Regional eXplorer (ReX) update
September 2009

IHS Global Insight is pleased to present our third update to the Regional eXplorer for the year. This update expands upon the IHS Global Insight household infrastructure model with the addition of an electrical connections dataset on top of the existing sanitation and water supply models. We have also made improvements to the ReX poverty model, which therefore contains revisions to the original poverty figures.  

Another important update to the ReX model has been the inclusion of the latest crime statistics released by the SAPS last week. We have prepared a special report on this topic, including analysis based on the IHS-GI crime indices, which will be made available to clients.

Also incorporated into this release are the headline results of the GHS 2008 which was released by StatsSA this month, improving upon the accuracy of many socio-economic indicators contained in the Regional eXplorer.

This newsletter touches on two topics:
• The latest South African macroeconomic picture
• The state of the electrification process in South Africa

Current Account Surpluses and Manufacturing Growth
Two pieces of potentially positive news have come out of South Africa in the last few weeks; the continuing current account surpluses and a month-on-month increase in manufacturing production.

According to figures released by the South African Revenue Service (SARS), South Africa recorded the third consecutive trade surplus in July 2009 after spending more than six years in the red. The surplus, however, narrowed to 0.446 billion rand from 3.8 billion rand in June 2009. This has been caused by South Africa's weak domestic demand situation, which has helped to curb imports to some extent. This is a change in the initial situation in which exports had dropped due to lower foreign demand but imports remained high. However, with increasing commodity prices, as well as a recovery in industrial production worldwide, exports are being positively impacted.

This trend is expected to continue; more so now that Asia, and in particular China, will be playing a leading role as South Africa's most important trading partner with China expected to lead the global recovery. IHS Global Insight therefore expects the current-account deficit to improve for the rest of 2009, even as investment imports for the government's infrastructural projects will keep levels elevated. This improved current-account position will strengthen the Rand, which will contribute to future lower inflation.

Other marginally positive news, according to figures released by Statistics SA, is that the real seasonally adjusted manufacturing production was less negative in July (-13.6% year-on-year) than it was in June (-17.8% year-on-year.)  In fact, month on month, manufacturing production increased.

The strong monthly increase was the third positive monthly figure in a row, which indicates that the slowdown in this sector has come to an end, despite the fact that manufacturing production is still significantly lower than a year before. The recent purchasing manager's index (PMI), which showed a significant improvement in August, bodes well for production figures in the months to come, especially if an inventory build-up does in fact take off.

However, it should be remembered that South Africa still lags behind the global cycle and, with domestic demand extremely reluctant to recover, IHS Global Insight expects recovery in this sector to be slow. Rand strength could impede this sector's competitiveness and strain the recovery path even further. In short, a turnaround in the sector is evident, but recovery will be from a low base and is expected to be slow.

Electrification

The largest contribution to the ReX this quarter is the electrical connections model, which forms the third part of an ongoing project to measure the extent of household infrastructure on a local municipal level. Traditionally, the fractured electricity supply industry and the unsystematic method of collecting statistics have complicated the task of measuring electricification on a local level. Nonetheless, IHS Global Insight has invested a significant amount of time in modelling the available data and has thus created a solid dataset, combining both supply and demand side statistics.

The above chart shows the pace of electrification in South Africa; which in fact has outstripped the delivery of both water and sanitation infrastructure. In numbers, IHS Global Insight estimates that about five million households have been electrified between 1996 and 2008. Of interest, however, is that the actual number of connections installed is far fewer than this, with StatsSA surveys confirming that one connection often serves more than one household. Now although some of this difference may be due to illegal connections, the large majority of the discrepancy is more likely caused by different households sharing one plot, as in the case of a tenant renting a garden cottage from a landlord.

A second point of interest is the decreasing speed of electrification. From 1996 through 1999, the number of electrified households grew by around 8.5% per annum. Last year, the same measure only moved up by 2%. Naturally, one of the primary reasons for this is the decreasing marginal returns to household electrification. Particularly, as more and more urban areas are electrified, and as electrification moves to more remote areas, the cost of providing a connection increases. Furthermore, there is a capacity constraint to the number of connections that the country can practically provide each year, which is dependant on the skills and resources required to install connections, as well as a the overarching electricity generation constraint.

Although these factors imply that the installation of off-grid electrical connections (such as solar energy) are desirable, there is currently no trend in the underlying data to show an increase in off-grid, particularly solar energy, installations. In fact, the number of households using such off-grid connections are so small as to be insignificant even on a national level.

Upcoming releases
IHS Global Insight is awaiting the release of detailed data from the General Household Survey, which will further assist in improving our 2008 data estimates. Furthermore, we expect to make additions to our electrification dataset by disaggregating households with no electricity connections into those who use paraffin for lighting, and those which do not.

We are also awaiting the raw crime data from SAPS, which will allow us to compile crime statistics for calendar years, and not just for financial years, as is currently the case.

Finally, we hope to complete our household infrastructure module with the inclusion of a refuse removal dataset and we are already exploring the option of using the completed infrastructure model as a proxy for formal households.