KwaZulu-Natal’s economy and budgets, an overview (2010 and beyond)
More than two-thirds of people believe the current economic crisis is also a crisis of ethics and values – according to a recent World Economic Forum poll. There is a strong feeling that our planet needs a new compass to set it on a path of real progress. What is the route to true happiness? Unsurprisingly the study of happiness is experiencing a boom. But how do you measure happiness? Do we have a happiness barometer other than gross domestic product (GDP)?
In 2006 the Happy Planet Index (HPI) of human well being and environmental impact was introduced by the New Economics Foundation. It challenges the well established indices of countries’ development, such as GDP and the Human Development Index (HDI), which is regarded as too limiting and not taking sustainability into account.
Using life expectancy, life satisfaction and the ecological footprint of countries, the Happy Planet Index tries to measure quality of life or social progress in more holistic and psychological terms than Gross National Product or GDP. This research and discussions on activities and policies actually contributing to happier societies featured strongly at the fifth International Gross National Happiness conference, held in Brazil some weeks ago.
While the Happy Planet Index may also have its limitations it makes for interesting reading. The happiest people in the world in 2009 seem to be the Costa Ricans. Costa Rica scored the highest (76,1 out of 100) on the Happy Planet Index. Not only do Costa Ricans have the highest life satisfaction in the world but they also have the second highest average life expectancy of the new world (second only to Canada). All this with a footprint of 2,3 global hectares.
The highest placed Western nation is the Netherlands, 43rd out of 143. Egypt shines in the 12th position, while Sub-Saharan countries make up the bottom of the list. Except for South Africa, we moved up from 156th in 2006 to the 118th position in 2009. Although we strive to be in the top ten we are pleased that we have improved our people’s lives.
GDP still remains an essential strategy to reach the goal of a better life for all our people. On the economic front we excelled before the global recession caught up with us in 2009. In fact the South African economy experienced an exceptional and historic economic growth phase from 2003 to 2008:
We have had a fairly significant decrease in the official unemployment rate. Total national employment in the private sector increased by almost 21 percent from 2005 to 2008, the KwaZulu-Natal poverty rate dropped from 58 percent in 2002 to 48 percent in 2008:
* The KwaZulu-Natal poverty rate dropped from 58 percent in 2002 to 48 percent in 2008:
* Disposable national income increased in real terms by almost 12 percent.
* The per capita indicators for KwaZulu-Natal indicates an increase in the average standard of living and an increase in labour return in the province since 2000
* Disposable national income increased in real terms by almost 12 percent.
* The per capita indicators for KwaZulu-Natal indicate an increase in the average standard of living and an increase in labour return in the province since 2000.
Per capita indicators for KwaZulu-Natal
* 2000
GDP: per capita (all ages): R17 037
GDP: per capita (15 to 65): R28 735
Budget: per capita (all ages): R2 461
Budget: per capita (15 to 65): 4 151
* 2004
GDP: per capita (all ages): R18 105
GDP: per capita (15 to 65): R29 476
Budget: per capita (all ages): R2 898
Budget: per capita (15 to 65): R4 742
* 2007
GDP: per capita (all ages): R20 263
GDP: per capita (15 to 65): R32 768
Budget: per capita (all ages): R4 489
Budget: per capita (15 to 65): R7 259
* 2008
GDP: per capita (all ages): R20 793
GDP: per capita (15 to 65): R33 436
Budget: per capita (all ages): R5 057
Budget: per capita (15 to 65): R8 131
* 2009
GDP: per capita (all ages): R19 545
GDP: per capita (15 to0 65): R31 596
Budget: per capita (all ages): R5 231
Budget: per capita (15 to 65): R8 456
* Average real value
GDP: per capita (all ages): R18 533
GDP: per capita (15 to0 65): R30 328
Budget: per capita (all ages): R3 501
Budget: per capita (15 to 65): R5 714
* Average year on year percentage change
GDP: per capita (all ages): 1,61 percent
GDP: per capita (15 to0 65): 1,10 percent
Budget: per capita (all ages): 3,07 percent
Budget: per capita (15 to 65): 2,62 percent
* The provincial GDP increased on average by 3,42 percent in real terms since 2000, whereas the provincial budget increased on average by 5,14 percent year in year on real terms since 2000.
