Despite having the smallest land area of South Africa’s nine provinces at 16,548 sq km, Gauteng is the largest contributor to the national economy, making up onethird of total GDP, at R700bn ($85.33bn) – double the contribution of Kwazulu-Natal (16%) and the Western Cape (14%), the next two largest provinces by GDP.
In Numbers
Home to the Johannesburg Stock Exchange, the largest stock market in Africa by capitalisation, and the headquarters of several large domestic and foreign corporates, Gauteng also accounts for between 7% and 11 % of the entire continent’s economic output. At roughly R160,000 ($19,504), the local average income is around four times that of the national average. The province is also the country’s most heavily urbanised: according to the 2011 National Census, Gauteng had a population of 12.2m people, or one-quarter of the country’s total, along with a population density of about 675 people per sq km. However, by the same token, Gauteng also faces a fair share of outsized challenges. According to a 2011 Organisation of Economic Cooperation and Development (OECD) territorial review, the province’s unemployment rate was also the highest recorded among all OECD metropolitan regions. Measured at 25.2% for the first quarter of 2013, the figure is in fact on par with the national average for South Africa. As with the rest of the country, racial and class inequality still persists. Gauteng, in particular, faces a challenge of dealing with the arrival of large numbers of migrants, both domestic and foreign, who put pressure on the region’s infrastructure and social services, notably in terms of housing, transport and employment. While the province’s GDP is consistently increasing, the current growth rate of around 3% is not high enough to resolve unemployment and poverty.
Composition
Though the term Gauteng, which is Sesotho for “place of gold”, pays homage to the metal for which the area was originally settled and gained its initial prosperity, resources today make up little of its economic mix, with the primary sector valued at just 4.7% of the provincial economy in 2011. With Johannesburg home to the largest agglomeration of financial activity in the country and Pretoria serving as the nation’s administrative capital, it is the tertiary sector that accounts for the majority of GDP (71.7%), led by the finance, real estate and business services sector (22.8%), and followed by government services (16.3%). Overall, Gauteng generates 39.7% of the country’s finance, real estate and business activity, 38.8% of general government services, and is responsible for around 50.4% of all recorded company turnover.
The secondary sector provided 24.4% of provincial GDP, with manufacturing (16.5%) making up the bulk of this input. Manufacturing’s contribution is expected to gradually decline as the global financial crisis persists and the country’s industrial capacity, in which Gauteng accounts for South Africa’s largest share of output at 40.6%, faces a confluence of competitive pressures. However, because of its importance in stimulating job growth, the government is taking action in trying to revitalise some industries in decline, as well as diversify into new industries that offer higher-valued production (see analysis).
Budget & Outlays
Around 95% of the provincial budget is received as an allocation from the national treasury, with the remainder coming from local income sources such as vehicle registration and gambling taxes. The province’s budget for the 2013/14 financial year stands at R79.29bn ($9.67bn), with health (37%) and education (39%) identified as the top spending priorities. The nominal value of public procurement contracts awarded in South Africa between April 2011 and March 2012 amounted to R77.7bn ($9.47bn), with Gauteng receiving the largest share at R17.3bn ($2.11bn) or 22%. At the provincial level, 72.2% of the contracts awarded went towards building and infrastructure expenditure compared with 27.9% for public works, indicating that most construction expenditure in the province is in private hands. In addition, R1.6bn ($195m) was allocated to programmes to combat HIV/Aids.
Trade & Investment
In terms of finished manufacturing and consumption, Gauteng is responsible for 68% of national exports and 61.4% of all imports. This far exceeds the contribution of the Western Cape and KwaZulu-Natal as the country’s second-largest importing (19.3%) and exporting (11.2%) provinces, respectively. However, it is this direct connectedness with the worldwide economy that also makes the province vulnerable to international swings in global demand and supply, not unlike South Africa’s national economy, which remains particularly dependent on eurozone demand. The province recorded a marginal trade surplus of R24.3bn ($2.96bn) in 2011, having achieved positive momentum in 2009 following a run of annual increases in trade deficits from 2002 to 2008.
As with the country as a whole, China has emerged as Gauteng’s largest and fastest-growing trade partner, and in 2011 it was the destination of 15% of exports, consisting primarily of mineral products such as iron and ash, and the provider of around 15% of imports, mainly in the form of computers and electronics.
The US (9%) and Japan (8%) follow as the next biggest export markets, serving as important destinations for precious stones, iron and steel, and vehicles, which are assembled in Gauteng.
Meanwhile, the overall share of trade with other African markets is expected to increase over the medium term as the cost of cross-border trade drops, particularly within the Southern African Development Community region. This in turn should help to offset declines in traditional European markets.
Investment as a percentage of provincial GDP peaked at 19.8% in 2008, up from 13.2% recorded in 2002. Much of the growth can be attributed to the rapid spate of infrastructure construction that preceded the country’s hosting of the 2010 FIFA World Cup, for which Johannesburg was one of the major venues. The slowdown to 18.6% in 2011 is in keeping with the drawdown of capital flows elsewhere in the country over the same period. Although, according to Business Unity South Africa, the country needs to maintain an investmentto-GDP figure of 25%, if it is to meet its target growth rate of 6% and reduce unemployment and poverty.
Municipal Mix
The province is governed by a premier elected by a provincial legislature that also oversees the province’s administration and finances, and has the autonomy to pass legislation independent of national policy in specific provincial matters such as health and education. The legislature is housed in Johannesburg, which acts as the province’s administrative capital, and is elected via proportional representation.
