Regional eXplorer (ReX) update – 2^nd 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

All variables available on 2018: ReX has been updated with the latest data available from StatsSA (incl. GHS and GDP), SARB and many more that allowed us to push the final two variables to 2018 numbers. The final two variables are the Household access to services and the language variable.

General Household Survey 2018

During the past quarter, StatsSA released the General Household Survey (GHS) 2018. Two topics in ReX that are heavily dependent on information from the GHS, namely, the population by language variable and the Infrastructure module now provide 2018 values!

In terms of the language data available in ReX, a basic language diversity index can be calculated by using a similar methodology to that of a TRESS index (found in the Economic module within ReX). The index measures how concentrated or diverse a region is with regards to the number of people that speak a specific language.  The index is estimated by ranking the different language categories according to their contribution to the total population by region and then adding the values cumulatively and indexing them. The index provides insight into the level of concentration (or diversification) of languages within a region. An index value of 0 means that all languages are spoken equally (aka, the population is equally distributed among language groups), whereas an index of 100 means that the whole population only speak one language.

The figure shows that although both City of Tshwane and Johannesburg are the most diverse metros, the City of Johannesburg is the only metro that increased its index value between 2017 and 2018. On the other side of the spectrum, Buffalo City and eThekwini both have very low index values, indicating that they less diverse when compared to the other regions. Overall the percentage changes from one year to another are very small across all regions, as expected, because the language composition of a region does not change quickly. To find out which languages are the most prevalent in your region explore the Population by Language dataset found within the Demographic module.

Municipal finance

The Financial Census of Municipalities report (P9114) has been released by StatsSA. This document provides information on the state of municipal finances and consists of preliminary data for the 2017/2018 financial year and revised data for the 2016/2017 financial year. This dataset has been incorporated and is now available in ReX under the Fiscal Module.

Gross Domestic Output (GDP)

IHS Markit raised South Africa’s 2019 GDP growth forecast to 0.55% from 0.39% for the previous release. Sluggish growth in the electricity, mining, and manufacturing sectors during the first three months of the year increased the risk of a below expected growth outcome during the first quarter of the year. IHS Markit is nonetheless of the view that a post-election recovery in domestic sentiment could encourage stronger growth during the third quarter. However, this expected boost in domestic sentiment will be short lived since it will be embedded in favorable political developments and by the fourth quarter of 2019 economic realities could once again overshadow expectations.

ReX Feature: F1 helpfile

The Regional eXplorer comes with an embedded encyclopedia containing user functionality, detailed variable definitions, methodology explanations, region maps, and much more!  This large library of information is available with only one finger-press: the F1 button!  Press the F1 button anytime you're working in ReX to open up the definition of the variable you have currently selected, a map of the area you have selected, or if you want to know how a variable was calculated.  Also, when you are not quite sure how to make the best use of the ReX interface there are video tutorials and screenshots with instructions to help you out: just press F1.  Have fun with this important button!

SOUTH AFRICAN MACROECONOMIC OUTLOOK

Business sentiment in the South African economy remained low.

Prospects of weak economic growth, political and global uncertainty, and adverse business policies will continue to weigh on investor sentiment and private-sector capital spending, particularly during the first half of 2019. The spill-over of large-scale public-sector investment, especially in the energy and transport sectors, failed to lift overall fixed investment spending during 2018 and is unlikely to ensure a rebound during 2019. Business sentiment in the South African economy, represented by the RMB/BER Business Confidence Indicator (BCI), has remained below the neutral-50 level since 2014. The first–quarter 2019 RMB/BER BCI reached its lowest level since the second quarter of 2017, and before that, the deep recession of 2009.

Real growth in overall household spending is expected to average around 1.5% in 2019, from 1.8% in 2018. High public-sector wage adjustments and limited pre-election public-sector job shedding underline this outlook. An average nominal salary increment of 7% was secured by public-sector workers for the coming year, leaving the public sector’s estimated real income growth close to 1.7% in 2019. Wage adjustments in the private sector are furthermore expected to show a moderate recovery following sluggish growth during 2018. A slowdown in companies’ aggregate profit growth (excluding agriculture, financial intermediation, and government sectors) since mid-2017 left limited scope for above-inflation wage adjustments during 2018. Private-sector profits are expected to recover during 2019 as overall growth in the economy slowly picks up. Private-sector wage adjustment could nonetheless show a more entrenched upward path toward the second half of 2019 as post-election jitters subside and economic recovery is safeguarded.