The following table shows the contribution of the local municipalities to the district economy. Between 2002 and 2008, the Goal Directed Project Management (GDPM) for uMgungundlovu district municipality was estimated at an annual average of R181,6 million. There was a significant growth of 33,3 percent from R158,1 million in 2002 to R210,6 million in 2008.
uMsunduzi was the largest contributor to the District GDPM at an annual average of 73,7 percent, followed by uMngeni at 8,3 percent. The least contributor was Impendle at 1,7 percent during the same period.
uMshwathi: 7,14 percent
uMngeni: 8,33 percent
Mooi Mpofana: 2,14 percent
Impendle: 1,66 percent
Msunduzi: 73,66 percent
Mkhambathini: 3,82 percent
Richmond: 3,25 percent
Sector share of municipal total GDP, 2008
* uMgungundlovu
Agriculture: 12,1 percent
Mining: 0,5 percent
Manufacturing: 14,4 percent
Electricity: 2,6 percent
Construction: 2,4 percent
Trade: 10,5 percent
Transport: 8,9 percent
Finance: 20,5 percent
Community service total: 28,1 percent
Total: 100 percent
* uMshwathi
Agriculture: 41,5 percent
Mining: 2,8 percent
Manufacturing: 19,9 percent
Electricity: 0,7 percent
Construction: 0,9 percent
Trade: 9,0 percent
Transport: 3,6 percent
Finance: 7,1 percent
Community Service Total: 14,5 percent
Total: 100 percent
* uMngeni
Agriculture: 16,7 percent
Mining: 0,2 percent
Manufacturing: 15,6 percent
Electricity: 2,4 percent
Construction: 2,6 percent
Trade: 8,9 percent
Transport: 6,7 percent
Finance: 21,9 percent
Community service total: 25,0 percent
Total: 100 percent
* Mooi Mpofana
Agriculture: 42,8 percent
Mining: 0,0 percent
Manufacturing: 10,7 percent
Electricity: 3,3 percent
Construction: 0,8 percent
Trade: 6,5 percent
Transport: 5 percent
Finance: 11,9 percent
Community service total: 19 percent
Total: 100 percent
* Impendle
Agriculture: 62,5 percent
Mining: 0 percent
Manufacturing: 4,4 percent
Electricity: 0 percent
Construction: 2,8 percent
Trade: 4,7 percent
Transport: 1,6 percent
Finance: 3,6 percent
Community service total: 20,4 percent
Total: 100 percent
* Msunduzi
Agriculture: 4,9 percent
Mining: 0,3 percent
Manufacturing: 14,4 percent
Electricity: 2,9 percent
Construction: 2,6 percent
Trade: 11,3 percent
Transport: 10,3 percent
Finance: 22,9 percent
Community service total: 30,3 percent
Total: 100 percent
* Mkhambathini
Agriculture: 20,9 percent
Mining: 0,2 percent
Manufacturing: 13,1 percent
Electricity: 3,2 percent
Construction: 2,1 percent
Trade: 10 percent
Transport: 6,9 percent
Finance: 16,4 percent
Community service total: 27,1 percent
Total: 100 percent
* Richmond
Agriculture: 38,4 percent
Mining: 0,2 percent
Manufacturing: 6,9 percent
Electricity: 1,9 percent
Construction: 1,5 percent
Trade: 7,4 percent
Transport: 3,9 percent
Finance: 10,9 percent
Community service total: 28,8 percent
Total: 100 percent
The sector that contributed substantially to the GDP of municipalities in the Umgungundlovu district is agriculture, except for Msunduzi. We can all agree that the South African economy was in a very healthy state when the global financial crisis struck.
The recession
The KwaZulu-Natal economy experienced a -6,11 percent quarter on quarter growth rate during the first quarter of 2009, compared with a -0,41 percent contraction in the fourth quarter of 2008. The contraction in growth has been blamed on a slump in export demand that has forced both manufacturers and miners to cut production.