The last provincial election was held in 2009 (with the African National Congress winning 64% of the vote, or 2,662,013 votes of 4,157,048 registered, which secured the party a majority of 47 seats). The current premier, serving in her first term, is Nomvula Mokonyane.
The province is divided into six municipalities, each of which is governed by municipal councils and an executive mayor. Johannesburg, City of Tshwane (the new name given to Greater Pretoria) and Ekurheleni are considered “metropolitan municipalities”. While the remaining three – Sedibeng, Metsweding and West Rand – are deemed “district municipalities”.
Johannesburg, which provides more than half of the province’s gross value added in the tertiary categories of finance and business services, as well as wholesale and retail trade, generated R313bn ($38.15bn) in 2011. This was followed by the City of Tshwane at R184bn ($22.43bn), which on top of government services also has a strong automotive and components industry.And Ekurheleni, which, in addition to several food processing manufacturers, is home to the country’s main aviation gateway, OR Tambo International Airport (ORTIA), contributed R128bn ($15.6bn). The municipality is using the airport in combination with a large network of highways to grow its logistics and transport sector (see analysis). Collectively, the three metropolitan areas generate around 90% of the province’s economic output.
Institutional Support
The Gauteng Growth and Development Agency (GGDA) was created in June 2012 as a result of a merger between the Gauteng Economic Development Agency and Blue IQ Investment Holdings. The former served as the province’s economic, Provincial share of GDP, 2011 investment and trade promotion agency, while the latter was a provincial development agency tasked with collaborating with the private sector on infrastructure projects such as the Gautrain, a rapid rail system linking Johannesburg, Pretoria and ORTIA. The GGDA has announced the establishment of a number of focused business park clusters and special economic zones (SEZs), and as part of its trade and investment facilitation mandate, will be opening an investor centre in 2013 that is intended to serve as a one-stop shop for prospective investors.
Gauteng hosts a number of other agencies that seek to offer an attractive environment for investors, including the Gauteng Tourism Authority, which focuses on developing and marketing the province, and the Gauteng Film Commission which looks to entice film production to the area. Other government bodies such as the Gauteng Enterprise Propeller, aim to help reduce barriers to growth for local firms and start-ups by providing financial and technical support to local small and medium-sized enterprises.
Logistics Takes Flight
Though at a logistical disadvantage to the southern provinces, which benefit from access to the coast, Gauteng’s location in the north places it in the middle of the country’s land transportation network. As such, the province serves as the connecting point for goods moving by road and rail between the main industrial port of Durban and the neighbouring countries of Swaziland, Mozambique and Botswana.
As a result of being landlocked, the province is looking to cultivate growth based on its aviation links. Indeed, there are plans to transform the area around ORTIA – already the busiest airport in Africa with 19m passengers in 2011/12 – into an “aerotropolis”.
In February 2013, Premier Mokonyane announced that a strategy has been tabled to develop a “terminal city” where multi-modal transport linkages fuel growth. The aerotropolis masterplan will aim to attract aviation related business such as “time-sensitive manufacturing, e-commerce fulfilment, telecommunications and logistics, hotels, retail outlets, entertainment complexes and offices for business people who travel frequently”, and will consist of a “commercial, hotel, conference Gauteng GDP at current prices, 2000-11 and residential component”. The aerotropolis has already received backing at the national level, and status has been granted for the creation of a SEZ around the airport to allow special incentives and exemptions for local and foreign investors.
Though, at the time of writing, no specific incentives had yet been disclosed, Premier Mokonyane has nonetheless acknowledged that partnership agreements have been reached with state-owned enterprises and government agencies operating in transport and logistics – such as the South African National Roads Agency, Transnet and the Passenger Rail Agency of South Africa (PRASA) – towards the development of ancillary freight and logistics corridors.
In terms of road connectivity, Ekurheleni, the municipality in which ORTIA is situated, is straddled by two national highways; the N3 connects Johannesburg with the country’s main port city of Durban, and the N12 links both Johannesburg and Pretoria with Witbank in the coal-producing province of Mpumalanga, the main corridor to Mozambique’s Maputo port.
On The Rails
Passenger rail for the province is also set to receive major upgrades. PRASA, as part of its 20-year R123bn ($14.99bn) capital expenditure programme, has stated that it will invest a total of R13bn ($1.58bn) in modernising train stations and expanding tracks for the province. Gauteng will also be allocated 2484 new modern train coaches, equivalent to around 45% of the total number of coaches to be built under PRASA’s rolling stock programme.
The province is hoping that the aerotropolis will have a similar economic and social impact as Gautrain, with the former CEO of Gautrain Management Agency leading the new initiative. Gautrain is currently being run as a R27bn ($329m), 15-year maintenance and operating concession awarded to Bombela, a special-purpose consortium comprising international transport and construction giants such as Canada’s Bombardier and France’s Bouygues. Gautrain is the largest infrastructure public-private partnership in Africa and claims to have created 60,000 direct and indirect jobs, while spurring new growth nodes and commercial and residential developments around its stations.
Outlook
While Gauteng accounts for most of South Africa’s economic output, with opportunity comes the challenge of population migration and urbanisation, placing a strain on the provision of public services and employment. Reliant on a tertiary economy for much of its GDP, ensuring that the province retains the business and service infrastructure blue-chip corporates require is essential, especially as other growing African markets such Nigeria, Ghana and Kenya, also offer prospects for multinational investment.
Having exploited much of its agricultural land and mineral assets, Gauteng now aims to leverage transportation to secure its position as a destination for raw materials from neighbouring provinces to be processed and packaged for market. Meanwhile, supporting the manufacturing sector is key for job retention (see analysis), and the authorities are looking to identify industries warranting intervention where value can be added.
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