The global growth environment poses limited risk to South Africa’s GDP growth expectations, with IHS Markit assuming global output rising by 2.8% in 2019. However, South Africa has not yet benefited from an export-related manufacturing or mining sector boom as a step back in business policy reforms; high unit labor cost, sporadic electricity disruptions, and disruptive strike actions continue to impede the country’s international competitiveness. A weaker rand exchange rate could nonetheless mitigate the effect of some of these factors and increase overall export earnings during the year.

There is limited room for policy stimulus during 2020.

South Africa’s inflation rate is currently set solid within the South African Reserve Bank (SARB)’s inflation target range of 3–6%. Although headline inflation is expected to pick up during second half of 2019, a breach of the upper-end of the inflation target is not foreseen by IHS Markit. The SARB policy rate is nonetheless expected to remain unchanged during 2019 despite the favorable inflation trajectory: efforts to lower inflation expectations closer to the mid-point of the inflation target range, a 25-basis-points hike in the US Federal Reserve (Fed) fund rate by end-2019 and currency volatility adds to the interest rate decision. A move toward more monetary and fiscal stimulus in the global environment could nonetheless open up the opportunity to lower the SARB’s policy rate during 2020.

Positive political sentiment followed the May 2019 national elections could leave the rand exchange rate stronger, to average around ZAR13.60–13.80:USD1.00 during the second and third quarters of 2019. With local debt credit downgrade fears once again emerging during the fourth quarter of the year on the back of weakening fiscal and public debt fundamentals, a resumption of rand exchange rate pressures will not be surprising. IHS Markit is of the view that the rand could end-2019 at ZAR13.80–14.00:USD1.00.

In the medium term, price differentials with the rest of the world, movements in commodity prices, the current account deficit, and the level of international reserves will determine the rand’s level. South Africa has a high import propensity, which, along with slow-developing and relatively fragile export markets, should keep external accounts in the red and place downward pressure on the rand. Furthermore, inflation is expected to stay at about 5.0–5.5%, with global inflation around 2.0–2.5%. This leaves the inflation differential at approximately 3.0%, which is also the expected rate of depreciation for the South African rand in the longer term. Upside pressures on the rand, which are expected to cushion the currency’s longer-term depreciating bias, include a relatively sustained upswing in foreign investor interest toward emerging markets and upwardly trending commodity prices as global growth gradually improves.

The low growth environment combined with financial constraints at inefficient State-Owned Enterprises (SOEs) has become increasingly problematic for South Africa’s fiscal finances and public-sector debt trajectory. IHS Markit believes that South Africa’s fiscal deficit will average 4.3% of GDP during 2019–21, with public-sector debt to GDP edging closer to 60% in the period. An escalating interest rate obligation, now the fastest growing expenditure item on the national budget, high public-sector wage bill, and large social benefits add to the government’s spending pressures. Financial constraints at SOEs that continue to push up the South African government’s debt obligations add to the public sector’s fiscal woes and place a cap on future public-sector investment projects.

Upside potential is dependent on a potential investment rebound.

An aggressive drive by new ruling president Cyril Ramaphosa to secure USD100-billion local and foreign investment in the next five years could be the swing factor in near-term growth prospects. Strong private-sector investor spending could leave South Africa’s growth rate closer to 2% in the near term.

IHS Markit maintains the view, nonetheless, that uncertainty regarding the possible changes to the country’s property rights, which will allow expropriation of land without compensation for local and international investors, will delay investment spending. Loss in agricultural production, lower growth and fiscal pressures remain imminent risks under such a policy outcome. Sporadic electricity disruptions and slow progress in business polity reforms could add to the negative investor backdrop in the near term.

A worst-case expropriation of land without compensation scenario could pull South Africa’s real GDP growth rate closer to 0.5–1.0% in the near-to-long term.

Enjoy the update!
The IHS Markit ReX team