1. 2018 Provincial and Municipal Economic Review and Outlook
Presentation to Budget Committee
RH Slinger
M Booysen
27 September 2018

2. Background
RH Slinger

3. Introduction
PERO and MERO: Western Cape Government economic intelligence publications informing policy making, planning and budgeting
Evidence-based planning supports good governance, financial sustainability, and facilitates the creation of public value
Trends highlighted in the PERO and MERO also reflect on the impact of implementation of provincial and municipal services and programmes
Collaborative effort and contributions by departments and municipalities
PERO and MERO Seminar was held on 6 September 2018 where the preliminary findings were deliberated between departments, municipalities, researchers and key stakeholders
2018 PERO & MERO Budget Committee Presentation

4. Integrated policy, planning, budgeting and implementation cycle
EoTR & Evaluation Data Collection & Analysis
End-of-term Review
July Planning Engagement
Oct 2018 PG MTEC 1 National MTBPS
Nov 2018
Feb 2019 Bosberaad
Jan 2019 PG MTEC 2
Feb 2019 SOPA
May Strategic Integrated Budgeting Engagement
PERO&MERO Seminar
Fiscal Policy Seminar
General Elections
PSP
August 2018 Bosberaad
Sep 2018
Nov 2018
Strategic Integrated Municipal Engagements
Mar 2019
PERO and MERO are examples of evidence-based approach to inform policy making
The economic and socio-economic research used to inform and guide provincial and municipal planning, and fiscal & budget policy implementation
Trends highlighted in the PERO and MERO also speak to impact of implementation of provincial and municipal services and programmes
Evidence-based approach supports good governance, financial sustainability, and facilitates the creation of public value
Collaborative effort and acknowledgement of contributions by the following departments:
Social Development ; Education; Health; Human Settlements; Economic Development and Tourism; Environmental Affairs and Development Planning; and Agriculture
PERO and MERO Seminar was held on 6 September where the preliminary findings were deliberated by departmental representatives and other stakeholders
PERO and MERO will inform and guide the policy, planning, budgeting and implementation cycle
Tabling PERO&MERO
Tabling
WC MTBPS,
Adjusted Estimates
Tabling
2019 Budget
Planning Formulation Execution
2018 PERO & MERO Budget Committee Presentation

5. Provincial Economic Review and Outlook
RH Slinger

6. Outline of the 2018 Provincial Economic Review and Outlook
Chapter 1: Introduction and executive summary
Chapter 2: Macroeconomic performance and outlook
Chapter 3: Development of the Western Cape economy: Sectoral and spatial dimensions
Chapter 4: Labour market dynamics
Chapter 5: Socio-economic developments in the Western Cape
PERO
2018 PERO & MERO Budget Committee Presentation

7. Macroeconomic performance
Uncertain economic outlook
Growth outlook,
2016
2017
2018(f)
2019(f)
World output
3.2
3.7
3.9
Advanced Economies
1.7
2.4
2.2
Emerging and Developing Countries
4.4
4.7
4.9
5.1
China
6.7
6.9
6.6
6.4
Sub-Saharan Countries
1.5
2.8
3.4
3.8
South Africa
0.6
1.3
1.4
2.0
Western Cape
1.2
0.2
2.7
Global outlook uncertain. Escalating trade tensions, increasing monetary policy tightening, and changing sentiment towards emerging and developing economies
National economic outlook weak. Technical recession in 2018, loss in business confidence due to policy uncertainty “land reform”, fiscal targets credibility, and performance of state owned entities
The Western Cape cannot escape the risks of the national economy. Additional risks include the uncertain rainfall outlook impacting agriculture and the impact of the VAT increase on consumer spending
However, if the rainfall outlook improve, growth will accelerate in the Western Cape
Note: Forecasts for SA and WC are based on Stats SA Quarter 1 of 2018 GDP Report
2018 PERO & MERO Budget Committee Presentation

