How is healthcare activity in South Africa measured?

Like a regular health check-up, GDP data gives firms and families an idea of how healthy the economy is. But where is the healthcare industry in this data? The word “healthcare” appears very rarely in the GDP report because health-related activities are spread out and concealed within several other categories. The same is true for other industries, like tourism, insurance and telecoms. So where does it fit in, and what should we look for? We need to look in at least five places to get a good feel for how active the South African healthcare industry has been over the past year. Four of these five – household spending; manufacturing; personal services; and finance, real estate and business services – are in the GDP data, which is released once a quarter. The most recent data (from 5 March 2024) covers the fourth quarter of 2023, and provides a snapshot of the full 2023 economic year.  To be comprehensive, we can go beyond GDP data to include the fifth metric, trade data, which shows the import and export of health-related goods and services. South Africa is tightly linked to global trade, so this complements the GDP data. 

Household Spending
Household spending, also known as HFCE (household final consumption expenditure), measures our spending on food, housing, clothing, transport and many other categories. Spending on health remained steady in Q4 2023, with no sign of contraction. Households are now the biggest spenders in the broader healthcare category. South African Reserve Bank data shows that households spent R293 billion in 2022 (latest available) on goods and services related to health. This is steadily pulling ahead of the annual government budget for healthcare. 
The retail spending survey also helps, showing how much of that spending happens through retail channels. The latest data (January 2024) shows steady sales of R20 billion per quarter at retail outlets that focus on selling “pharmaceuticals and medical goods, cosmetics and toiletries”. These outlets account for about 6% of all retail sales. 

Manufacturing
Manufacturing, which grew by 0.5% overall in 2023, is where we measure the medical products being made in South Africa, some of which will also be exported. Making medicines and medical products is high-value manufacturing with a bright future.  For the full year 2022, manufacturing contracted by 0.4% after a surge of 6.7% growth in 2021. We don't know exactly how much of that was health-related manufacturing because it is grouped with many other subdivisions.

Personal Services
The Personal Services category covers government spending on health and education, as well as some spending by households. This category was reshuffled in August 2021 to include spending by both government and private households on health activities. The overall category grew by R128 billion when general government health and education activities were re-classified into this section. This category grew by 0.9% in Q4-2023 because of increased activity in healthcare as well as education. Government spending on health has grown to 12.2% of all expenditure in 2022, from 11.4% in 2015 (functional classification, SARB data). The latest budget proposes spending R272 billion on Health in the 2024/25 budget year. Spending on wages makes up 64% of the total, way ahead of the 28% allocated toward goods and services related to healthcare.

Finance, Real Estate and Business Services (including Insurance)
The fourth place to look for healthcare activity is in the largest GDP category, which includes insurance firms that offer health-related products such as general medical cover and hospital plans. These categories are not shown separately, but we do know that the finance category grew the fastest of all sectors in 2023. It rose by R19 billion to R1.1 trillion for the full year 2023 (constant 2015 prices).  

Trade
The trade component of GDP is often overlooked, but imports and exports are essential to the healthcare industry. In 2023, South Africa exported R8 billion worth of pharmaceutical goods and imported about R44 billion worth of the same items. This means that South Africa relies heavily on imports to supply our domestic market. Those imports are often priced in US dollars and will be sensitive to the value of the ZAR on currency exchanges. Ten years ago, in 2014, total imports were R22 billion and total exports were closer to R5 billion. Since then, imports have doubled and exports have grown by 78%. The largest sub-category of imports amounted to R31 billion of the total R44 billion. This is HS code 3004, which covers measured doses of “medicaments” in retail packaging. These mostly come from Europe (R16 billion in 2023), Asia (R11 billion) and the Americas (R3 billion). India is the largest individual supplier (R11 billion in 2023), ahead of Germany (R3 billion), France (R2.6 billion) and Italy (R1.7 billion).

Scanning for healthcare growth in GDP stats 
These five areas are considered when determining South Africa’s expenditure on healthcare-related goods and services. Based on the numbers we’re seeing, our economic team expects GDP growth in 2024 to double to 1.2% from just 0.6% in 2023. We can expect the healthcare industry to benefit from that growth too, especially from spending by households in the higher income categories.
 

Resources

• UNICEF South Africa Report. 2022/2023. Quality in health outcomes and health budget frameworks, Section 1, page 8 -  https://www.unicef.org/southafrica/media/7551/file/ZAF-health-budget-brief-2022.pdf 
• W. D. July 2007. What should a country spend on healthcare.  Health Affairs, Vol. 26 (4) -https://www.healthaffairs.org/doi/10.1377/hlthaff.26.4.962