Johannesburg – The Eastern Cape economy may not be charging ahead at 120km/h, but the 40km/h at which is currently progressing is a welcome and long-anticipated revival.
That is how Economists.co.za economist Mike Schüssler, the compiler of the Sake24 and BoE Private Clients provincial barometers, describes the improvement in the province.
Economic growth is currently being driven mainly by manufacturing (other than that of vehicles) and house sales, said Schüssler.
The encouraging trend is that in March most economic sectors in the province were up – both on an annual basis and month-on-month.
Although the Eastern Cape barometer, which measures business activity in the province, was 3.9% down in March compared to a year ago, Schüssler said the bad times have receded – for now. The growth index was 1.7% up.
"The Eastern Cape was the weakest province, but there would seem to have been a slight improvement. Compared to the other provinces' barometers, the Eastern Cape did better last month, quarter-on-quarter."
The weak European economy is impacting vehicle manufacturing, the heartbeat of the Eastern Cape.
Fewer vehicles will be exported this year. It won't be a brilliant year for the motor industry, but the province's other manufacturing industries are improving, said Schüssler. Manufacturing (such as textile manufacturing) is getting a firmer foothold in the provincial economy.
He said there are other industries in the province that offset the struggling motor industry.
"The agricultural sector is very close to a turnaround. Apart from the beef industry, this sector is beginning to stabilise."
The Eastern Cape barometer's agricultural index contracted 10% in March compared to a year ago. Meat sales were 52% down. Schüssler said this is largely owing to a decline in beef sales.
According to the industry an oversupply of red meat arose in the market because of high prices, and merchants are struggling to dispose of their stocks. Schüssler said the situation will improve in time.
"The harbours also look good. The Coega Industrial Development Zone seems to be on the right track."
Schüssler said it's also pleasing to see that people are buying houses. "Although the housing market is still in recovery, house prices are stable. The search for bargains in house prices is apparently driving sales.
"People are buying property with a view to further development." Schüssler said the rise in the number of mortgages shows people are prepared to borrow more money for housing.
According to Schüssler, the provincial construction industry that specialises in the housing market is again lifting its head.
The construction index fell 29.3% year-on-year (y/y).
The countrywide shortage of bitumen (used in road building) is, according to Schüssler, a principal cause of contraction.
The Eastern Cape’s tourism industry has been negative y/y for 10 months. Its revival, however small, will have a ripple effect leading to an improvement in the housing market and the construction industry if retail also receives a shot in the arm.
"One or two flights more a day in the Nelson Mandela Metro will in time stimulate the housing market. People will build more guesthouses."
The province's March stress index was 5.7% up. This is partly owing to rising inflation, but also to the sharp rise in the number of summonses for debt.
Schüssler describes this as a warning sign.
The electricity index shows one of the barometer's strongest rises, at 10.7%. It would seem that Coega is contributing to this, said Schüssler. The government expenditure index contract 2.1% y/y, but Schüssler said this is only temporary.
The spending is negative at this point because government last year took off with major expenditure and then spent more slowly.
"A total 74% of its expenditure took place in the first three quarters. It now has only 26% left to spend, while in other years at this time there was still 28% left to spend. The decline is therefore partly technical and it should recover." Municipal shot in the arm
Injection for efficiency
This year Eastern Cape municipalities will receive millions to boost development.
In his recent budget speech Phumulo Masualle, the MEC for finance, told the provincial parliament progress was being made in building a "development state" – something the Eastern Cape seriously needs.
To stimulate economic growth, among other things, Treasury is focusing on local government. The department of local government and traditional affairs received R788.4m in the 2012/13 fiscal year. This amount will be used, inter alia, to combat mismanagement in municipal administration.
"Our municipalities have big challenges, such as bad audits, the squandering of taxpayers' money and an inability to manage government grants."” The problem is being tackled via a special supportive programme.
Masualle said in the fourth quarter of last year the Eastern Cape showed progress on the economic font.
"We recovered from a 4.2% contraction in the second quarter of 2009 to a 3% improvement in the fourth quarter of last year.
"Our growth outlook for this year is 2.8%, and for next year 3.8%."
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