN THIS UPDATE

2018 data is now available: ReX has been updated with the latest data available from StatsSA (incl. QLFS and GDP), SARB, SARS and many more that allowed us to model and incorporate 2018 data on a sub-national level for most modules in ReX, including:

• Demographics
• Development
• Labour
• Income & Expenditure
• Economic
• Tourism
• International Trade

Topics that are heavily dependent on information from the General Household Survey, such as language and household access to services, will only be available later during the year when StatsSA released the 2018 data.

Labour Updates

On the labour front, this quarter saw two prominent data releases that feeds into the ReX Labour model. One measured from the household-side (QLFS) and the other survey measured from the business-side (QES). The scope of the QES is to measure employment in formal non-agricultural enterprises while on the other hand the QLFS has a different scope. The QLFS surveys a sample of households and covers all industries: both those in the formal and informal sector across the whole of South Africa.

What is important for the Labour Model within ReX, is that both surveys' strengths are used to complement each other’s weaknesses. For example, the overall levels found in the QLFS is assumed to be much better when compared to QES, while the industry level breakdown found in QES is better than QLFS.   With the latest revision in the QES, when we compare the formal non-agric employment between these two surveys, we see that the revised QES tracks the trends in the QLFS better than before, although the levels are still different.

Provincial GDP-R Updated with latest GDP release

Another big release this quarter was the Gross Domestic Product (GDP) data and more specifically the regional component that provides GDP-R data by province.

Although GDP on national level only lags one quarter, the regional breakdown has a lag of 5 quarters, thus latest official statistics on provincial GDP is only for 2017. Within ReX we always ensure that our data aligns with that of StatsSA where relevant and possible to do so.  

The following table is an extraction from the latest version of ReX (v1692) and indicates provincial GVA-R average annual growth rates on Primary (Incl. Agriculture & Mining), Secondary and Tertiary Sector level for both 2017 and 2018:

The main highlight from the table above is the high volatility present in the primary sector. Although the Agriculture industry experienced high growth rates across all provinces for 2017, IHS Markit expects negative growth rates for 2018. These regional growth forecasts still align with the National growth rates already provided by StatsSA.

PIVOT TABLES

Just a reminder that there is an option in the ReX interface to extract data as pivot tables into Microsoft Excel.  Pivot tables are part of Excel’s built-in functionality, and many advanced Excel users enjoy the rich functionality it provides.  With this option, users have ample freedom in deciding how to output their selection in the most meaningful way, by giving the user a flexible way to filter, reorganize, and analyze multi-dimensional variables in different ways. To understand pivot tables better, please find a Microsoft office Excel tutorial here. 

SOUTH AFRICAN MACROECONOMIC OUTLOOK

South Africa’s short-term potential growth rate has been revised down to 1.53% for 2019 and 1.48 for 2020. However, South Africa’s overall GDP growth has been relatively range bound—between 0.4% and 3.1%—since the end of the international commodity supercycle. The country grapples with structural constraints, of which insufficient electricity supply, a deteriorating business environment, and an inflexible labor market are the most prominent. Consumer spending, the biggest growth driver of the South African economy, remains restricted by high levels of unemployment and high debt-to-income ratios of households, while price increases in the economy remain sticky above 5%. In recent years, state inefficiency and corruption under the Zuma administration have escalated, pushing up the cost of doing business and placing a larger burden on state finances. The ending of the commodity price boom, lackluster global growth, disruptive labor actions, and rising wage costs have placed more pressure on South Africa’s mining and manufacturing sectors, which have notoriously been large contributors to export earnings. South Africa’s high import propensity for intermediate and investment-related goods and loss in competitiveness has left the current account more vulnerable. The financing of the current-account deficit remains dominated by highly liquid short-term portfolio flows and international borrowing. The lower growth profile bodes less positive for long-term foreign investment inflows.

The country’s investment and growth deterioration has worsened since international ratings agencies

Standard and Poor’s Global Ratings and Fitch downgraded South Africa’s foreign currency–denominated credit risk rating to sub investment status in April 2017. Further foreign- and local currency–denominated rating downgrades appear inevitable. Not only will these developments increase the cost of borrowing and ultimately the government’s debt servicing burden in the longer term, but they will also increasingly question the government’s debt sustainability while much higher comparable yields will have to prevail to attract the necessary capital flows to finance South Africa’s structurally large negative current-account balance. “Crowding out” by government-backed capital projects and social programs thanks to the rising interest rate burden are expected. Access to financing through the commercial banking sector will become increasingly tighter, with limited potential for credit support to business, government, and individuals. The higher interest rate environment will increasingly constrain employment creation, increase domestic poverty levels, and ultimately lower long-term growth prospects.

Nonetheless, South Africa still remains one of the most developed economies in the sub-Saharan region.

The country’s solid monetary policy is safeguarded by the independence of the South African Reserve Bank (SARB). The strong anchor of the inflation-targeting regime and a flexible exchange rate cushions the country against external shocks. IHS Markit assumes headline inflation will remain within the SARB’s inflation target range of 3–6% in the long term. Upside pressure from administrative prices and possible rand weakness will pose a risk to the inflation outcome. South Africa’s tax collection systems rank among the best in the world.

The same applies to the highly developed and well-regulated financial system, which includes the Johannesburg Stock Exchange (JSE). Although infrastructure bottlenecks have become apparent in recent years, the country’s road, rail, and port facilities are the most developed in the region. The judicial system remains solid and the skills pool diversified, while high-ranked tertiary institutions position South Africa well to reap the benefits of the regional economic strength foreseen in the coming years.

The economic challenges facing South Africa include its ability to sustain economic growth in volatile global markets, broaden participation, strengthen industrial development and trade performance, and accelerate the pace of job creation. Skills and capacity shortages, high input costs, highly inadequate service delivery, and an unfriendly regulatory environment remain among the main domestic constraints on growth. Key questions stemming from the global economy that could add to risks facing the South African economy include developments in global liquidity, commodity prices (including oil), and emerging-market sentiment.

Enjoy the update!
The IHS Markit ReX team