FDI flows to Africa grew 5.1 percent to $23,1b in the first half of 2012 after three consecutive years of decline, according to the UN’s Conference on Trade Development report.

In the fourth quarter of 2012, South African real GDP at market prices increased by 2.1 percent quarter on quarter. The main contributors were the agriculture sector, manufacturing industry, and finance, real estate and business services.

Agriculture, forestry and fishing industry expanded 10 percent in the fourth quarter of 2012, mainly due to an increase in animal products. The manufacturing industry increased 5 percent due to a strong development in the production of petroleum, chemical products, rubber and plastic products; wood and wood products, paper, publishing and printing; basic iron and steel, non-ferrous metal products and machinery; and glass and non-metallic mineral products. 

Finance real estate and business services grew 2.9 percent as a result of increased activities in commercial banks and general government services expanded 2.6 percent. Wholesale, retail and motor trade expanded 1.5 percent due to increases in turnover, while the catering and accommodation industry and the transport, storage and communication industry increased 1.9 percent. 

The economic activity in the mining and quarrying industry reflected negative growth of 9.3 percent due to lower production in gold and mining of other metal ores including platinum; and the electricity, gas and water industry reflected negative growth of 2.2 percent, due to lower consumption in electricity and water.

The largest industries in the fourth quarter of 2012 were finance, real estate and business services accounting for 21.1 percent of total output, wholesale, retail and motor trade; catering and accommodation industry (17.8 percent), general government services (16.9 percent) and the manufacturing industry (12.4 percent).

2012 Surprise Cut in Repo Rate

SA Reserve Bank Governor, Gill Marcus, surprised economic analysts when she announced a cut in the repo rate from 5.5 % to 5 % July 2012. This was on the back of improved inflation figures and no end in sight for the Eurozone crisis. While Gill Marcus recognised that such a move on its own would not overcome the challenges facing the economy, it was felt that it could alleviate some of the pressures faced by some sectors.

The inflation rate was recorded at 5.7 percent in December 2012 and decreased to 5.4 percent in January of 2013, well below the market’s expectations mainly due to a reduction in food and transport prices. On a month-to-month basis the inflation rate was recorded at 0.3 percent in January 2013, compared with 0.2 percent in December 2012, lower than market consensus of 0.55 percent.

Foreign direct investment flows to SA dropped to 43.6 percent in the first half of 2012 compared to the first half of 2011. However, FDI to the continent as a whole rose by five percent according to the United Nations report October 2012. The decline in FDI to Africa’s biggest economy came during an 8 percent drop in global FDI inflows due to intensified global economic uncertainty, according to the UN’s Global Investment Trends Monitor. As South Africa battled its worst labour unrest, the figures suggested that the country faced increased competition from its fast growing neighbours. FDI flows to Africa grew 5.1 percent to $23,1b in the first half of the 2012 after three consecutive years of decline, according to the UN’s Conference on Trade Development report.

Government’s intention to increase debt

South Africa’s inclusion in Citi’s World Government Bond Index and a continuing hunt for higher yielding emerging market debt has fuelled increased demand for local bonds. The Treasury will target $1,5b from overseas markets over the next three years. Treasury said it would also draw down on its own cash reserves to fill its borrowing requirements. Cash balances are likely to decline to 151,4b in 2014/15 from 194,8b in 2011/12, and increase in 2015/16 to pay redemption.