8. Regional economic performance
Contraction expected in Agriculture and Manufacturing
Western Cape growth outlook,
2016
2017e
2018f
2019f
Agriculture, forestry and fishing
-7.2
8.3
-24.6
20.1
Mining and quarrying
-0.1
2.2
2.1
2.5
Manufacturing
0.9
0.1
-1.6 3
Electricity, gas and water
-2.4
1.2
1.1
1.3
Construction
0.4
Wholesale and retail trade, catering and accommodation
-0.5
1.4
1.5
Transport, storage and communication 1
2.4
Finance, insurance, real estate and business services
2.3
Community, social and personal services
1.6
1.9
General government
Regional Gross Domestic Product
0.2
2.7
A sharp moderation in economic growth is expected in the WC.
Due to a contraction in output in the agriculture, forestry and fisheries sector because of the drought
Related to this is the food and beverages manufacturing sector with a likely fall in output.
The poor performance of these sectors contributes greatly to the expectation of muted growth in 2018
However, a rebound in the agriculture, forestry and fisheries and agri-processing sectors in 2019 should result in a strong uptick in growth
Note: Forecasts for SA and WC are based on Stats SA Quarter 1 of 2018 GDP Report
2018 PERO & MERO Budget Committee Presentation

9. Private Services Sector drives regional growth
Western Cape percentage contribution to growth per services subsector
Over the last decade, the Western Cape has outperformed South Africa in terms of economic growth due to mainly a larger services sector and smaller mining sector
Private services sector was responsible for more than three-quarters (77.8 per cent) of the growth generated by the provincial economy between 2013 and 2017.
More than one-third (35.9 per cent) of exports from the Western Cape are destined for Africa, totaling R44.7 billion. Africa is followed by Europe (29.1 per cent equal to R36.2 billion) and Asia (18.6 per cent, R23.2 billion).
Oil, The sector’s direct and indirect   job contribution in the Province declined from in 2015 to 10 280 jobs in 2017.
2018 PERO & MERO Budget Committee Presentation

10. Key trends in regional sectors and industries
Digital Disruptions will affect all sectors and industries
“halal relevant” exports: The overall Western Cape exports increased from 2015 to 2017, as opposed to the slight decline from 2016 to 2017
Tourism: The number of jobs in the tourism sector increased by 11 292 from 2016 to while estimated GVA rose by 7.5 per cent over the same period
4th industrial revolution: The next phase of digital disruptions will be driven by the 4th wave of industrialisation (internet of things, virtual reality, AI and robotics will increasingly disrupt organisations across all sectors)
The construction sector: Sustains more than jobs, providing more than R13 billion in salaries. A slowdown in construction activity would have a severe impact on disposable income and employment
The waste economy: Based on the premise that waste could potentially be a resource with economic value, the Western Cape generates an estimated million tonnes of waste annually
2018 PERO & MERO Budget Committee Presentation

11. Muted labour market performance
Labour market dynamics
Muted labour market performance
Western Cape 5 year performance,
2013Q1
2018Q1
Change
Thousands
Per cent
WESTERN CAPE
Working-age population
4 062
4 528
466
2.2 p.a.
Employment
2 091
2 530
439
3.9 p.a.
Narrow unemployment
627
620 -7
-0.2 p.a.
Narrow labour force
2 718
3 150
432
3.0 p.a.
Non-searching unemployed 85
116 31
6.4 p.a.
Narrow unemployment rate
23.10%
19.70%
SOUTH AFRICA
25.00%
26.70%
WESTERN CAPE YOUTH UNEMPLOYMENT
(15-34)
2 033
2 184
151
1.4 p.a.
823
982
159
3.6 p.a.
410
401 -9
-0.5 p.a.
1 233
1 383
150
2.3 p.a. 55 71 17
5.5 p.a.
33.20%
29.00%
36.20%
38.20%
Labour market performance was muted over the past five years
Employment growth in the Agriculture and agri processing to be muted due to the drought
Youth faces the burden of unemployment
Source: Stats SA, own calculations
2018 PERO & MERO Budget Committee Presentation

12. Regional socio-economic developments
Mixed results in respect of socio-economic indicators
Population growth largely driven by migration; relatively larger older population and relatively lower dependency ratio
Worsening inequality, but continued improvement in HDI
Improved systemic test scores across Grades 3, 6 and 9 between 2012 and 2017
Increase in life expectancy, maternal mortality rates improving and infant and child mortality rates lower than SA
Improvement in testing, access to ART and treatment retention but HIV remains leading cause of death in the Province
Housing backlog continues to grow
Basic service provision remains relatively high
Significant proportion of admissions for substance abuse presenting with dual diagnosis, mostly mental illness and hypertension
Murder and attempted murder has increased but common assault and robbery with aggravated circumstances, arson and burglary have declined
Labour market performance was muted over the past five years
Employment growth in the Agriculture and agri processing to be muted due to the drought
Youth faces the burden of unemployment
2018 PERO & MERO Budget Committee Presentation

