When Stats SA reported in June that SA’s GDP had expanded 1.9% in the first quarter of this year, making it the second consecutive quarter of growth, commentators rejoiced at the recovery, announcing that the size of the economy was now at pre-pandemic levels. Indeed, real GDP was reported to be slightly higher than it was before the pandemic.
But it now looks as if the economy is in reverse gear, as data for the second quarter released last week reveals that it had contracted 0.7%.
It’s important to note that this contraction did not affect all parts of the economy — in fact, there are sectors that seem to have expanded convincingly. What is important is whether this expansion brings jobs.
Finance, real estate and business services grew 2.4%, along with transport, storage and communication. Some sectors, such as agriculture, contracted dramatically. But apart from the short-term trend, there is also a long-term trend to observe. Over the five years to 2021, it is important to note that agriculture, finance and personal services have increased their contributions to GDP.
Wandile Sihlobo, chief economist of the Agricultural Business Chamber of SA, notes that the second quarter’s overall decline in agriculture of 7.7%, which followed a 2.4% fall in the first quarter, was unsurprising. He highlights the challenges faced by various subsectors, including livestock, which continues to suffer from foot-and-mouth disease outbreaks and rising feed costs. What’s more, some field crop harvests aren’t as robust as during the 2020/2021 season due to heavy rains at the start of the season.
Agriculture continues to represent an important opportunity for job creation. But it will require specific policy and other interventions to unlock this potential
What should we read into these stats? The issues highlighted here speak to unexpected and expected developments. For example, feed costs require both reactive and proactive strategies which relate to local production. Rainfall patterns may speak to the long-term effects of climate change. Both issues require specific interventions.
While we may be disappointed by the macroeconomic patterns, there are important developments which need attention so that the potential of the sector can be unlocked. The contribution of agriculture to the economy has grown over time. Over the past five years it has risen from 2.7% to 3.2% of GDP, and it contributes 6% of all jobs. Agriculture continues to represent an important opportunity for job creation. But it will require specific policy and other interventions to unlock this potential.
It is also interesting to note that the finance and real estate sector has increased its contribution to GDP to 25.5% over the past five years. This is, in fact, a trend that has been sustained for some time. However, a different kind of understanding may be required here in terms of policy response.
A 2015 working paper by the Bank for International Settlements (BIS) entitled “Why does financial sector growth crowd out real economic growth?” showed that higher growth in the financial sector reduces real growth by disproportionately benefiting high-collateral projects.
This is easy to understand in a country like SA, where many people are poor and without assets and are thus not likely to prosper where collateral is a requirement for participation. For example, this may explain why, over time, other sectors, such as manufacturing, have declined in terms of their contributions. Policy could be directed at supporting potential participants in these sectors with the collateral solutions they need to prosper. The BIS paper also noted the requirements of high and specialised skills in finance. Again, achieving this requires specific efforts.
Ultimately, our approach to these statistics requires that we not overly celebrate “recovery” when numbers go up or throw up our hands in hopelessness when they decline.
We need to interrogate the meaning of the statistics consistently so that we can devise appropriate solutions that help us contend with both short-term impact and long-term trends. We have to continue to invest in the detail and nuance our responses if we are to grow and create jobs.
* Payi is an economist and founding director of Nascence Advisory & Research
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