South Africa: September/October 2013 Economic Review

Last Updated: 7 November 2013
Article by Frank Blackmore

Policy uncertainty and internal structural challenges plague South Africa's growth potential.

With the strike season still underway in certain industries, South Africa got a sense of its impact on the economy thus far on Thursday, 10 October 2013. Manufacturing output grew by a mere 0.2% in August 2013 from a year before, compared to the annual growth rate of 5.5% observed in July 2013, clearly reflecting lost production due to strike action across industries. On a more positive note, mining production increased by 2.1% year-on-year in August 2013 on the back of platinum group metals, from the annual increase of 1.2% observed in July 2013.1 According to Andrew Levy Employment Publications, the number of working days lost rose from 750 000 in the first half of last year to 1.8 million in the first half of this year.2

Annual wage negotiations have gone hand in hand with strike action and this year the strike action has not continued for as long or been as violent as was the case last year. However, relative to 2010, where the strike season lasted fewer than three months, this year's strike season has lasted more than ten months of the year with the economic sectors being affected increasing greatly.3 Both existing and potential investors across all sectors of the South African economy are taking note as the extent and tone of these demands from labour unions have become more threatening, with little response from government.

The Association of Mineworkers and Construction Union (Amcu) initially rejected Anglo American platinum's (Amplats) planned retrenchment of 3 158 employees and called to broaden the strike if their demands to reinstate these workers are not met. The two parties have since come to an agreement; however, the strike that started at the end of last month is estimated to have cost R605.6 million in lost production of platinum alone.4

In the automotive sector, a four-week strike cost this industry around R20 billion while slashing exports and export earnings by 75% or 50 000 cars.5 In the wake of this, BMW spokesperson Guy Kilfoil said the company lost 13,000 units of unrecoverable production and as a result of the current environment will be putting expansion plans into South Africa on hold indefinitely. In response to this statement, general secretary Irvin Jim from the National Union of Metalworkers of SA (Numsa) said that they would seek a formal meeting with the leadership of BMW to discuss this perceived threat.6

The recent labour market events have also been noted by the World Bank. In its bi-annual report on Africa released early last week, it has stated that labour unrest and mining strikes, burdensome regulations, and infrastructure gaps have held back the country's growth.7 The extent of labour market rigidities is evident when looking at selected labour market indicators from the World Economic Forum's Global Competitiveness Report for 2013-2014.

Out of 148 surveyed countries, comprising 99% of world GDP, South Africa was ranked as follows:

  • Cooperation in labour-employer relations – 148th
  • Flexibility of wage determination – 144th
  • Hiring and firing practices – 147th
  • Pay and productivity – 142nd
  • (Overall) Labour market efficiency – 116th

This report also conducts a survey in which respondents are asked to identify the five most problematic factors for doing business from a list, which in South Africa's case were indicated to be:

  • Inadequately educated workforce
  • Restrictive labour relations
  • Inefficient government bureaucracy
  • Corruption
  • Poor work ethic in national labour force

Government's conflicting and uncertain policy statements are further straining investment confidence into the local economy and inevitably hampering the country's Gross Domestic Output (GDP) growth and job creating ability. An example is the Min¬eral and Petroleum Resources Development Amendment Bill which is currently going through the parliamentary process. This amendment bill has come under severe scrutiny from industry stakeholders due to the lack of certainty and stability provided by the legislation. One of the concerns with the amendment bill is that explorers would not necessarily have the automatic right to mine deposits which they discover. There is also a push for mining companies to expand into benefication – something the industry is not geared to do.8

Similar concern has been heard from the retail sector, with Woolworths chairman Si¬mon Susman stating that they are watching with deep concern the flow of restrictive, populist legislation being imposed on commerce in South Africa.9 Various local economists and analysts have also echoed these sentiments.

In his address at the Broad-Based Black Economic Empowerment Summit on 3 October, President Jacob Zuma stated, among other things, that the government encouraged the growth of more SMMEs owned by black people, women, youth and persons with disability in the six New Growth Path job drivers, being mining, agriculture, the green economy, tourism, manufacturing and infrastructure development. He also indicated that intervention by way of targeted financial support and localised state procurement has seen the revitalisation of industries such as train and bus building as well as clothing, textiles and footwear manufacturing.10

While this is true, foreign direct investment cannot be ignored and is crucial to ensure economic sustainability and prosperity, especially for a developing economy such as South Africa requiring capital investment for the promotion of infrastructure expansions and job creation. The U.S bond buying programme has provided investors with additional liquidity to invest in more risky, emerging market areas such as South African government bonds. However, these portfolio flows could just as easily be redirected elsewhere when the global economic environment changes to the detriment of South Africa. It is therefore up to policy makers to table clear and concise, investor friendly legislation which guarantees efficient production levels thereby ensuring the attractiveness of foreign long term investment in South Africa.

