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In today's blog we take a look at South Africa's retail trade data and compare it to South Africa's economic growth rate. SA's economy is largely driven by consumers spending, so an changes in retail sales is like to have a significant impact on South Africa's economic growth rate.
We will take the sum of the monthly trade sales data and aggregate it to annual totals. We will then compare the growth in the annual totals of SA's retail sales data and compare it to the annual growth rates in South Africa's GDP. Data obtained from Stats SA and spans 2003 to 2017. Note the 2017 annual growth rate was estimated by using the first three months of 2017's data and extrapolating for the rest of 2017. |
Retail sales growth vs GDP growth
The bar chart shows South Africa's retail trade sales data annual growth rates (after adjusting for inflation) compared to South Africa's annual economic growth rate.
As the graphic shows the trends of both data series are very similar. But what is concerning for South Africa's economy is the fact that the estimated growth rate for 2017 is a lot slower than any growth in annual retail sales seen in the last 14 years (but part of this would be due to the fact that retail sales spikes in December months and based on the data available used to extrapolate for 2017 it does not account for this spike).
The picture retail sales is painting about South Africa's economy is not a very healthy one. And poor performance in the retail sector will have a significant knock on effect on the rest of the economy. Less retail sales means less manufacturing required which means less people required to sell goods and services or to make goods and sell services, thus less people employed which in turn leads to both less taxes collected by government as well as less money being spent on goods and services as fewer people have jobs and therefore money to spend.
The picture retail sales is painting about South Africa's economy is not a very healthy one. And poor performance in the retail sector will have a significant knock on effect on the rest of the economy. Less retail sales means less manufacturing required which means less people required to sell goods and services or to make goods and sell services, thus less people employed which in turn leads to both less taxes collected by government as well as less money being spent on goods and services as fewer people have jobs and therefore money to spend.
Less tax revenue collected by government via personal income tax (and VAT due to lower retail sales) will mean that government either have to push up taxes elsewhere to make up the deficit created by the decrease in retail sales, or government has to spend less (and based on the increasing number of protests in South Africa and increased demands for service delivery the chances of South Africa's government spending less money is slim). Thus the tax burden on those who can pay will be increased (as we saw in the latest budget with introduction of a new tax bracket for the super rich). But as we have discussed in the past, the government is fast approaching a point where they overtaxing a small number of people to deliver services to the masses. This will never be sustainable and those the state is currently over milking will eventually find ways to either avoid paying taxes or move elsewhere where their tax burden would be less.
Now that we know the potential impact of a decline in retail sales will have on South Africa's economy. Its time to take a look at the performance of the various types of retailers over time in order to identify the best and worst performers in the sector over the last number of years.
Now that we know the potential impact of a decline in retail sales will have on South Africa's economy. Its time to take a look at the performance of the various types of retailers over time in order to identify the best and worst performers in the sector over the last number of years.
Retail sales per outlet type as shown by the above bar chart shows that the contributions of the various outlet types over time has not changed significantly from 2008. Note 2008 was the earliest time period for which Statistics South Africa published details regarding the contribution of the various outlet types to total retail sales.
Retail spending in pharmaceutical and medical goods,cosmetics and toiletries has seen its contribution climb steadily over the years from 7.6% of total retail sales in 2008 to 9% of retail sales estimated for 2017. In contrast the overall contribution by food, beverages and tobacco in specialised stores have dropped off as time has gone by with its contribution to South Africas total retail sales falling from 8.4% in 2008 to an estimated 7.4% in 2017.
Retail spending in pharmaceutical and medical goods,cosmetics and toiletries has seen its contribution climb steadily over the years from 7.6% of total retail sales in 2008 to 9% of retail sales estimated for 2017. In contrast the overall contribution by food, beverages and tobacco in specialised stores have dropped off as time has gone by with its contribution to South Africas total retail sales falling from 8.4% in 2008 to an estimated 7.4% in 2017.
Retail sales growth vs GDP growth vs Household expenditure growth
Looking at GDP's estimate of consumer expenditure from 2010 to 2016 (and caluclating the year on year growth for consumer spending for 2011 to 2016 and comparing it to the growth rates of GDP and retail sales (as shown in our first graphic) we see that there is a clear correlation between the movement of household spending, retail sales and GDP. See bar chart below.
Its clear household spending affects retail spending, and retail spending in turn affects GDP (as it is one of the biggest contributors to the "Trade" industry in the calculation of GDP estimates).
The concern for SA's economy is the fact that a large part of it is driven by consumer spending. Any weakness in consumer spending will lead to economic weakness. And struggling consumers are under increased pressure as government is looking to boost tax revenues (and all kinds of new taxes are introduced while fuel levies are increased, sin taxes are increased etc). And in addition to this exchange rate weakness will lead to higher import costs (and in particular the cost of crude oil), which will push up fuel prices which in turn pushes up transport costs which in turn leads to higher prices asked at retail level (which leads to higher levels of inflation) which forces the South African Reserve Bank's hand when it comes to setting monetary policy (and sustained increases in inflation will be met with higher interest rates from SARB in order to try and curb inflation.
South Africa has certain structural economic problems and they need to be addressed if South Africa ever wants to see sustainable inclusive economic growth. This is what real "radical economic transformation" means. SA needs to lower its dependence on commodities, develop a wider selection of industries (SA's economy should not be ruled by commodity prices or consumer spending). SA's economy needs more industries that operate independently from one another, so that should the one industry feel the pinch, the rest of the industries are not affected.
And this is where the developed world (think USA, UK and various Asian countries) is light years ahead of South Africa. The ability of their economies to adapt to shocks and to recover from such shocks is far greater than that of South Africa, and this is largely to do with the fact that South Africa's economy is to dependent on a few sectors/industries. And if both are under pressure at the same time (as the commodity industry and consumers are currently in SA), you get what SA is currently experiencing. Low to no growth.
South Africa has certain structural economic problems and they need to be addressed if South Africa ever wants to see sustainable inclusive economic growth. This is what real "radical economic transformation" means. SA needs to lower its dependence on commodities, develop a wider selection of industries (SA's economy should not be ruled by commodity prices or consumer spending). SA's economy needs more industries that operate independently from one another, so that should the one industry feel the pinch, the rest of the industries are not affected.
And this is where the developed world (think USA, UK and various Asian countries) is light years ahead of South Africa. The ability of their economies to adapt to shocks and to recover from such shocks is far greater than that of South Africa, and this is largely to do with the fact that South Africa's economy is to dependent on a few sectors/industries. And if both are under pressure at the same time (as the commodity industry and consumers are currently in SA), you get what SA is currently experiencing. Low to no growth.