The arrest of former South African President Jacob Zuma on July 7, 2021, sparked a new round of violent riots and looting across the country. At least 200 individuals have died as a result of the incident, more than 2,554 people have been arrested, and 50,000 businesses have been damaged or harmed. While the Zuma protests were the catalyst, they were not the only cause, nor did they undergird the popular aspect of the violent protests and looting that have erupted in South Africa over the last two weeks.
South Africa is facing various difficulties after nearly three decades of democracy. With a Gini coefficient of 0.7 for income distribution, the country has the highest level of inequality in the world. Even more unequally distributed wealth exists, with the wealthiest 1% of the population owning half of all wealth and the top 10% owning at least 9095 percent.
The outcome of a decade of recession
Because of a lack of structural restructuring in South Africa, the country was already in a fragile economic position before the pandemic. Unemployment had reached a stubbornly high level of 29.1% at the end of 2019. Poverty continues to be unacceptably high. In 2015, over half of the population (30.4 million people) lived in poverty, with female-headed households having a greater poverty rate than male-headed ones (49.9 per cent versus 33.0 per cent). A quarter of the population, 13.8 million people, lived in ‘severe poverty,’ unable to meet their basic physical needs due to a lack of food.
In 2015, 30.4 million individuals, or more than half of the population, lived below the official poverty level.
Since 2010, South Africa’s growth has been trending downwards, averaging just 1.7% between 2011 and 2018. South Africa is currently experiencing its third recession since 1994. The global downturn following the global financial crisis, declining commodity prices, deindustrialisation,’state capture’ (i.e., systemic corruption), budgetary cuts, restrictive macroeconomic policies, slowed investment as a result of economic stagnation, and insufficient electricity supply and subsequent blackouts, to name a few, were all precipitating factors.
Our political crises have been facilitated and fueled by economic crises. People are increasingly seeing the state as a vehicle for predatory accumulation, supported by corrupt commercial and public sector actors. This reality is at the root of South Africa’s severe governance and state capture crisis, which has resulted in looting and the destruction of public institutions. These economic and political challenges, taken together, are weakening trust in the constitutional order.
The pandemic
South Africa was already in a recession when the Covid-19 crisis struck. President Cyril Ramaphosa promised a 500 billion Rand rescue package in April 2020 to help workers, businesses, and homes cope with the pandemic. The package provided a ray of hope for the country, but it was short-lived. There were various issues with the program’s implementation. Less than half of the budget had been fulfilled as of July 2021.
The issue was that there were no 500 billion Rand in the first place. The supplementary budget for 2020 proposed a net increase in non-interest spending of only 36 billion Rand, or less than 1% of GDP. As a result, the majority of the rescue package came from existing money or off-budget spending. One of the elements fueling the violent protests is the purposeful deception of individuals into believing that hard cash was pushed into the economy. The general consensus is that the’stimulus’ has been substantially stolen.
The third wave of Covid-19 infections has hit South Africa. The majority of the relief measures have run their course. At the same time, as the government implements its vaccine program, Covid-19 infections continue to climb.
In January 2021, 39% of homes ran out of money to buy food, and 17% of households suffered weekly household hunger.
In South Africa, a third wave of the epidemic, as well as lockdowns, occurs at a time when the most vulnerable communities have lost income and are living in extreme poverty. In January 2021, 39% of households ran out of money to buy food, and 17% of households suffered weekly household hunger, according to a recent survey. The initial relief package included an unique Covid-19 ‘Social Relief of Distress’ (SRD) award, which provided cash to unemployed individuals who did not receive other forms of social security. Inflationary pressures on food have intensified. Many youngsters rely on school meal programs, which have been shut down. Now, as a result of the present conflict, several localities are experiencing food shortages.
Economic activity is predicted to decrease as this third wave advances perhaps more so today, given the ongoing violent protests with ramifications for workers, businesses, and communities. Following a 7% drop in GDP in 2020, the economy continues to lose jobs, with the unemployment rate reaching a new high of 32.6 percent. The current protests will only worsen the crises that have contributed to the popular element of the protests, creating a vicious cycle.
Austerity at all costs
Despite the threat of multiple socio-economic crises, South Africa’s National Treasury has remained committed to its austerity program, which has been endorsed by the International Monetary Fund (IMF) and much of the business press. Austerity is defined as cutting spending to address debt during economic downturns.
The South African government has implemented austerity measures since 2014 in an effort to reduce debt levels and placate credit rating agencies. This has harmed the delivery of critical social services and the realization of socioeconomic rights. This regulation is being enforced even in the midst of civil upheaval.
