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Blog : 16 December 2016 (Gross operating surplus points to tough times for companies in SA)
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In today's blog we take a look at South Africa's Gross operating surplus (GOS) and what it says about South Africa's economy and the environment firms find themselves in. GOS is the part of income derived from production that is earned by the capital factor. It differs from profit in that it does not account for depreciation of assets. It is used as a balancing item in the generation of income account.
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GOS and GDP quarter on quarter annualised
Details about the graph:
The bar chart shows South Africa's GDP quarter on quarter annualised.
The GOS deviation from average line (dark blue) shows the difference between the average GOS over the period and the GOS for a specific quarter. A positive value indicates the GOS for quarter is higher than the average over period. Negative shows it's lower than average.
The MA: GOS deviation line (lime green) shows a four quarter moving average of the GOS deviation line. Since the GOS deviation line quarter over quarter is extremely volatile from quarter to quarter we using a moving average to smooth it out and highlight the underlying trend.
The bar chart shows South Africa's GDP quarter on quarter annualised.
The GOS deviation from average line (dark blue) shows the difference between the average GOS over the period and the GOS for a specific quarter. A positive value indicates the GOS for quarter is higher than the average over period. Negative shows it's lower than average.
The MA: GOS deviation line (lime green) shows a four quarter moving average of the GOS deviation line. Since the GOS deviation line quarter over quarter is extremely volatile from quarter to quarter we using a moving average to smooth it out and highlight the underlying trend.
From the chart is clear South Africa experienced prolonged periods of economic growth from late 1990's all the way to end of 2007 (the gray bar charts). At the same time South Africa's GOS was above it's average for the period, showing companies earned above average returns on their capital during the period. The moving average (lime green line) shows a sharp increasing trend during the late 1990's to the early 2000's. But since 2009 it is clear that things have not been going to well for companies in South Africa.
The trend (the moving average lime green line) in the GOS quarterly performance compared to the long term average has been declining since early 2009 and it has been sloping downwards eversince. This provides a clear indication that firms are struggling to earn the kinds of returns that they have earned in the past on their capital. Making investors think twice before investing here as the returns on capital does seem to be steadily declining and no end in the downside in sight.
The South African economy has been spinning it's wheels for years now and it has never truly recovered from the recession caused by the financial crisis in the USA. And a lot of it is self inflicted pain. Unions demanding above inflation pay increases (eating away at company profit margins), lack of stable electricity grid scaring off foreign investors and expansion of firms in SA, interest rate setting policy is based on shady forecasting of inflation, political infighting harming South Africa's image abroad, corruption and state capture, fruitless and wasteful expenditure to name but a few.
Though choices and decisions has to made by the South African government if it is to turn this sad and depressing story around.. Question is whether the political will exists to make such decisions? We doubt it, especially considering the losses the ANC suffered in the municipal elections earlier in 2016. With that at the back of their mind the ANC would rather revert to more populis policies to keep voters happy, to the deteriment of South Africa's economy. Seems like SA's economy is in for a long painfully slow future.
Though choices and decisions has to made by the South African government if it is to turn this sad and depressing story around.. Question is whether the political will exists to make such decisions? We doubt it, especially considering the losses the ANC suffered in the municipal elections earlier in 2016. With that at the back of their mind the ANC would rather revert to more populis policies to keep voters happy, to the deteriment of South Africa's economy. Seems like SA's economy is in for a long painfully slow future.