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Frederick Mitchell
December 6, 2024

Gross Operating Surplus

A View on Company Profits 2024Q3

Company is crucial for investors and the government, influencing investment potential and tax revenue. The latest data from Statistics South Africa shows a 2.9% quarterly decrease in Gross Operating Surplus (GOS) but a 4.5% annual increase, indicating profitability growth. Notably, sectors like mining and transport exceeded inflation rates, signaling positive market sentiment and potential for increased investment in South Africa over the medium to long term.

Company profits is a significant concern for both investors and the government. Investors assess potential returns, while the government evaluates how policy changes affect tax revenue and the broader economy.

A fundamental way to gauge profitability in an economic sector is by estimating the Gross Operating Surplus (GOS) at specific intervals, such as quarterly. The latest data from Statistics South Africa (Stats SA) for the third quarter of 2024 shows that GOS can be erratic but generally follows GDP inflation trends, as demonstrated in the accompanying graph. In Q3 2024, company profits were 2.9% lower compared to the previous quarter but increased by 4.5% compared to the same period in 2023. This rise in profits slightly outpaced GDP inflation, indicating a marginal growth in profitability.

The overall annual growth in GOS is a positive sign, as rising profitability enhances the potential for investment and further economic expansion. Notably, profits in the mining, transport, and personal services sectors grew at rates exceeding inflation during this period. Such profitability increases often lead to higher employment, production, and overall sector profitability in the medium term, if the trend continues.

The sustained annual rise in total GOS reflects encouraging market sentiment throughout the economy. This growth enhances production output and returns for all market participants, positioning South Africa for a much-needed increase in investment over the medium to long term.

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A View on Demand in the Economy: Retail Sales Performance

In 2024, South Africa’s retail sales rose by 6.3%, significantly surpassing the expected 2.1% increase, indicating a rebound in consumer demand. Key contributors included substantial growth in general dealers and household goods. Lower inflation and a potential interest rate cut could further enhance consumer optimism and spending moving forward.

Consumer Inflation

Inflation in South Africa rose slightly from 2.8% in October to 2.9% in November, driven mainly by housing and utilities, food, and miscellaneous goods. Despite price increases, there are signs of slowing growth. The MPC’s recent 25 basis point interest rate cut may ease financial pressures on consumers, supporting future demand and economic momentum.

Manufacturing Production

In 2024, South Africa’s manufacturing production rose by 0.8%, following a 1.4% increase in September. Key contributors included significant growth in petroleum, food, and basic iron and steel sectors. Despite a decline in the motor vehicle sector, the manufacturing industry remains vital, employing 1.6 million people and driving economic growth.

Challenges, Changes, and New Horizons

To reflect on 2024, what a remarkable year it has been! There were significant developments both locally and globally—not just economically but politically as well. We can all agree, “what a year it has been!”

Mining Production and Sales

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