The third quarter brought an end to the negative growth – a sign that the recession is technically over. But we are still in ICU. Although the domestic and provincial economies experienced positive growth rates during the third quarter of 2009 both economies were still recording negative year-on-year growth rates during the third quarter.
The world demand for our exports is still very depressed. As a result many businesses have closed down especially small, medium and micro enterprises (SMMEs) and thousands of jobs have been shed, in KwaZulu-Natal mostly in private households and the manufacturing sector. KwaZulu-Natal, which has become a global player, has been the hardest hit in South Africa.
We lost approximately 173 000 jobs since the fall-out of the world economic crisis and up to the second quarter of 2009. Sadly the effects are most likely to be felt by the poorest. And the hardest hit is likely to be women who form the vast majority of the poor.
In the latest 2010 report on global employment trends the International Labour Organisation (ILO) expressed concern about the increasing number of discouraged workers worldwide. In South Africa it is a bone of contention. Discouraged worked are unemployed but have given up searching for jobs. A person without hope becomes a social burden, to him or herself, the family and the state.
First quarter, 2008
Population of working age (15 to 64 years): 6,250 million
Labour force: 3,315 million
Employed: 2,562 million
Unemployed: 753 000
Not economically active: 2,935 million
Discouraged work seekers: 183 000
* Second quarter, 2008
Population of working age (15 to 64 years): 6,273 million
Labour force: 3,359 million
Employed: 2,614 million
Unemployed: 745 000
Not economically active: 2,914 million
Discouraged work seekers: 167 000
* Third quarter, 2008
Population of working age (15 to 64 years): 6,295 million
Labour force: 3,312 million
Employed: 2,583 million
Unemployed: 729 000
Not economically active: 2,983 million
Discouraged work seekers: 186 000
* Fourth quarter, 2008
Population of working age (15 to 64 years): 6,318 million
Labour force: 3,321 million
Employed: 2,631 million
Unemployed: 690 000
Not economically active: 2,997 million
Discouraged work seekers: 224 000
* First quarter, 2009
Population of working age (15 to 64 years): 6,340 million
Labour force: 3,248 million
Employed: 2,514 million
Unemployed: 733 000
Not economically active: 3,093 million
Discouraged work seekers: 271 000
* Second quarter, 2009
Population of working age (15 to 64 years): 6,362 million
Labour force: 3,043 million
Employed: 2,457 million
Unemployed: 586 000
Not economically active: 3,319 million
Discouraged work seekers: 448 000
* Third quarter, 2009
Population of working age (15 to 64 years): 6,384 million
Labour force: 3,024 million
Employed: 2,458 million
Unemployed: 566 000
Not economically active: 3,36 million
Discouraged work seekers: 481 000
As you see from this table the discouraged work seekers more than doubled between the first quarter of 2008 and the third quarter of 2009. The expanded definition of unemployment, which includes discouraged job seekers, now sits at a whopping 34 percent in KwaZulu-Natal.
Unfortunately a large portion of these people do not have the education or skills to participate in a modern economy. Without the safety net of grants the poorest of the poor will perish. The huge number of people depending on grants drains our social welfare budget and with increasing discouraged work seekers we can expect more pressure.
Government has a two-pronged approach, a short term strategy that dealt with immediate amelioration represented by the framework agreement, and the other that encompasses a range of measures to have an impact on unemployed and discouraged work seekers. We also urge you as business to assist us in training.
Job losses could have been much worse had it not been for our strict fiscal policies. The World Economic Forum’s global competitiveness index rates South Africa sixth of 133 countries for “soundness of banks”, from 15th last year.
Implications for the 2010/11 budget
Governments in many countries, including South Africa, made substantial use of fiscal policy as part of their recession fighting strategy. Budget deficits were allowed to increase substantially. This will most likely determine the course of fiscal policy for the next five to 10 years. It seems probable that the significant debt burden incurred during and as a result of the recession will significantly limit future expenditure and or the current “low” tax levels.
Government does not have any room to manoeuvre. Spending on budget is the ONLY option. The financial situation in our province is serious. Cabinet approved 21 cost-cutting measures with immediate effect until further notice. Provincial expenditure will continue to be under pressure because of the significant revenue constraints faced by the national fiscus.
