Makhado Municipality Local Economic Development Plan
SECTION 5: ECONOMIC PROFILE
5.1 INTRODUCTION
The purpose of this section is to provide a broad economic analysis of the regional and local economy of the Makhado Local Municipal Area. It is important to understand the economy of the Study Area within the context of the broader region so that comparisons and linkages with the broader economic community can be identified. Each economic sector will be analysed and discussed in terms of a sectoral analysis and will also identify the sectors with growth potential.
In the following paragraphs the provincial context is discussed according to the Gross Value Added (GVA) and labour statistics of the Study Area which are compared to those of the Limpopo Province and to South Africa. Thereafter, the economic activity in the Study Area is highlighted, and the implications thereof for economic growth are detailed. This section concludes with a summary of the relevant findings. GGP refers to the value of all final goods and services produced during a year within the boundaries of a specific area. GGP is generally used to measure the level of economic activity in that area. The term GGVA (Gross Geographic Value Added), technically differs from GGP, but practically indicates the same. GGVA can be calculated from the production, demand and income sides of the economy. The difference between GGVA and GDP lies in taxes and subsidies not being included in the GGVA calculation. By means of analyzing the GGVA, the strongest economic sectors in the local economy are identified.
The economy of an area can be divided into three main categories, namely primary, secondary and tertiary sectors. Each of these categories is further sub-divided into different economic sectors. These different sectors are defined as follows:
o Primary Sector
· Agriculture
· Mining
o Secondary Sector
· Manufacturing
· Electricity/Water/Gas
· Construction
o Tertiary Sector
· Trade
· Transport/Communication/Storage
· Financial & business services
· Social services including Government Services.
This section will be discussed under the following headings:
o Limpopo Province in Relation to South Africa Perspective
o Vhembe District Municipality in Relation to Limpopo Province Perspective
o Makhado Local Municipality in Relation to Vhembe District Municipality Perspective
o Conclusion
5.2 LIMPOPO PROVINCE IN RELATION TO SOUTH AFRICA PERSPECTIVE
The purpose of this sub-section is to determine the economic importance of Limpopo Province within South Africa. To determine the economic context of the above economies, the most important economic and labour indicators are discussed.
5.2.1 GROSS VALUE ADDED (GVA)
The following table illustrates the GVA contribution of each province to total production in South Africa.
Table 5.1: GVA Contribution by province to National GVA, Constant Prices, 2000
Province / Percentage Contribution to GVA in South Africa1993 / 1998 / 2003
Western Cape / 14.1% / 14.0% / 14.5%
Eastern Cape / 8.4% / 8.2% / 8.0%
Northern Cape / 2.4% / 2.4% / 2.2%
Free State / 5.9% / 5.4% / 5.1%
Kwazulu-Natal / 16.5% / 16.5% / 16.4%
North West / 6.9% / 6.7% / 6.3%
Gauteng / 32.8% / 33.3% / 34.2%
Mpumalanga / 6.6% / 6.8% / 6.6%
Limpopo / 6.3% / 6.7% / 6.7%
South Africa / 100% / 100% / 100%
Source: Urban-Econ Calculations based on Quantec Database, 2005
The Limpopo Province contributes only 6.7% to total production in South Africa. This share is exceeded by all of the other provinces in South Africa, except for the Free State with 5.9% and the Northern Cape with 2.4%.
The following table illustrates the province’s growth in GVA.
Table 5.2: Percentage Growth in GVA, 1993-2003
Province / Percentage Average Annual Growth Rate1993-1998 / 1998-2003
Western Cape / 2.4% / 4.1%
Eastern Cape / 2.0% / 2.9%
Northern Cape / 2.6% / 1.4%
Free State / 0.8% / 2.3%
Kwazulu-Natal / 2.6% / 3.2%
North West / 2.0% / 2.0%
Gauteng / 2.9% / 3.8%
Mpumalanga / 3.3% / 2.5%
Limpopo / 3.7% / 3.3%
South Africa / 2.6% / 3.3%
Source: Urban-Econ Calculations based on Quantec Database, 2005
During 1993 to 1998 Limpopo experienced an average annual growth rate of 3.7% in GVA, compared to 2.6% growth for South Africa. Limpopo experienced the highest growth rate for this period. This indicates that Limpopo performed very well during the 1990’s and fairly well (equal to the country’s average) from 1998 to 2003 when compared to the rest of the country.
The economic sectors in an area are distributed into three main sectors namely the primary, secondary and tertiary sectors. The primary sector consists of the agricultural and the mining activities. The manufacturing, electricity, construction and the trade activities form the secondary sector while the tertiary sector consists of the transport, financial and services activities. Other tools utilised to measure the performance of a given economy are described below.
Production in South Africa by economic sector is provided in Table 5.3.
