South African Economy Rebounds as World Cup Nears

By Nasreen Seria

Nov. 23 (Bloomberg) -- South Africa’s spending to host the 2010 FIFA World Cup, the world’s most-watched sporting event, and a rebound in manufacturing may have pulled the economy out of its first recession in 17 years in the third quarter.

The economy expanded an annualized 0.5 percent in the three months through September, ending three consecutive quarters of contraction, according to the median estimate of 23 economists surveyed by Bloomberg. Statistics South Africa will release the data at 11:30 a.m. in Pretoria tomorrow.

Construction has expanded more than 10 percent in the first half as the government spends $115 billion over three years to build a high-speed rail link in Johannesburg, erect stadiums for next year’s soccer tournament and build roads. That is cushioning the economy at the same time that manufacturers begin to recover from a collapse in exports.

“Construction has been powering along,” said Dennis Dykes, chief economist at Johannesburg-based Nedbank Group Ltd., South Africa’s fourth-biggest bank. “Investment has been absolutely massive.”

Africa’s biggest economy contracted an annualized 3 percent in the three months through June as manufacturing, which accounts for 14 percent of gross domestic product, plunged 10.9 percent following a slump in consumer spending and exports. Construction grew 12.2 percent in the same period.

The yield on the benchmark 13.5 percent security due September 2015 was at 8.36 percent as of 11:56 a.m. in Johannesburg, up from a low of 7.01 percent on Dec. 18 last year at the depths of the global financial crisis.

Tourism Boost

South Africa is building or renovating 10 stadiums for next year’s soccer tournament, which is being held in Africa for the first time. The government expects the games, which begin on June 11, to attract 450,000 non-African visitors, boosting GDP by about 1 percent.

Murray & Roberts Holdings Ltd., the country’s largest construction company, is building some of the stadiums and the Gautrain rapid speed train that will link Johannesburg, the country’s biggest city, to the capital, Pretoria, about 50 kilometers (30 miles) away. The Johannesburg-based company posted an 18 percent jump in profit in the year through June 30.

Highways around Johannesburg are being dug up as part of the National Road Agency’s project to upgrade 185 kilometers of roads in the Gauteng province by May, at a cost of about 22 billion rand ($2.9 billion).

“We need to produce additional capacity to ensure that our economy can continue to grow,” said Nazir Alli, chief executive officer of the agency. “We’re spending lots of time and money on increasing capacity and improving our roads.”

Creating Jobs

The government is betting that spending on public infrastructure projects, which it estimates will climb to 9.8 percent of GDP in the year through March 2013, will help to stimulate growth and jobs in an economy where almost one in four people are without work.

“Large-scale public infrastructure projects, including those linked to the World Cup, have been instrumental in supporting domestic demand as private investment and consumption shrank,” the Organization for Economic Cooperation and Development said in a report on Nov. 19.

The economy will probably expand 2.7 percent next year after contracting 2.2 percent in 2009, the OECD said. That is better than the government’s forecast of 1.5 percent growth in 2010.

State-owned power utility Eskom Holdings Ltd. is spending 385 billion rand over the next five years building power plants and expanding electricity capacity to prevent a repeat of shortages that shut gold and platinum mines, the country’s biggest export earners, for five days last year. Transnet Ltd. is spending 80.5 billion rand on pipeline, rail and port projects over the next five years.

Manufacturers

Manufacturers are also starting to turn the corner. Production rose 2.5 percent in the third quarter from the previous three months, when it contracted 3 percent, the statistics office said on Nov. 10.

“Manufacturing has turned the tide,” said Johan Rossouw, chief economist of Vunani Securities in Cape Town. “We are seeing the lagged effects coming through from monetary and fiscal policy. But the rand’s strength could be a significant dampener and prevent a strong resurgence.”

The rand has climbed 40 percent against the dollar since March, hurting exporters and making imports cheaper. Seardel Investment Corp., South Africa’s biggest clothing and textile maker said on Nov. 5 the rand’s gains are of “significant concern” as it’s made the local industry uncompetitive.

Event                                             Date
Netcare Ltd. annual earnings                      Nov. 23
African Bank Investments Ltd. annual earnings     Nov. 23
Nampak Ltd. annual earnings                       Nov. 23
Telkom South African Ltd. annual earnings         Nov. 23
Harmony Gold Mining Co. annual general meeting    Nov. 23
Gross domestic product                            Nov. 24
Adcock Ingram Healthcare Ltd. annual earnings     Nov. 24
Tiger Brands Ltd. annual earnings                 Nov. 24
RMB/BER business confidence index                 Nov. 25
Consumer price inflation                          Nov. 25
Massmart Holdings Ltd. annual general meeting     Nov. 25
Remgro Ltd. annual earnings                       Nov. 25
Argent Industrial Ltd. annual earnings            Nov. 25
Producer price inflation                          Nov. 26
Naspers Ltd. annual earnings                      Nov. 26
Liberty Holdings Ltd. third-quarter earnings      Nov. 27
FirstRand Ltd. annual general meeting             Nov. 27
DRDGold Ltd. annual general meeting               Nov. 27
Sasol Ltd. annual general meeting                 Nov. 27
African Rainbow Minerals Ltd. annual general meeting Nov. 27

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net