Long-term shifts in the composition of the SA economy

 EmailPrint This Post Print This Post

By Kevin Lings

Following the release of the latest GDP data, Ian asked me to comment on the long-term shifts in the composition of the SA economy. The following bullet points should, ideally, be read in conjunction with the attached graphs.

• There is little doubt that SA has become an increasingly service-orientated economy over the past 30 years. In total, the service sector (mainly finance, retail and community services) comprises a massive 68% of the economy. This compares with 53% at the beginning of 1970. Most of this growth has been due to the excellent performance of the broader finance and business services sector. This sector now comprises almost 23% of the economy, well up from 14% in 1970, but it may well be close to reaching saturation point, at least in the medium term.

• The mining sector has been in a long-term state of decline in terms of its importance in the economy. Back in 1960, the mining sector accounted for a very substantial 21% of the economy, and significantly more of exports. However, by 1970 the percentage had declined to 18%, then to 11% in 1980, 9% in 1990 and around 6% at present. Most of this fall-off has been due to a contraction in the output of gold.

• The agricultural sector currently represents around 2.5% of the economy. There is a general perception that the agricultural sector was considerably bigger in the past. In fact, the largest the agricultural sector has ever been is 5.8% of the economy, back in 1967. Since 1970, the sector has never exceeded 4.5% of the economy, and has averaged a mere 3.2% since 1990.

• The manufacturing sector was full of promise in the 1960s and 1970s, rising from only 12% of GDP in 1960 to a peak of just over 20% in the late 1970s and early 1980s. After remaining at around 20% for a few years, the manufacturing sector started to underperform the rest of the economy. This was partly due to a lack of new investment, labour market disruptions, cheap imports and a general lack of supportive industrial policy. The sector has since fallen to around 17.5% of the economy and is in need of new investment.

• The construction sector was SA’s worst-performing sector for many years, dropping alarmingly from 5% of the economy in the mid-1970s to a low of 2.5% of GDP as recently as 1999. Since 2000 the industry has been the best-performing sector in South Africa, boosted by the boom in the residential building sector. The sector now presents 4% of the economy and should continue to rise as the infrastructural activity gains further momentum.

• Transport and communication now represent almost 11% of the SA economy, up from a mere 5.6% in 1970. This growth has been mostly driven by the boom in the cell-phone industry. In contrast, fixed-line communication has been under pressure.

Overall, the economy has clearly become increasingly reliant on the tertiary sector (service sector) for growth, both in terms of consistency as well as vibrancy. In contrast, the primary sectors (in the form of agriculture and mining) have essentially stagnated for a number of years (see chart on the growing role of the service sector in SA). It is therefore no surprise that the tertiary sector now accounts for almost 70% of all economic activity in South Africa, while the primary sector represents a relatively modest 8%. Importantly, the structure of the economy is probably not ideal to respond to the huge unemployment base as well as the general lack of skills. We have tended to grow capital-intensive and high-skill industries more successfully. It is therefore crucial that SA’s industrial policy responds to these growth dynamics; this is something that will not be easy.

28-may-3fs.jpg

Source: Kevin Lings, Stanlib, May 27, 2008.

 

Did you enjoy this posting? If so, click here to subscribe to updates to Investment Postcards from Cape Town by e-mail.

 

OverSeas Radio Network

Leave a Reply

  

  

  

You can use these HTML tags

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Top 100 Financial Blogs

Recent Posts

Charts & Indexes

Gold Price (US$)

Don Coxe’s Weekly Webcast

Podcast – Dow Jones


One minute - every hour - weekdays
(requires Windows Media Player)
newsflashr network
National Debt Clock

Calendar of Posts

May 2008
MTWTFSS
« Apr Jun »
 1234
567891011
12131415161718
19202122232425
262728293031 

Feed the Bull