South Africa Retail Report Q4 2012

The South African Retail Report examines the long-term potential of the local consumer market, but flags short-term concerns about the impact on South Africa's economic outlook of shrinking exports.

The report examines how best to maximise returns in the South African retail market while minimising investment risk, and also explores the impact of the weak global growth environment and potentially high investor risk aversion on the South African consumer and on the ability of producers and exporters to realise returns in the short term.

The report also analyses the growth and risk management strategies being employed by the leading players in the South African retail sector, as they seek to maximise the growth opportunities offered by the local market.

South African per capita consumer spending is forecast to increase by 43% to 2016, compared with a regional growth average of only 2%. The country comes first (out of seven) in BMI's MEA Retail Risk/Reward Ratings, although it underperforms for Risk.

Among all retail categories, autos will be the outperformer through to 2016 in growth terms, with unit sales forecast to increase by 75.3% between 2012 and 2016, from an expected 686,456 units in 2012 to 1,203,316 units in 2016. The size of the country, significant rural land coverage and the agricultural sector will continue to provide a substantial market for four-wheel drive vehicles, light pickups and SUVs.

In the competitive arena, BMI sees upside potential in the Automotive Production and Development Programme, which replaces the existing MIDP in 2013. This offers incentives to manufacturers investing in local production, and could boost output.

Over the last quarter, BMI has revised the following forecasts/views:

?? BMI holds to its view for South Africa to see tepid growth over the medium term, forecasting that real GDP will expand by 2.5% in 2012 and 3.3% in 2013, with risks weighted to the downside. Although private consumption should hold up relatively well, serious headwinds from the global economy will inevitably take their toll on growth.

?? BMI is relatively positive on private consumption in South Africa, forecasting real growth of 2.8% in 2012, and 3.3% in 2013, following a 5.0% expansion in 2011. Although our figures suggest a notable slowdown, we highlight that, given the bleak outlook for the global economic environment, the numbers are fairly decent. Retail sales in South Africa rose 8.3% in June 2012 from a year earlier, compared with a 1.2% decline in the euro region. Spending on clothing and footwear in South Africa totalled US$10.5bn in 2011, according to the central bank.

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