South Africa remains the third largest African economy, behind Nigeria and Egypt, and the most advanced and varied economy across the continent. In 2021, South Africa’s GDP was worth about $420 billion.
The 2021 annual GDP growth rate was 4.9% and the first two quarters of this year have continued the positive trend, with consumer services, manufacturing, trade and agriculture being the main sources of growth. An expansion in consumer spending on products and services boosted the demand side of the economy, but the largest share of growth came from exports and household consumption alongside. As a sector, manufacturing, already the country’s largest sector was the best performing. Additionally, smaller providers of services are diversifying and showing positive results.
Regardless of these positive signs, however, last year’s civil disorder and harsher lockdown restrictions had a severe impact on the economy in Q3, to such a degree that real GDP has not yet regained the level registered in Q2 2021, before the events. Furthermore, South Africa’s employment has taken another definitive step downwards, which is likely to further local demand in the long run.
Moreover, real GDP remains subdued compared to pre-pandemic levels, resulting in economic activity at the same level as in Q3 2017. Overall, the economy is 1.8% smaller than in Q1 2020 and will be further impacted by inflation of around 7% and the flooding that took place in KZN during Q2.
On a positive note, South Africa’s exports showed remarkable results during the last year, with an increase of 8.5% in the fourth quarter of 2021, driven mainly by precious metals and stones (gold, platinum, diamonds), base metals and motor vehicles, parts and accessories. Imports have also steadily increased, especially in the fields of chemical and mineral products as well as iron and steel.
South Africa has sustained a positive balance of trade for more than two years, a feat not previously achieved since 1994. Additionally, South Africa achieved a positive trade balance with the EU for the first time, its balance of payments turning from a trade deficit (- R22 bn) with the EU in 2020 to a trade surplus (R17 bn) in 2021. The EU remains South Africa’s largest trading partner, accounting for 22% of total trade.
Furthermore, South Africa’s exports to the EU are more diversified than to other partners in SADC. The combined exports of vehicles and transport equipment, machinery, chemicals, agri-food, and plastics accounted for almost 60% of its export basket towards the EU.
SOUTH AFRICA’S SLOW WAY TO RECOVERY
Growth, which reached 4.9% in 2021, is expected to slow to 1.9% in 2022 and 1.6% in 2023. Social unrest in July 2021 arrested a potentially stronger business recovery, but GDP growth was nevertheless strong in 2021. Household consumption is bolstered by government
subsidies and reduced savings. Both the high demand for raw materials and the resultant higher fetching prices are set to stimulate exports and government incomes up to mid-2022 .
As companies roll over their asset stock, investment is projected to expand from 2022 onwards and fiscal policy is expected to be tight throughout the forecast period (although unanticipated income from the raw materials boom is supporting the government’s funding of the pandemic recovery).
Fundamental to stimulating future growth are investments in the electricity production, infrastructure, and advanced education. Inflation, albeit on the rise, seems under control via high interest rates which is intended to depress demand. This monetary approach is likely to only sustain over the short term given that growth is bound to ease from next year onwards.
THE MOST RESILIENT SECTORS IN 2022
After a harsh 2020, that witnessed a 6.4% contraction of the economy, business activity rose by 4.9% in 2021. Mining, agriculture and manufacturing recorded the highest growth rates in 2021 – with finance, personal services and manufacturing the largest positive contributors to overall growth – while the construction industry contracted in 2021, falling by 1,9% (the fifth consecutive year of decline in construction).
Below we report a snapshot of the major industries in SA in 2021.
Mining
The mining sector has rebounded to pre-pandemic levels, boosted by higher overall prices and robust demand. Indeed, mining output rose by 25.2% during the first part of 2021, as compared to the same period in 2020. However, the industry remains hampered by several factors such as transport, energy, logistical bottlenecks, and legislative unpredictability.
Manufacturing
Although manufacturing output has not yet reached pre-pandemic rates, it nevertheless surged by 17% in the first half of 2021, in relation to the same period in 2020. The rise in manufacturing output was mainly driven by the production of petroleum, chemical & plastic products and food & beverages. Manufacturing confidence began dipping in June 2022 (in response to energy shortages) after a year of buoyancy. Other constraining short to medium-term production include raw material scarcity and surging productions costs.
Electricity
Although the electricity, water and gas industry saw a 5.8% expansion in the first six months of 2021 compared to the previous year, a number of critical issues remain (see Energy Sector Focus). Eskom’s dwindling plant performance is part of the cause of frequent power outages which affect the entire economy. Power interruptions and insufficient electricity provision represent therefore a limitation to short-term economic upturn.