13. Municipal Economic Review and Outlook
M Booysen

14. Outline of the 2018 Provincial and Municipal Economic Review and Outlook
SECTION A: Background and macroeconomic outlook
District overview
Provincial drought
Economic development initiatives
SECTION B: Western Cape regions
Chapter 1: Regional economic review & outlook
Chapter 2: Sector Growth, Employment and Skills Per Municipality
Chapter 3: Agricultural overview
Chapter 4: Municipal Infrastructure
Chapter 5: Socio-economic climate & development indicators
MERO
2018 PERO & MERO Budget Committee Presentation

16. Sectoral contribution per district, 2016
The main economic sectors in most of the regional economies are the finance, insurance, real estate and business services sector, the wholesale and retail trade, catering and accommodation sector and the manufacturing sector.
In the West Coast and Central Karoo Districts, the agriculture, forestry and fishing sector also makes a large economic contribution.
In the Central Karoo District, the general government sector is the main economic sector, contributing 20,9 per cent.
2018 PERO & MERO Budget Committee Presentation

17. Real GDPR growth trend growth by sector and district: 2013 – 2017e
Cape Metro
West Coast
Cape Winelands
Overberg
Garden Route
Central Karoo
Western Cape
Primary sector
4.1
3.0
0.5
0.2
0.9
1.5
Agriculture, forestry and fishing
0.4
Mining and quarrying
3.7
2.4
3.2
4.5
3.5
4.3
3.6
Secondary sector
2.1
0.8
1.1
Manufacturing
-0.6
2.6
0.3
Electricity, gas and water
-1.2
-2.5
-0.2
-1.4
-1.0
Construction
3.4
2.2
1.2
2.8
Tertiary sector
1.9
2.7
1.6
2.3
Wholesale and retail trade, catering and accommodation
1.3
1.4
1.7
Transport, storage and communication
3.1
2.5
0.1
1.8
Finance, insurance, real estate and business services
3.9
General government
Community, social and personal services
2.0
Total GDPR growth
In general growth has been declining across all sectors, particularly the tertiary sectors. The performance of the tertiary sectors as well as the agriculture, forestry and fishing sectors has a large influence of overall economic growth. The agriculture, forestry and fishing sector has experienced very volatile growth rates over the past five years and is expected to contract severely in 2018, which will also impact the manufacturing sector.
2018 PERO & MERO Budget Committee Presentation

18. GDPR forecast per district, 2018 - 2019
Cape Metro
0.7
1.0
2.2
West Coast
3.2
-4.0
5.8
Cape Winelands
1.7
-0.6
4.0
Overberg
2.0
-0.9
4.2
Garden Route
1.2
0.1
3.1
Central Karoo
1.6
-3.1
3.9
Western Cape
1.3
0.2
2.7
Growth is expected to slow down in 2018, mainly due to a severe contraction in the agriculture, forestry and fishing sector. This is expected to lead to contracting economies in the West Coast, Cape Winelands, Overberg and Central Karoo economies.
Growth is expected to recover in 2019, with a provincial estimated growth rate of 2,7 per cent.
2018 PERO & MERO Budget Committee Presentation

19. Agriculture sector trends
Jobs
Manufacturing sector
(agro-processing)
Exports
Important sector for:
Top Crops
Net change in total hectares under production (2013 vs 2017)
Cape Metro
Wheat, pastures, canola, wine grapes, vegetables
(wheat)
West Coast
Wheat, small grains for grazing, pastures, rooibos, wine grapes
(rooibos tea, canola, wheat)
Cape Winelands
Wine grapes, pastures, wheat, small grains for grazing, apples, pears, stone fruit
(wine grapes, vegetables)
Overberg
Wheat, barley, canola, small grains for grazing, pastures, apples, pears
(vegetables, stone fruit, wine grapes)
Garden Route
Pastures, wheat, small grains for grazing, canola, barley
Central Karoo
Pastures, olives, vegetables
(maize, wine grapes)
Agriculture and exports: The fastest growing export sector in the Western Cape was agriculture, increasing by 15.2 per cent compared to More than half (52.7 per cent) of South Africa’s agriculture exports came from the Western Cape
Impact of drought: Due to a drought-induced decline in value added by the agriculture sector in 2018, the sector is expected to be a major drag on growth from 2018 to 2022
Vulnerable districts: Two districts, Central Karoo (-0.8 per cent) and West Coast (-0.3 per cent) recorded negative growth rates in 2016 with the Agriculture, forestry and fishing sector as the largest contributor to these negative growth rates
Agriculture sector employment has declined in 2016 and 2017.
Crop in brackets indicate the main increase/or decrease that resulted in the net increase/decrease
2018 PERO & MERO Budget Committee Presentation