Table 5.3: South Africa: GVA, Constant Prices 2000
Sector / GVA SA1993 / 1998 / 2003
Agriculture, forestry and fishing / 3.51% / 3.16% / 2.89%
Mining / 9.35% / 8.32% / 7.25%
Manufacturing / 18.78% / 18.72% / 18.19%
Electricity & water / 2.77% / 2.84% / 2.40%
Construction / 2.79% / 2.59% / 2.68%
Wholesale & retail trade; catering and accommodation / 13.44% / 13.50% / 14.85%
Transport & communication / 7.49% / 9.08% / 10.69%
Finance and business services / 17.17% / 18.43% / 20.34%
Community, social and other personal services / 5.74% / 6.04% / 6.14%
General government services / 18.96% / 17.34% / 14.56%
Total / 100% / 100% / 100%
Figure 5.1
Source: Urban-Econ Calculations based on Quantec Database, 2005
From Table 5.3 it is evident that the following sectors contributed the most to South Africa’s GVA. They include, inter alia, the following:
o Manufacturing
o Wholesale & retail trade; catering and accommodation
o Finance and business services
o General government services
o Transport & Communication
It is also evident that the following sectors indicated a positive growth rate (Figure 5.1). These sectors include, inter alia, the following:
o Wholesale & retail trade; catering and accommodation
o Transport & Communication
o Community, social and other personal services
o Finance and business services
Production in Limpopo by economic sector is provided in Table 5.4.
Table 5.4: Limpopo: GVA, Constant Prices 2000
Sector / GVA Limpopo1993 / 1998 / 2003
Agriculture, forestry and fishing / 2.88% / 2.65% / 2.64%
Mining / 25.87% / 23.82% / 25.22%
Manufacturing / 4.35% / 4.03% / 3.84%
Electricity & water / 2.81% / 3.15% / 3.03%
Construction / 2.30% / 2.16% / 1.84%
Wholesale & retail trade; catering and accommodation / 12.97% / 12.66% / 13.44%
Transport & communication / 5.77% / 7.34% / 10.82%
Finance and business services / 18.34% / 17.57% / 15.85%
Community, social and other personal services / 5.02% / 4.99% / 5.07%
General government services / 19.69% / 21.61% / 18.24%
Total / 100% / 100% / 100%
Figure 5.2
Source: Urban-Econ Calculations based on Quantec Database, 2005
Within the Limpopo province the important economic activities are the mining, finance and business services, general government services, and wholesale and retail trade. These sectors contribute approximately 66.7% share to Limpopo’s production.
These trends are very similar to the national economy. The dominant sectors in the national GVA and Limpopo GVA are similar but experience different growth patterns.
5.2.2 LOCATION QUOTIENT
A location quotient is a device for comparing a sub-region’s share in a particular activity with its percentage share in some basic regional aggregate. A value of ore than 1 implies that the sector in a certain region has a comparative advantage compared to the rest of the region.
Table 5.5 below indicates in which sectors Limpopo has a comparative advantage when compared to the national sectors. The relative performance of the various economic sectors in terms of growth recorded is examined in the subsequent table. This analysis is aimed at revealing comparative differences in terms of the rate at which the various sectors expand in relation to the broader national economy.
Table 5.5: Limpopo Location Quotient and Sectoral Growth, 1993-2003
Sector / Location Quotient / Sectoral Growth1993 / 1998 / 2003 / Increase/ Decrease in Comparative Advantage / 1993-1998 / 1998-2003 / Increase/ Decrease in Sectoral Growth
Agriculture, forestry and fishing / 0.82 / 0.84 / 0.91 / ▲ / 2.0% / 3.2% / ▲
Mining / 2.77 / 2.86 / 3.48 / ▲ / 2.0% / 4.4% / ▲
Manufacturing / 0.23 / 0.22 / 0.21 / ▼ / 2.2% / 2.3% / ▲
Electricity & water / 1.01 / 1.11 / 1.26 / ▲ / 6.1% / 2.5% / ▼
Construction / 0.83 / 0.83 / 0.68 / ▼ / 2.4% / 0.0% / ▼
Wholesale & retail trade; catering and accommodation / 0.97 / 0.94 / 0.91 / ▼ / 3.2% / 4.5% / ▲
Transport & communica - tion / 0.77 / 0.81 / 1.01 / ▲ / 8.8% / 11.6% / ▲
Finance and business services / 1.07 / 0.95 / 0.78 / ▼ / 2.8% / 1.2% / ▼
Community, social and other personal services / 0.87 / 0.83 / 0.83 / ▼ / 3.6% / 3.6% / -
General government services / 1.04 / 1.25 / 1.25 / ▲ / 5.7% / -0.2% / ▼
Source: Urban-Econ Calculations based on Quantec Database, 2005
From Table 5.5 above it can be concluded that the Limpopo Province has a comparative advantage and experience an increasing growth rate in the following sectors:
o Mining Wholesale & retail trade; catering and accommodation
o Transport & communication Mining
Other sectors which indicated a comparative advantage but experienced decreasing sectoral growth include inter alia, the following:
o Electricity & water, and
o General government services
Although a comparative advantage may be experienced in the above-mentioned sectors, Table 5.6 below illustrates the contribution of Limpopo’s sectors towards the GVA of South Africa. It is emphasized that the information contained in the following table represents the proportional contribution of the individual sectors to the national sectors.