All departments had to take immediate steps to eradicate fraud and corruption, which continues to be a drain on the provincial fiscus. We appeal to our business people to give government value for money. Inflating prices just because it is government can never be justified. Do not collude with corrupt officials, it is stealing from the poorest and robbing others of service delivery. We need to change the mindset from “making a killing” to “making a living” if we want all our people to benefit.
While we can cut back on Christmas parties, bonuses and travelling costs we cannot cut back on service delivery. The provincial government expenditure as a percentage of the GDP will continue to increase during 2010. The following table suggests an increasingly greater involvement of the provincial government in the provincial economy. For the 2009 MTEF the total budget moves up from R60,4 million in 2009/10 to R65,2 million in 2010/11 and eventually R70,5 million in 2011/12.
The Chinese have a saying that “when the winds of change blow, some people build shelters, others build wind mills.” The South African government chose to build “windmills” by not cutting down on infrastructure spending.
Expenditure on infrastructure has been very useful in creating employment opportunities and improving the competitive advantage of countries, thus minimizing the effects of recessions. The South African infrastructure expenditure for the 2009/2010 financial year totals R787 billion.
As an acknowledgment of the stimulating effect of infrastructure investments, KwaZulu-Natal for its part has increased infrastructure spending from R10.8 billion in 2009/10 to R11,5 billion in 2010/11 and R12,7 billion in 2011/12. Our Premier, Dr Zweli Mkhize spelled out the priorities in his state of the province address. Therefore the focus on expenditure in the 2010/2011 budget will be:
* rural development or agrarian reform
* creating decent work and economic growth
* fighting crime
*·education
* health
* nation building and good governance
The KwaZulu-Natal’s provincial budget will be tabled on 4 March 2010 at the legislature. The budget process began in June and July for the financial year beginning in April of the ensuing year and we adopt the following procedure:
* Reprioritisation of current baseline and identification of new or additional initiatives
* Departments present and discuss budget proposals with portfolio committees
* Provincial Treasury analyses budget submissions
* MTEC
* MinComBud
* Provincial executive committee
* Preliminary allocations to departments towards end of November
* Final allocations January and February
* Provincial budget statement finalised
* Provincial budget speech in March
Economic trends and prospects
The signs of a full recovery are there. The numbers of travellers using South African airports in December increased for the first time since March last year. And the airport with the best growth was Durban International Airport with an 11 percent increase to 400 000 passengers.
Manufacturing is picking up strongly according to the latest reports. Of concern to us, especially in KwaZulu-Natal is the performance of agriculture. It showed once again negative growth in the third quarter of 2009. We are concerned about the continuing trend of decreasing activities in this sector, as illustrated in the following table:
2001 to 2003
* Umgungundlovu
Agriculture: 17,5 percent
Manufacturing: 0,2 percent
Mining: 15,4 percent
Electricity: 1,2 percent
Construction: 2,1 percent
Trade: 8,9 percent
Transport: 3,7 percent
Finance: 9,3 percent
Community services: 27,5 percent
Households: 14,3 percent
2004 to 2006
* Umgungundlovu
Agriculture: 14,2
Manufacturing: 0,2
Mining: 15,4
Electricity: 1,2
Construction: 2,9
Trade: 10,9
Transport: 3,5
Finance: 10,7
Community services: 28
Households: 13,7
2007 to 2008
* Umgungundlovu
Agriculture: 13,1 percent
Manufacturing: 0,2 percent
Mining: 14,9 percent
Electricity: 1,0 percent
Construction: 2,8 percent
Trade: 10,2 percent
Transport: 3,33 percent
Finance: 11,5 percent
Community services: 28,2 percent
Households: 14,8 percent
2001 to 2003
* Umngeni
Agriculture: 23,5 percent
Manufacturing: 0,2 percent
Mining: 14,2 percent
Electricity: 1,1 percent
Construction: 1,8 percent
Trade: 6,3 percent
Transport: 2,5 percent
Finance: 7,2 percent
Community services: 23,6 percent
Households: 19,7 percent
2004 to 2006
* Umngeni
Agriculture: 19,1 percent
Manufacturing: 0,2 percent
Mining: 14,5 percent
Electricity: 1,0 percent
Construction: 2,5 percent
Trade: 7,5 percent
Transport: 2,5 percent
Finance: 8,7 percent
Community services: 24,6 percent
Households: 19,4 percent
2007 to 2008
* Umngeni
Agriculture: 17,3 percent
Manufacturing: 0,2 percent
Mining: 13,9 percent
Electricity: 0,9 percent
Construction: 2,5 percent
Trade: 7,8 percent
Transport: 2,4 percent
Finance: 9,8 percent
Community services: 24,7 percent
Households: 20,6 percent
We are adamant to get our agriculture back on track. The agriculture drive that Dr Mkhize launched last year includes initiatives to boost commercial farming, as well as the One Home One Garden project which aims to ensure that people have at the very least food on the table.
