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Frederick Mitchell, Chief Economist | Aluma Capital (Pty) Ltd
Frederick Mitchell
March 6, 2025

Gross Operating Surplus

A View on Company Profits

2024 Q4

Company profitability is vital for investors and the government. In South Africa, the Gross Operating Surplus (GOS) indicates positive growth, with profits surpassing inflation in late 2024. Notable gains in the Agricultural sector (68.8%) contrast with modest growth in Mining and Personal Services, reflecting an optimistic economic outlook post-election.

Company profitability is a critical concern for both investors and the government. Investors assess the potential returns they can expect, while the government evaluates the effects of policy changes on tax revenue and the overall economy.

A key method for assessing the profitability of a sector is estimating the Gross Operating Surplus (GOS) at regular intervals, specifically quarterly in this case. In South Africa, the GOS shows some fluctuations but generally aligns with trends in GDP inflation, as depicted in the accompanying graph. During the third and fourth quarters of 2024, company profits outpaced inflation, indicating that profits grew faster than production costs during this period.

The overall increase in GOS is encouraging news, as rising profitability raises the prospects for investment and stimulates further economic growth. Notably, the Agricultural sector exhibited remarkable annual growth, with “gross profits” soaring by 68.8%. In comparison, profits in the Mining and Personal Services sectors rose by 6.5% and 8.0%, respectively.

The significant increase in total GOS reflects a positive market sentiment that pervaded the economy throughout 2024, especially following the general elections and the establishment of the Government of National Unity (GNU), along with a more stable electricity supply since May 2024. This uptrend boosts production output and returns for all market participants, paving the way for a much-needed increase in investment in South Africa.

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More Coverage

Budget Speech 2025

A Balancing Act
Much has happened in the last twelve months as well as the last month since the postponement of the February 2025’s budget. The big talking point and “bone of contention” was the mooted 2% increase in VAT. This increase was met with fierce resistance and made “balancing the budget” quite difficult, as the government has to decide between increasing taxes of cutting expenditures, leaving the Government of National Unity (GNU) between a “rock and a hard place” as it currently stands. The increase in VAT or other taxes sprout from the various expenditure items the government announced or want to implement which among other things include the National Health Insurance (NHI), a transformation fund and continuation of the Covid-19 relief grant and the possible introduction of a Basic Income Grant (BIG).

A View on Company Profits

2024 Q4
Company profitability is vital for investors and the government. In South Africa, the Gross Operating Surplus (GOS) indicates positive growth, with profits surpassing inflation in late 2024. Notable gains in the Agricultural sector (68.8%) contrast with modest growth in Mining and Personal Services, reflecting an optimistic economic outlook post-election.

A Sticky Affair

The South African Budget Speech Postponement
The Laffer Curve is an economic theory that describes the relationship between tax rates and tax revenue. Proposed by economist Arthur Laffer, the curve suggests that there is an optimal tax rate that maximizes government revenue without discouraging productivity, investment, and economic growth. The central idea is that increasing tax rates beyond a certain threshold can lead to diminishing returns; higher taxes may disincentivize work, entrepreneurship, and investment, ultimately reducing the overall tax base.

GDP, Economic Growth and Inflation

2024 Q4
The South African economy showed resilience with a 0.6% growth in the fourth quarter of 2024, despite challenges. Key sectors like Agriculture and Finance thrived, and improved consumer demand signals optimism for 2025. With continued market confidence and government reforms, there is potential for significant economic advancement ahead.

Private Sector Credit Extension (PSCE)

January 2025
In January 2025, credit demand rose by 4.6%, exceeding expectations, although overall demand is still modest. Interest rate cuts are expected to enhance property and asset purchases as disposable incomes improve. As consumers increasingly rely on credit, overall demand for goods and fixed assets is poised to rise throughout 2025
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