Transport and communications
The transport and communications sector expanded by 4.2% (see Logistics and Transport Sector Focus) in the first semester of the 2021 compared to the first half of 2020 due to the surge in cargo transport and the expansion of passenger movement on the transport side
and the rise in demand for digital facilities on the communications side. Prolonged outages and additional lockdowns pose a threat to growth.
Trade
Trade activity increased by 2,9% as lockdown restrictions eased, with positive results from retail, motor trade, tourist accommodation, and restaurants, fast-food and catering. Economic activity in the wholesale sector, however, edged slightly lower.
Finance and business services
The finance sector also experienced 4.7% growth in the first part of 2021 compared to the same period in 2020. Bank clients and the institutions’ stability have been upheld by robust responses of monetary, fiscal and regulatory policy. The life and non-life insurance industries remain well capitalized notwithstanding the large number of claims paid due to the COVID-19 pandemic, and they are able to support their policyholders and beneficiaries.
ITALY ECONOMIC OUTLOOK 2022
Italy’s GDP expanded by 1 percent quarter-on-quarter in the three months between March and June of 2022. It was the sixth consecutive period of expansion and the most rapid one since the third quarter of 2021. Additionally employment at its highest since the 1980s and unemployment at its lowest since 2006.
The expansion signals a subsiding of the downturn from the pandemic, as the second quarter of 2022 exceeded the average GDP of 2019. The government forecasts a 3.1 percent in growth for the Italian economy in 2022, revised down from the 4.7 percent estimate amid a highly uncertain macroeconomic backdrop, including increased inflation (8%) and the Ukrainian War.
Fears abound that there will be rationing of energy in the winter, as Italy is the 2nd most reliant country on Russian gas, after Germany. Another source of uncertainty is political, with the possibility that a new government will lack the ability and political will to achieve targets set out by the EU. Owing to these uncertainties Moody’s recently downgraded its outlook for Italy in 2023.
ITALIAN - EXPORT MARKET TO SOUTH AFRICA
In the African context, South Africa is a key player as it is the most advanced and diversified economy on the continent and is both a market of great interest and an essential gateway to markets in the region due to its good infrastructure network and strong financial institutions.
In recent years, there has been a consistent growth of Italian exports to South Africa as well as an increasing presence of leading Italian industrial companies in the country. Leading the list of the most exported Italian products to South Africa are those deriving from oil refining, with a value of €248.9 million, immediately followed by jewellery and precious stones. The third place is taken by machinery, including both general and special purpose machinery.
SOUTH AFRICAN - EXPORT MARKET TO ITALY
South Africa’s economy is still largely reliant on the export of primary and intermediate commodities to industrialized countries. The total value of goods exported to Italy from South Africa amounted to €1 billion in 2021, increasing by 42% from 2020.
The majority of South African exports to Italy come from the class of iron and steel with ferro alloy and stainless-steel products being top of the list, making up over 25% of total exports to Italy during 2021, with an increase of over 74% from 2020.
This is followed by the category “Ores, slag and ash”, making up 14,6% of the exports to Italy. Despite the heavier-than-normal rainfall that hampered the minerals sector, the value of these exports to Italy more than quadrupled from 2020 to 2021.
Nickel and articles thereof come at the third place, maintaining a stable 8% share in the exports to Italy. Seafood accounts for the fourth most exported category of goods to Italy from South Africa, with a value of €74.5 million in 2021.
FDI INFLOW TO SOUTH AFRICA
Foreign Direct Investment in South Africa narrowed sharply to ZAR 22.7 bn in the fourth quarter of 2021 from ZAR 557.9 billion in the previous quarter. South Africa recorded foreign direct investment inflows of ZAR 604.3 bn ($ 41.15 bn) in 2021, a big jump from inflows of ZAR 50.4 bn in 2020, mainly influenced by technology investor Prosus acquiring about 45% of its South African parent Naspers.
Traditionally, the European countries are active investors in South Africa (Italy, United Kingdom, Netherlands, Belgium, Germany, and Luxembourg), as well as the United States, Japan, China, and Australia. Most of the investment is directed to the financial, mining, manufacturing, transportation, and retail sectors.
The below graphs display first the presence in South Africa of Italian companies and subsidiary companies (those with parent companies in Italy) and secondly the broad Italian presence of different kinds in South Africa. It is unique data collected and classified by the Italian South African Chamber of Trade and Industries.
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