KwaZulu-Natal has what it takes to become a global player. When we look at the wealth and growth indicators our future looks bright:
Number of active company and close corporation entities per province
* 2002
Eastern Cape: 2,529
Free State: 1,681
Gauteng: 40,982
KwaZulu-Natal: 8,654
Limpopo: 2,885
Mpumalanga: 6,608
Northern Cape: 1,293
North West: 529
Western Cape: 12,566
* 2003
Eastern Cape: 3,152
Free State: 1,914
Gauteng: 41,486
KwaZulu-Natal: 9,917
Limpopo: 3,906
Mpumalanga: 8,024
Northern Cape: 1,299
North West: 548
Western Cape: 11,243
* 2004
Eastern Cape: 581
Free State: 2,592
Gauteng: 63,195
KwaZulu-Natal: 19,994
Limpopo: 371
Mpumalanga: 536
Northern Cape: 352
North West: 95
Western Cape: 17,801
* 2005
Eastern Cape: 1,366
Free State: 3,650
Gauteng: 81,878
KwaZulu-Natal: 19,708
Limpopo: 2,325
Mpumalanga: 2,958
Northern Cape: 1,922
North West: 316
Western Cape: 22,136
* 2006
Eastern Cape: 3,529
Free State: 5,238
Gauteng: 83,044
KwaZulu-Natal: 24,638
Limpopo: 8,557
Mpumalanga: 10,286
Northern Cape: 5,344
North West: 755
Western Cape: 23,627
* 2007
Eastern Cape: 6,060
Free State: 7,108
Gauteng: 91,465
KwaZulu-Natal: 26,160
Limpopo: 10,323
Mpumalanga: 12,771
Northern Cape: 5,805
North West: 1,128
Western Cape: 26,343
* 2008
Eastern Cape: 15,315
Free State: 10,515
Gauteng: 146,012
KwaZulu-Natal: 39,364
Limpopo: 18,242
Mpumalanga: 16,562
Northern Cape: 10,389
North West: 2,044
Western Cape: 32,688
* 2009
Eastern Cape: 13,536
Free State: 7,673
Gauteng: 109,513
KwaZulu-Natal: 31,299
Limpopo: 13,832
Mpumalanga: 11,058
Northern Cape: 7,959
North West: 1,605
Western Cape: 25,060
About 8 000 companies and close corporations closed down during 2009 in KwaZulu-Natal. However, the total number of companies and close corporations are at present still more than in 2007. When comparing ourselves to Gauteng we can do a lot more to attract more direct investment into our province. Start selling our province!