South African trade deficit widens

South Africa's deficit on its current account11 widened unexpectedly to a 7 month high of R19.05 billion in August after the shortfall of R13.4 billion recorded in July this year. The July figure represented 6.5% of gross domestic product (GDP) in the second quarter of 2013, up from a deficit of 5.8% of GDP observed in the first quarter. The globally acceptable level over the long term for a manageable deficit is agreed to be 3% of GDP. Like last month, the latest figure, released on 30 September was far worse than market expectations, with analysts' consensus expectation before the announcement being around the R12 billion level.12

Exporters could not benefit fully from the lower export prices achieved from the recent devaluation of the rand due to the strike action and associated loss in output especially seen in the mining and manufacturing sectors. The weak currency has also lead to inflated rand prices of necessary imports such as crude oil, minerals and base metals, further affecting the size of the trade deficit.13 Globally, low demand growth from the Eurozone and China also continued to have an impact on the depressed trade figures.

With strike actions that should come to a close during the third quarter of this year, export volumes and therefore export earnings have the potential to increase on the back of the weakened rand that could help to reduce the current size of the trade deficit.

October is Global Month of Action on Energy, but are we on the right track?

With energy prices on the rise in South Africa and elsewhere, October has been deemed the Global Month of Action on Energy14 , where organizations involved in generating energy and electricity are urged to consider environmental concerns and policymakers are urged to consider more renewable sources of energy. While increases in the costs of crude oil are blamed for production constraints, insufficient power supply and consequent rising production costs, coupled with increases in labour instability, have been cited as deterrents to investment, constraining economic growth in South Africa even more than the globally-influenced commodity prices, exchange rates, and export demand15.

Without adequate access to power, investment by large multinationals is limited. This places a huge burden on domestic companies to carry growth, something they may not be able to do on their own. Without finishing Eskom's coal-fired Medupi power station, South Africa is expected to grow at 3% Y-o-Y by 2015, when almost all economies, even in the Euro zone, are expected to recover to pre-financial crisis levels. Power constraints thus become a tipping point in investment terms, even more so that labour market unrest. Infrastructure challenges, access to electricity and water, and logistics costs are also contributing factors. In general, labour market issues stop new investments, but these other factors constrain existing investments or expansions with much more regularity. This is evidenced by the fact that while labour issues put a recent controversial damper on BMWs plans for a new car model production run in SA, electricity constraints were cited as the reason for a delay in the building of an aluminium plant in Coega. According to the UN Conference on Trade and Development (Unctad) 2011/12 report, foreign direct investment flows into South Africa decreased by 24 percent to $4.6 billion in 2012 from $6bn in 2011, with enormous volatility.

For these reasons, along with concerns around climate change, South Africa is moving towards a policy position to increase the use of renewable energy resources such as solar and wind power. Whether South Africa expects to be a leader or a follower in the renewables space is still up for debate, but progress is being made on plans for a 5GW solar park (the largest in the world). Currently, South Africa is planning a combined total of 56,359MW of new generation capacity over the next 20 years, with a mix of traditional and renewable-based energy generation. This mix is shown below:

Table 1: New-build energy mix over 20 years to 203016

This energy mix shows a greater commitment to renewable energy sources. But given that these are new technologies, many unproven at commercial scale, and only some of which able to absorb baseload responsibility, it might make sense to consider options for plugging the investment gap by providing quick access to additional power. Since coal is still a favoured technology in South Africa with which we have a comparative advantage in energy generation, it might make sense to continue to build coal-fired power plants, at least in the short-term, to overcome economic woes. South Africa still shows a preference for coal-fired power. This can be seen by considering the new-build technology mix of the Integrated Resource Plan, and subtracting generation components that are to be decommissioned by 2030:

Figure 1: Energy technology mix to 2030

This shows that while an ambitious renewable and nuclear build lies ahead, coal is still here to stay. This may be the logical choice. Environmentalists need to weigh in the negative externality cost of low investment in-country when considering energy generation options.



2 The Star, Business Report - Experts lash out at policy muddle

3 Mr. Loane Sharp, economist at Adcorp.






9 The Star, Business Report - Experts lash out at policy muddle


11 The current account is the difference between a nation's savings and its investment and an important indicator of an economy's health. It is defined as the sum of the balance of trade (goods and services exports less imports), net income from abroad and net current transfers.






The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.