KwaZulu-Natal Business Barometer

May 2013

Ex-Joshua Doore building 270 Jabu Ndlovu Street Pietermaritzburg Tel: +27 33 264 2500 Email: info@kznded.gov.za Web: www.kznded.gov.za

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Trade and Investment House Kingsmead Office Park Kingsmead Boulevard, Durban Tel: +27 31 368 9600 Email: info@tikzn.co.za Web: www.tikzn.co.za Gauteng Office: +27 12 346 4386

KwaZulu-Natal economy struggles

The KwaZulu-Natal economy usually outperforms most of the other eight provinces, but its performance has been somewhat disappointing over the last eight months. According to the latest KwaZulu-Natal barometer, as compiled by Mike Schssler of Economists.co.za, the provinces growth index was up by only 1.1% year -on-year. The overall barometer was down 0.7% year-on-year, the fifth decline in the last eight months. The barometer was down 1% month-on-month and 2.3% quarter-on-quarter, but was still 14.6% up from its level of three years ago. Despite the fact that the growth index was still positive, the low growth shows there is something to worry about in the KwaZuluNatal economy and the province would have to look at bringing in more projects or the government should spend more to boost its economy.

Low government spending forces Barometer down Slow government spending was one of the reasons for the bad overall performance of the barometer. Spending by the government declined by 3.1% year-on-year. Quarter-on-quarter it was down 3.9%. Although local government spending was included in the most recent barometer data, and was expected to boost the overall index of government spending, this was not the case. It seems that government spending is stalling or simply slowing down in general.

Mining and manufacturing were the other two sectors affecting the KwaZulu-Natal barometer negatively. Production in both sectors has been disturbed by the ongoing Eurozone crisis and the domestic strikes. Whether nationally or provincially, mining and manufacturing are two sectors that move the economy and the barometer.

Major declines in mining The KwaZulu-Natal mining index dropped by 27.4% year-on-year, its third double-digit drop since the beginning of the year. Month-on-month the index was down 23% and quarter-on-quarter 6.2%. Although KwaZulu-Natal has a very small mining sector and the sector does not employ a lot of people, it seems when mining decreases nationally, KwaZulu-Natal suffers more. Weak commodity prices that affect the whole mining industry also played a role in the bad performance of the mining index, but KwaZulu-Natals mining sector suffered a bigger decrease than the other provinces.

Manufacturings poor performance not isolated The KwaZulu-Natal manufacturing index grew by only 0.4% year-on-year, compared to Aprils decline of 0.4%. Month-on-month manufacturing was down 0.5% and quarter-on-quarter 4.5%. The only subsectors that really boosted manufacturing on a year-on-year basis were glass products and metal products. However mining the low performance of manufacturing is a worldwide issue.

Slight increase in the agriculture index The agriculture index for KwaZulu-Natal was down overall in May by 1.4% year-on-year compared to Aprils drop of 2.2%. This was only due to two sectors in the index: crushed sugar cane was down by 12% and the forestry area by 4%. If it were not for these two sectors, agriculture in KwaZulu-Natal would have looked much better. May usually is a big month for crop production like maize and sunflower and that really helps pick up Agriculture . This is reflected in the 2.4% month-on-month increase of the agriculture index. Meat production picked up 15% year-onyear and although lamb did not perform too well, the production of beef and pork grew as problems with an earlier disease were sorted out.

. Electricity index surprises The electricity index picked up by 2.4% year-on-year after more than a year in decline. KwaZulu-Natal had the most electricity delivered to it of all the provinces, which could be a sign of positive business activity in the province. There have been a lot of decreases in electricity usage as businesses in most provinces try to cut costs, but this pick-up in the KwaZulu-Natal electricity index may be pointing to something positive happening in the economy.

Construction disappoints yet again The KwaZulu-Natal construction index declined by 7.7% year-on-year. The index has been declining for most of 2012 and all of 2013 and is 18.3% below its level of three years ago. One of the worrying aspects of the elements that make up the construction index is the drop in lumber sales. These sales dropped by 14.1% year-on-year and have been declining since January. This is really dragging the construction index down. The decline in lumber sales shows that the problems in the construction sector are also rife in informal building and not only in the formal building sector. This means it will be a while before the construction sector can have any hope of recovery.

Bullish outlook for transport and communication index Transport and communication in KwaZulu-Natal had a good month and the only subsector in the transport and communication sector that was not positive, was airport arrival numbers at King Shaka International Airport. Arrivals declined by 4.5% year-on-year and have been negative since March last year, but since the start of this year, the decrease has become smaller, which suggest that airport arrivals could start picking up again in the near future. Overall the transport and communication index grew by 8.6% year-on-year and 1.3% quarter-on-quarter, but declined by 1.4% month-on-month. Communications grew by 12.8%, the volume of cargo handled at KwaZulu-Natals two ports by 9.9% and land transport by 2%.

Trade index riding on the back of vehicle sales The KwaZulu-Natal trade index grew by only 1.9% year-on-year in May as a decline in retail sales and hotel and restaurant volumes hammered the trade sector. The one thing boosting the trade sector was vehicle sales, which grew by 11.2% year-on-year following the previous months growth of 11.8%.

Small decline in finance, real estate and business services The finance, real estate and business services sector in KwaZulu-Natal has not been doing well for almost two years now. The index declined by 0.6% year-on-year and has been declining or growing at very low rates since July 2011. Month-on-month the index lost 1.9% and quarter-on-quarter it was down 3%. It should take a while before the index gets back to a strong growth number and this is simply a reflection of how the finance industry in general is doing across the country.

Stress index peaks despite civil debt cases decreasing One of the factors affecting the finance, real estate and business services index negatively was the 9.2% drop in civil debt cases, which means less work for lawyers. Although this decrease should have a positive effect on the KwaZulu-Natal stress index, the stress index still showed that economic stress in KwaZulu-Natal increased by 1.8% year-on-year. One of the primary reasons for the increase in economic stress was inflation, while unemployment in KwaZulu-Natal has also increased substantially from a year ago.

-Results Table: May 2013

% change

Main and sub indices of Kwazulu-Natal Barometer

Agriculture Index Mining Index Manufacturing Index Electricity Index Construction Index Transport Index Trade Index Government Finance, Real Estate and Business Services Index Kwa-Zulu Natal Growth Index Kwa-Zulu Natal Stress Index Kwa-Zulu Natal Barometer

% Change on a year ago -1.4% -27.4% 0.4% 2.4% -7.7% 8.6% 1.9% -3.1% -0.6% 1.1% 1.8% -0.7%

% Change on a % Change on a on 3 years month ago Quarter ago ago 2.4% -0.6% -4.1% -23.0% -6.2% -9.5% -0.5% -4.5% 4.5% 0.2% -1.3% -3.9% 0.3% 4.7% -18.3% -1.4% 1.3% 33.8% -1.2% -0.3% 17.1% 1.1% -3.9% 20.0% -1.9% -3.0% 3.2% -0.9% -2.0% 13.5% 0.1% 0.4% -1.0% -1.0% -2.3% 14.6%