Table 5.6: Limpopo Province Contribution to GVA of South Africa per sector
Sector / Limpopo Contribution to National GVA per sector, 1993-20031993 / 1998 / 2003 / Increase/ Decrease to National GVA
Agriculture, forestry and fishing / 5.18 / 5.61 / 6.08 / ▲
Mining / 17.51 / 19.13 / 23.19 / ▲
Manufacturing / 1.46 / 1.44 / 1.41 / ▼
Electricity & water / 6.42 / 7.41 / 8.41 / ▲
Construction / 5.22 / 5.56 / 4.57 / ▼
Wholesale & retail trade; catering and accommodation / 6.11 / 6.27 / 6.04 / ▼
Transport & communication / 4.88 / 5.40 / 6.75 / ▲
Finance and business services / 6.76 / 6.37 / 5.20 / ▼
Community, social and other personal services / 5.54 / 5.52 / 5.50 / ▼
General government services / 6.57 / 8.32 / 8.35 / ▲
Total / 6.33 / 6.68 / 6.67
Source: Urban-Econ Calculations based on Quantec Database, 2005
The primary sector contributes approximately 18.31% percent to the South Africa’s primary sector economy. The Mining sector of Limpopo is the most important sector and also contributes the most to the total production of the primary sector of South Africa with 23.19 percentage points. The smallest contribution to total production is by the secondary sector, contributing 3.88% to South Africa’s secondary Economy. The tertiary sector of the Limpopo contributes 6.44% to South Africa’s tertiary Economy with the general government services being the biggest in the tertiary sector.
In terms of the mining sectors, the Limpopo Province plays a significant role with regards to the National economy’s mining sector.
Limpopo contributes approximately 6.67% towards the overall national economy. This contribution has remained relatively stable during the period under review.
The following sectors experienced an increase in the sectoral contribution to the overall national performance. They include, inter alia, the following:
o Mining
o General government services
o Transport & communication
o Electricity & water
o Agriculture, forestry and fishing
It is vitally important to realize that the provincial economy outperformed the national economy, i.e. was one of the driving economies in a national context with regards to certain sectors. It is however necessary to investigate the role of the Vhembe District Municipal economy in the Provincial context.
5.3 VHEMBE DISTRICT MUNICIPALITY IN RELATION TO LIMPOPO PROVINCE PERSPECTIVE
The purpose of this sub-section is to determine the economic importance of Vhembe District Municipality within the Limpopo Province. To determine the economic context of the above economies, the most important economic and labour indicators are discussed.
5.3.1 GROSS VALUE ADDED (GVA)
The following table illustrates the GVA contribution of each municipal district to total production in Limpopo.
Table 5.7: GVA Contribution of District Municipalities
District Municipality / Percentage Contribution to GVA in Limpopo1993 / 1998 / 2003
Mopani District Municipality / 21.88% / 20.70% / 19.73%
Vhembe District Municipality / 18.13% / 18.19% / 17.45%
Capricorn District Municipality / 21.66% / 23.15% / 23.89%
Waterberg District Municipality / 23.82% / 23.97% / 25.59%
Sekhukhune Cross Boundary District Municipality / 7.66% / 7.38% / 7.28%
Bohlabela District Municipality / 6.86% / 6.61% / 6.05%
Limpopo / 100% / 100% / 100%
Source: Urban-Econ Calculations based on Quantec Database, 2005
The Vhembe District Municipality’s contribution decreased from 18.13% to 17.45% to total production in Limpopo. This share is exceeded by all of the other Municipal District Municipalities except for Sekhukhune and Bohlabela District Municipalities This implies that Vhembe District Municipality is the fourth biggest District Municipality in Limpopo Province.
The following table illustrates Vhembe District Municipality’s growth in GVA.
Table 5.8: Percentage Average Annual Growth Rate
District Municipality / Percentage Average Annual Growth Rate /1993-1998 / 1998-2003
Mopani District Municipality / 2.6% / 2.3%
Vhembe District Municipality / 3.8% / 2.4%
Capricorn District Municipality / 5.1% / 3.9%
Waterberg District Municipality / 3.8% / 4.6%
Sekhukhune Cross Boundary District Municipality / 2.9% / 3.0%
Bohlabela District Municipality / 2.9% / 1.5%
Limpopo / 3.7% / 3.3%
Source: Urban-Econ Calculations based on Quantec Database, 2005