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Free State economy shows promise

Bloemfontein - Dynamite is said to come in small packages.

Although the Free State has little economic firepower, in the second half of the year it produced more fireworks than some of the larger provinces.

In October the Sake24 and BoE Private Clients' Free State Barometer rose 7.3% compared with a year ago.

Economists.co.za economist Mike Schüssler, who compiled the Free State barometer, said taking into account the fact that the Free State provides only 5.5% of South Africa's gross domestic product, the province was not doing badly in terms of growth.

The province’s overall index rose 1.1% compared with a year ago, and even over three months went up by a steady 1.8%.
 
When the recovery began, the Free State did not bounce back from the recession spectacularly, but now that certain other provinces were experiencing a small contraction, the Free State was handling the pressure better.

Schüssler was especially impressed by the Free State’s financial, property and business services sector, which improved by 12% compared with the same period last year – but he indicated that the recovery had come off a low base.

Property transfers were 21.9% better, and insurance and asset management 3.6% up.

It was still very difficult to get a home loan and in October, the number of approved loans had declined 43% year-on-year (y/y).

Government’s contribution (at national, provincial and local level) to the province’s economic activity rose 15.9% y/y.

The past three months saw an improvement of only 4.5% – not necessarily a bad sign, said Schüssler. Bigger government expenditure, especially on the revenue side, cancelled the benefits of lower interest rates.

He was concerned about the sharp rise in income earned by municipalities through levies on services like electricity, water, sanitation and property tax. In the Free State, this rose 32.1% over the past year.

Looking at electricity consumption, it was evident that households were really using less power to avoid higher accounts. But it remained difficult to do business in the province, as indicated by the 6.2% rise in the stress index. This indicated that doing business was somewhat more difficult than it had been a few months ago.

Free Staters were still struggling to reduce their debt levels, and the number of summonses for civil debt were 79.7% up y/y. Over the same period, unemployment also rose 5.8%.

The big loser in October was the construction sector, which was 32.1% down on the year before.

According to Schüssler, the construction sector will continue to be under pressure for some time. Businesses were still focused on saving costs, with little money and few plans for expansion and new buildings.

- Sake24

For business news in Afrikaans, go to Sake24.com.

For more news on the Sake24/BoE Private Clients barometers, go to www.fin24.com/barometer
 
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