Unpacking StatsSA’s newly released gross domestic product (GDP) figures for the third quarter of 2023, Citadel’s Chief Investment Officer George Herman highlighted the pervasive impact of South Africa’s faltering transport and logistics sectors and the knock-on effect it has on the broader South African economy.
According to the data, South Africa’s economy contracted 0.2% in the third quarter of 2023 in quarter-on-quarter seasonally adjusted terms, compared to revised growth of 0.5% in the previous quarter. There were sharp falls across the board with agriculture, construction, manufacturing and mining all declining.
GOVERNMENT NEEDS TO PRIORITISE STRUCTURAL CHALLENGES
“Having recorded economic expansion over the first two quarters of 2023, this was a reality check. While economic contraction is never welcome, it is important to remember that these figures are backward looking and in light of the combination of loadshedding and high-interest rates, this result was not unexpected,” says Herman.
The agriculture sector was expected to take some strain as it had been hit by a series of factors including an outbreak of avian flu and flooding in the Western Cape. “We should remember that this data point should also be seen in the context of a slow-down in the global economy where we are seeing signs of weakness in both the US and China,” he says.
Weaker activity from agriculture and manufacturing had a knock-on effect on wholesale trade, contributing to a 0,2% decline in the trade, catering & accommodation industry. Motor trade and restaurants, catering & fast-food were also weaker in the quarter as consumers felt the effects of inflation and higher interest rates,” says Herman.
Herman further notes that “the South African tourism sector continued its recovery and continues to be a sector to watch but its recovery was not enough to arrest the economic slowdown.”
TRANSPORT AND LOGISTICS SECTORS REQUIRE URGENT GOVERNEMENT ATTENTION
According to Herman, the key takeaway from the GDP figures is that we must get our transport and logistics sectors working. This is a non-negotiable, especially with expectations of a slowdown in our major trading partners – we need to make sure that we are making every part of the economy work for us.
Herman notes that, imports of chemical products, resins and plastics, base metals and articles of base metals, vegetable products and vehicles and transport equipment all declined in the quarter. South Africa does not have the local manufacturing base and is heavily dependent on these imports.
“This isn’t only limited to the backlogs at the ports and borders but throughout our economy as road freight volumes were also down. Looking at the household data, strained consumers cut back on consumption expenditure for a second consecutive quarter, reducing their spending on items such as transport, recreation and housing utilities,” says Herman.
CONCLUSION
“This GDP data is largely in line with expectations and reiterates our view that South Africa will continue to deliver “Sub-Potential Growth” for the next 18 to 24 months unless there is some material change in fiscal policy or the underlying economy begins to fire. We also cannot lose sight of the fact that recent inflation data suggests that policymakers may need to hold our interest rates higher-for-longer while counterparts in developed markets will enjoy greater flexibility when it comes to monetary policy,” says Herman.
South Africa has a number of key challenges it faces and while much of the focus has been on the impact of loadshedding. “We are starting to feel the inefficiencies from our logistics and transport networks. We simply must bring urgency to dealing with this crisis.”