20. Infrastructure Investment
Western Cape Government Strategy: Enhanced investment in organisational, economic and social infrastructure investment serves as catalyst for growth
Collective and collaborative investment unlocks growth: Provincial investment complimented by municipal capital expenditure
Municipal spend strong focus on basic service delivery infrastructure
HOWEVER, capital budgets to large extent reliant on support from Provincial and National Government
Impact of constraining macro-economic environment on grants and transfers, in turn impact on basic service delivery
Necessitate need for local government to diversify funding mix
Quantity vs Quality Infrastructure spend: Targeted spend in line with spatial development priorities and basic service delivery needs
Labour market performance was muted over the past five years
Employment growth in the Agriculture and agri processing to be muted due to the drought
Youth faces the burden of unemployment
2018 PERO & MERO Budget Committee Presentation

21. Key Socio-Economic findings
Positive indicators
1. Average GDPR growth higher than average population growth
2. Rising nominal GDPR per capita
3. Rising HDI
4. Increasing access to basic services
5. Increasing learner enrolment
Negative indicators
1. High proportion of low income earners
2. Increasing income inequality in certain municipal areas
3. High Gr 12 drop-out rates
4. Informal dwellings
5. Crime, especially theft, assault, drugs, damage to property, DUI
6. HIV/AIDS, TB
2018 & MERO Budget Committee Presentation PERO

22. Implications for policy, planning and budgeting
M Booysen

23. The role of PERO and MERO in a VUCA World
Within this VUCA state, the PERO and MERO provides credible, reliable and robust data and information in the area of economics and socio-economics for well-informed decisions to be made
Volatility
Risk
Instability
Flux
Uncertainty
Surprises
Unpredictability
Unknown outcomes
Vision
Understanding
Clarity
Agility
Complexity
Dualities
Unproductive
Ambiguity
Doubt
Distrust
2018 PERO & MERO Budget Committee Presentation

24. Implications for policy, planning and budgeting
Uncertain economic and fiscal environment
The economic outlook weakened. The decline of economic activity will potentially lead to a decrease in both domestic and foreign private investment. The loss of business confidence, the decline in private investment, potential capital flight, a depreciated rand, an increase in interest rates, could lead to further international credit ratings downgrades
The VAT increase, depreciated rand, and increase in energy costs (fuel) may adversely impact inflation  
Sluggish economic performance, living costs increase → poor business growth/ diminishing household (disposable) income
HDI trend upwards stemming from education and health improvements. High drop-out rates coupled with demand for more skilled and semi-skilled labour → increased unemployment levels. Heightened crime → adverse impact on citizens and business alike
Low economic growth → lower revenues → reduced fiscal framework
2018 PERO & MERO Budget Committee Presentation

25. Budget Policy formulation and responses
Responses to be encapsulated in the WC MTBPS
Integrated Management approach - coordinated and integrated approach to provincial and municipal government planning, budgeting and implementation which is spatially responsive to create service delivery impact
Creating public value through budgets that are responsive to the socio-economic environment and are underpinned by the principles of good financial governance
Maintaining policy principles of Constitutionalism; Rule of Law; Creating Public Value; Partnerships; Evidence-Based; Whole of Society approach and Citizen Centric approaches
Continuing to give effect to the fiscal strategy and budget policy principles
Provincial Strategic Plan and Goals: Reflected in provincial medium term budget policy priorities and statement
Infrastructure-led growth to support socio-economic development and building economic resilience
2018 PERO & MERO Budget Committee Presentation