Wealth management experts Citadel’s Chief Investment Officer, George Herman, unpacks the newly released GDP figures; names mining as the biggest winner and construction as the biggest economic loser in South Africa in 2021.
South Africa – The South African economy has not yet recovered from the pandemic and was, in fact, still at the same level it was five years ago – with mining being the biggest economic winner and construction the biggest economic loser of past year, according to Citadel Chief Investment Officer George Herman.
Herman was reacting to the gross domestic product (GDP) data released today by Statistics South Africa, showing that the country’s annual real GDP increased by 4.9% in 2021, following a contraction of 6.4% in 2020 when the COVID-19 pandemic broke out.
A RECAP OF THE NUMBERS
The overall GDP number for the year 2021 came in at 4.9%, which is “in line with market expectations”, says Herman. “We were hoping for somewhere in the fives but the 4.9% figure was fair enough. The third quarter 2021 numbers were revised down somewhat and so that’s probably what kept it just below the edge of five.”
“Considering that the economy contracted by 6.4% in 2020, it does mean that the economy still has not gained back what was lost during the pandemic, and in fact at the end of the fourth quarter of 2021, the GDP figure was exactly the same size as it was in the third quarter of 2017. This essentially means that we are still where we were five years ago hence why unemployment is such an enormous issue,” says Herman.
In summary, the quarterly GDP number for the fourth quarter (quarter-on-quarter) for 2021 came in at 1.2%, while the year-on-year number came in at 1.7%, which produced a total of 4.9% GDP growth for the entirety of 2021 (the sum of the four quarters).
WINNERS AND LOSERS OF THE SA ECONOMY IN 2021
Within the 4.9% GDP expansion for 2021 overall, the industry with the largest growth was mining at 11.8%. “Mining’s enormous growth is due to the fantastic commodity prices that the industry is experiencing currently,” says Herman.
First runner up to mining was the currently prosperous South African agriculture sector, while manufacturing came in at third place. “Conducive weather conditions in South Africa helped agriculture – this industry was up 8.3% – and manufacturing was the third largest at a 6.5% increase for the year,” says Herman.
However, the largest contributor to overall GDP for the year came from the finance sector, which grew at 3.7% but contributed 0.9% to the annual GDP number.
“The major disappointment of the 2021 GDP numbers was the contraction of the construction sector. It is the only industry that contracted in 2021 and was down by 1.9%. As we’ve highlighted many times before, construction is the industry that creates the most jobs in South Africa, and it is seriously disappointing that that industry is not addressed in enough intensity to protect it,” Herman laments.
It was also important to note that the government’s fixed expenditure was still negative in the fourth quarter of 2021, which negatively affected infrastructure spending and ultimately the health of the South Africa construction industry. “This just shows that there’s not enough impetus being placed into the construction sector overall, which is sad, but at least it is good to see that the only sector or industry that contracted during the year was construction.”
Written by: Citadel Chief Investment Officer, George Herman