The table that illustrates the provincial macro-economic indicators is another indication of our potential:
Provincial macro-economic indicators: average per year
* Average 2002
Buildings reported as completed, constant prices: R683,033,846
Cement sales, tons: R317,613
Electricity usage, gigawatt hour: 9,407
Civil cases recorded and summonses issued for debt: 14,636
Total fuel consumption: 715,750,549 litres
* Average 2003
Buildings reported as completed, constant prices: R688,404,477
Cement sales, tons: R360,059
Electricity usage, gigawatt hour: 9,808
Civil cases recorded and summonses issued for debt: 13,506
Total fuel consumption: 753,736,595 litres
* Average 2004
Buildings reported as completed, constant prices: R1,165,888,359
Cement sales, tons: R404,299
Electricity usage, gigawatt hour: 10,566
Civil cases recorded and summonses issued for debt: 11,734
Total fuel consumption: 780,257,505 litres
* Average 2005
Buildings reported as completed, constant prices: R1,131,325,867
Cement sales, tons: R463,572
Electricity usage, gigawatt hour: 10,762
Civil cases recorded and summonses issued for debt: 8,130
Total fuel consumption: 803,760,349 litres
* Average 2006
Buildings reported as completed, constant prices: R1,359,675,176
Cement sales, tons: R497,920
Electricity usage, gigawatt hour: 10,794
Civil cases recorded and summonses issued for debt: 7,300
Total fuel consumption: 815,951,388 litres
* Average 2007
Buildings reported as completed, constant prices: R1,608,532,013
Number of claims for unemployment benefits: 28,995
Cement sales, tons: R530,945
Electricity usage, gigawatt hour: 10,798
Civil cases recorded and summonses issued for debt: 7,870
Total fuel consumption: 863,876,908 litres
* Average 2008
Buildings reported as completed, constant prices: R1,611,588,538
Number of claims for unemployment benefits: 23,172
Cement sales, tons: R491,066
Electricity usage, gigawatt hour: 10,310
Civil cases recorded and summonses issued for debt: 8,115
Total fuel consumption: 890,719,771 litres
* Average 2009
Buildings reported as completed, constant prices: R1,803,411,378
Number of claims for unemployment benefits: 51,642
Cement sales, tons: R501,490
Electricity usage, gigawatt hour: 10,320
Civil cases recorded and summonses issued for debt: 9,685
Total fuel consumption: 849,585,203 litres
The indicators recorded significant improvements since 2002. Yes, the negative effects of the recession are unfortunately also visible in the 2009 figures as the provincial economy did not escape the effects of the world financial and economic crises. But it is very encouraging that the provincial economy seems to have stood firm.
According to our economists the downturn should therefore only be of a cyclical nature and not of a structural nature. We should recover fairly substantially when the world trade resumes and domestic monetary policy stays expansionary during 2010.
2010: in the eyes of the world
This year we will be in the world’s eyes. South Africa will make major headlines across the world with the Soccer World cup. According to calculations the 2010 FIFA World Soccer cup should draw a cumulative television audience of about 30 billion viewers. This is in addition to thousands of people who will be visiting our country.
The exposure offers an enormous opportunity to showcase the best of our province. While KwaZulu-Natal is the preferred holiday destination for South Africans, we have to lure more foreign visitors to become the number one international tourist destination. The new King Shaka International Airport will indeed contribute towards this goal and take us further on the road to recovery.
The world cup cannot be seen as a once-off event where we get a huge influx of tourists who don’t return. Our work ethics, quality of service and produce must at all times be exquisite. And not overpriced.
While we are no sangomas and cannot tell you what the future holds, KwaZulu-Natal Treasury’s economists have made a forecast for 2010 based on trends:
KwaZulu-Natal Treasury’s forecast for:
Total population growth: one to 1,5 percent
GDP growth: 1,5 to two percent
Provincial inflation: between 5,5 and six percent
Unemployment rate (expanded): 33 to 36 percent
Per Capita income increase by 0 to one percent
Number of people in poverty increase: between four and eight percent
The overall picture is certainly an improvement on 2009. However, job creation remains our major task. And we will still have to hold on to our rands and still pinch our cents. But given the fact that so many people are living in poverty the social responsibility of individuals and businesses remains crucial.
BE THE CHANGE: THINK OF THREE THINGS YOU HAVE IN ABUNDANCE, MAY INCLUDE: TIME, TALENT OR TREASURE. Could someone else use them?
“As much as we need a prosperous economy, we also need prosperity of kindness and decency.”
I thank you.
Issued by: Provincial Treasury, KwaZulu-Natal Provincial Government
4 February 2010
Source: Provincial Treasury, KwaZulu-Natal Provincial Government (http://www.kzntreasury.gov.za/)
