Agriculture remains resilient as South Africa’s economy slips into technical recession

Press Release   |   Agri SA   |   16 June 2017   |   Economics 

South Africa’s real gross domestic product (GDP) shrunk by 0,7% in the first quarter of 2017, following a decrease of 0,3% in the fourth quarter of 2016, Statistics South Africa (Stats SA) reported recently.
In economics, if an economy shrinks for two straight quarters (a total of six months), that indicates that economy has fallen into technical recession. The technical indicator of a recession therefore is two consecutive quarters of negative economic growth as measured by a country’s GDP. This is what is reflected in Chart 1 below as far the South African economy is concerned.

Chart 1: Growth in GDP (%)

Chart 1: Growth in GDP (%)1

Infringing on economic growth in South Africa are factors such as unstable political environment, sizeable contingent liabilities, deteriorating governance, corruption, lack of leadership and inadequate education amongst others. If growth slips further down into the negative territory in the next quarter that will then indicate a full recession which could lead to further increase in unemployment as business activities especially of the primary production side might become stinted. Furthermore, this could potentially see South Africa losing its status as the largest economy in Africa again.

For ordinary citizen recession can presents hardships as it could potentially lead to increases in prices. It is equally not good for government either because tough economic times lead to over reliance on the fiscus. To curb this, governments would react by increases taxes which the South African government has already proposed in the form of wealth tax which ultimately add more burden on ordinary citizen and limit productivity, and profitability of sectors that are dependent on land as their major production factor like agriculture.

Agriculture shows resilience and remains the backbone of the economy

Chart 2 below, shows that mining and agriculture were the only two sectors that landed positive growth, hence contributed positively in country’s GDP in the first quarter of 2017. Mining contributed 0.9% to the GDP. Agricultural (including forestry and fisheries) economy grew by more 22% and contributed 0,4% to the country’s GDP. In contrast trade and by manufacturing were largest negative contributors to the GDP—contributing -0.8% and -0.5% respectively.

Chart 2: Contributions to growth in GDP, Q1 2017 (% points)2

Even after the worst drought since 1992, the agricultural sector has shown strong signs reliance and it continues to play a significant role in South Africa’s economy. Recently, Stats SA released the latest Quarterly Labour Force Survey results for the first quarter of 2017. The survey results show that unemployment rate in South Africa increased to 27.7 percent in the first quarter of 2017 from 26.5 percent in the previous period.
Although the agricultural sector shed 44 000 jobs in the period under review, it remains critical for the country’s labour market, particularly the rural. In 2016, the sector employed almost 900 000 people. This may appear as a low percentage of the work force in South Africa, but in absolute terms, the number of people that are employed by the sector is considerable high and it continues to rise although the will be lumpiness sometimes depending on what season it.
Chart 3 below shows that the number of people working in agriculture had in increased by 29% from 624 000 in 2011 to 881 000 in 2016.

Chart 3: Employment in the Agriculture sector (2011-2017(Q1)3

In terms growth in the sector, significant contributions came from subsector such as horticulture, summer grains, and oilseeds – largely attributed to good summer rainfall. Good news for the sector is that in 2017 the summer grain and oilseeds production are expected to reach a record high—more 18 million tonnes with the key contributors being maize and soybean, which are set to reach record levels of more than 15 million tonnes and more than 1.2 million tonnes, respectively4. The diagram 1 below gives more details of individual enterprise contribution to the total summer grain and oilseeds production for the 2016/17 production season.

Horticulture remains an area of growth for the sector. Given the growing demand for horticulture products such fruits in the world’s markets, it is therefore fundamentally important that for strategic growth in the sector, new entrants be encouraged and incentivised to grow more horticulture products.

In conclusion:

Government must make agriculture development a national priority. There needs to be clear development framework that will create a clear and feasible road-map for the sector.
For sustainability purposes, young people have a huge role to play in the sector. It is therefore important that government also develop a strategy for the elevation of young people in agriculture and linked into the value chain.
The bottom line is that the farming community in South Africa is aging, and although some young people are making it big in the sector, there is still a lot that want to enter the sector but the current environment prevents them to do so.
The biggest impediment is land and lack of support. Land ownership is paramount in this instance, as new entrants cannot collaterise land without it.

This opinion piece was written by Agri SA Chief Economist, Hamlet Hlomendlini and does not necessarily reflect the views and opinion of the publishers, editorial staff or any company employees of either My Wildlife SA or the Reinhuys Company of South Africa.