10.2.3 PUBLIC SECTOR ACCOUNTING 102 [100] QUESTION ONE [30] Read the article below and answer the question that follows: GDP growth alone not sufficient to stop the rot Industry representatives and stakeholders were relieved with the announcement by President Cyril Ramaphosa in his State of the Nation Address that the government will champion initiatives aimed at replicating the so much lauded motor industry development programme (MIDP) for key sectors, including the diverse iron, steel and metal fabrication clusters. The initiatives - which align with interventions aimed at reigniting domestic growth - are consistent with previous suggestions by captains of industry aimed at boosting demand and supply-side initiatives, increasing efficiency and strengthening the case for more local content in production processes. Moreover, the announcement came at a time when the rest of Africa holds promising trade potential, with the recently launched African Continental Free Trade Area agreement. Mirroring the MIDP would, therefore, add impetus for an increased volume of broader manufacturing output, support agro-processing activities and enhance export competitiveness to the rest of the continent, with positive spill-overs on employment, poverty and income inequality. Given the difficult operating environment for local businesses, poor high-frequency data, confidence, expectations and trade data, the timing of the statement is apt. Our first-quarter (Q1) 2019 Review of the State of the Metals and Engineering Sector Report reveals that the sector's total real exports to the rest of the world contracted by 8.6 percent quarter-on-quarter (Q-o-Q) between Q4,2018, and Q1,2019, and by 1.98 percent on a quarterly year-on-year (Y−0−Y) basis. The overall subdued performance, despite a comparatively weaker rand, was largely due to well documented challenges, as indicated at the beginning of 2019 . Disconcertingly, the poor performance was further explained by low exports to other African countries both on a Q−0−Q basis (-14.3 percent) and a Y−o−Y basis (−6.1 percent). Encouragingly, annual exports to Asia and the US at the end of Q1, 2019 were resilient (despite existing steel and aluminium tariffs imposed by the US on SA exports), providing some promising prospects. The contraction of 8.8 percent in broader manufacturing output and the corresponding dip in African exports by the important cluster of industries in Q1, 2019, highlight the need for proactive thinking in order to reverse the negative contribution of 1.1 percent made by the sector to gross domestic product (GDP), enabling an uptick in economic growth. However, although a strong GDP growth is necessary to reinforce the demand side dynamics of manufacturing and the rest of industrial production, with extended benefits to the fiscus and economy, the GDP numbers should be interpreted with caution. In fact, an exclusive focus on the GDP measure alone can be quite misleading - and industrialists are well aware of this. Practically, with GDP measured by production, when newly produced stainless, alloy or carbon steel (an intermediate product) is manufactured, its market value is estimated and immediately counted as part of GDP in one quarter, irrespective of whether the product gets sold in the next quarter. Suppose that the product was manufactured in November 2018, adding R200 000 to the GDP of Q4, 2018 but is subsequently sold in Q1, of 2019 it is only counted in the GDP of Q4, 2018 in order to avoid double counting. Value added is, therefore, counted only when goods are produced rather than wher they are sold. This is a red flag when interpreting GDP statistics to gauge the health of the economy, as high GDP may only mean that a lot of intermediate or finished products are being produced and stored as inventory, and not necessarily that companies are selling the goods. GDP can, therefore, be high in one quarter, underpinned by higher production and value add, but the economy can be about to go into recession in the following quarter because inventories are piling up and clogging production, and managers are contemplating cutting back on production in order to get inventories down back to target levels. Therefore, the dip in GDP for the next quarter will be mainly due to poor inventory turnover rather than poor productive capacity. Question: From the above article you are required to discuss the serious performance management challenges the public sector is facing.