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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
September 12, 2024

Gross Operating Surplus

Gross Operating Surplus: A View on Company Profits

Gross Operating Surplus impacts both investors’ returns and government tax revenue, influencing policy decisions and the broader economy.

Company profitability is a key concern for both investors and the government. Investors evaluate the potential returns they can expect, while the government considers the impact of policy changes on tax revenue and the broader economy.

A fundamental method for assessing the profitability of a sector is to estimate the Gross Operating Surplus (GOS) at specific intervals, in this case, quarterly. In South Africa, the GOS appears to be erratic but generally aligns with GDP inflation trends, as illustrated in the accompanying graph. In the second quarter of 2024, company profits were one percent higher than inflation for the same period, indicating that profits grew faster than production inflation.

The overall growth in GOS is positive news, as rising profitability enhances the likelihood of investment and further economic growth. Particularly, the manufacturing sector has demonstrated significant growth, marked by increases in employment, production, and overall profitability.

The notable rise in total GOS is encouraging, reflecting a positive market sentiment that seems to resonate throughout the economy. This increase boosts production output and returns for all market participants, potentially leading to a much-needed rise in investment in South Africa.

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More Coverage

Producer Price Inflation

October 2025
In October 2025, producer price inflation rose to 2.9%, an increase from 2.3% in September. However, on a monthly basis, there was a slight decline in producer prices, down by 0.1%.

Retail Sales Performance

September 2025
Retail sales in South Africa rose by 3.1% in September, slightly exceeding market expectations of 3.0%, as anticipated by analysts for that month. This growth indicates a continuing recovery in consumer demand within the economy.

SARB Lowers Interest Rates as Stability Improves

The South African Reserve Bank (SARB) has taken a prudent and measured step by reducing its base interest rate from 7.0% to 6.75%, marking a significant moment in the country’s monetary policy trajectory. This decision, made by the Monetary Policy Committee (MPC), underscores the bank’s cautious optimism about South Africa’s economic outlook amidst a complex global backdrop.

Consumer Inflation

October 2025
In September 2025, the Consumer Price Index (CPI) saw a modest rise to 3.4%, slightly up from 3.3% in August, yet just below the analysts’ forecast of 3.5%.

Why Aluma does not Force an Interest Cut

Cautious Optimism Amidst Inflation and Reform Momentum
As the Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) prepares to announce its interest rate decision later this week, market watchers are closely divided between expectations of a modest cut and maintaining the status quo. With approximately 70% of economists foreseeing a 25-basis point reduction from 7.00% to 6.75%, the prevailing sentiment reflects confidence in economic stabilization. However, a significant proportion remain cautious, suggesting that the SARB may choose to hold interest rates unchanged for another month, given the current inflation trajectory and recent developments in fiscal discipline.
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