South Africa’s government is likely to stick to its intentions to consolidate non-interest expenditure (spending on things other than debt) at a 5.2% annual real average rate, as announced in February 2021. Budget cuts result in lower spending per person and significant losses in health, learning and culture, and general government services. Any new emergency relief measures, according to the president, will be funded within existing budget constraints. This is very irresponsible, given the dire socioeconomic demands, which have been greatly aggravated by Covid-19 and now by the violent protests.
What needs to be done?
The South African administration has mostly moved from one crisis to the next without addressing the political and economic reasons of the crises.
Within the ruling African National Congress, there needs to be a final resolution to the political party factionalism. The nation’s factionalism is a liability. This must be accompanied by a renewed commitment to the 1955 Freedom Charter and the South African Constitution, both of which see a more equitable economic system as a vital component of political independence.
In the short term, the South African government must save livelihoods and keep the economy afloat.
In the short term, the South African government must save livelihoods and keep the economy afloat. Previously suspended relief measures to assist businesses, workers, and homes must be restored and altered to address the Covid-19 situation as well as the current crisis that the country is experiencing.
With the current austerity agenda in place, such steps are not possible. The austerity strategy must be abandoned, and socioeconomic rights must take precedence. This strategy must be accompanied by significant economic transformation that benefits the people. We don’t even have a glimmer of political liberation right now.
In 2021, will South Africa be in a recession?
WASHINGTON, D.C., 6 October 2021 Sub-Saharan Africa is predicted to recover from the COVID-19 pandemic-induced recession in 2020, with growth of 3.3 percent expected in 2021. According to the newest edition of Africa’s Pulse, this is 1% greater than the April 2021 forecast. This recovery is being powered by rising commodity prices, a relaxation of strict pandemic measures, and a revival in global trade, but it is still susceptible due to poor vaccination rates on the continent, long-term economic harm, and a slow rate of recovery.
According to the report, the region’s current economic recovery speeds vary, with the three largest economies, Angola, Nigeria, and South Africa, predicted to expand at rates of 0.4 percent, 2.4 percent, and 4.6 percent, respectively. With the exception of South Africa and Nigeria, the remainder of SSA is anticipated to expand at a faster rate of 3.6 percent in 2021, with non-resource-rich nations like as Cte d’Ivoire and Kenya expected to grow at 6.2 and 5.0 percent, respectively.
According to the authors of the research, a good trend is that African countries have taken advantage of the crisis to promote structural and macroeconomic changes. Several countries have undertaken difficult but necessary structural changes, such as the unification of currency rates in Sudan, the reform of fuel subsidies in Nigeria, and the privatization of Ethiopia’s telecoms sector.
Furthermore, the region’s fiscal deficit, which was 5.4 percent of GDP in 2021, is forecast to fall to 4.5 percent of GDP in 2022 and 3 percent of GDP in 2023 thanks to prudent monetary and fiscal policies. However, due to fiscal restraints and limited fiscal flexibility, African governments have been unable to invest the resources required to launch a robust policy response to COVID-19.
Apart from escalating fiscal strains and rising debt levels as they adopt policies for a long-term and equitable economic recovery, Sub-Saharan African nations are also dealing with the worsening effects of climate change. The authors of the Pulse report recommend that, just as countries have used the crisis to introduce reform measures, they should use this opportunity to make sustainable, resilient transitions to low-carbon economies that can provide long-term benefits such as reduced environmental hazards and new economic development opportunities.
Africa’s particular environment of low baseline development, prior climate vulnerabilities, restricted energy availability, and significant reliance on climate-sensitive sectors is highlighted in the report as creating problems but also potential to transform the economy and create jobs. In Africa, private companies and governments are giving training for solar energy jobs (Togo and South Africa). Climate-smart infrastructure investments can help communities create jobs. Decarbonization provides a chance for the region to boost manufacturing activities, such as the production of Internet of Things components, value-adding to minerals that will power the green economy, and integration into regional value chains.
Is South Africa still experiencing a downturn?
- The South African Reserve Bank claimed the economy was still recovering from the 2020 recession, which saw the economy collapse by 7%, the biggest drop in over a century.
- However, it cautioned that the outlook is greatly contingent on the rate of vaccine rollout and the virus’s potential return, implying that the pandemic might persist until 2022.
- The number of new daily Covid cases in South Africa is increasing, ranging from a low of roughly 780 in early April to over 3,700 at the end of last week.
Is South Africa’s economy in trouble?
South Africa has been severely impacted by the global financial crisis. For the first time in 19 years, the economy entered a recession in 2008/09. In 2009 alone, about a million jobs were destroyed, and the unemployment rate remained at a peak of 25%.
What is South Africa’s debt to the World Bank in 2021?
From 2002 to 2021, South Africa’s external debt averaged 111469.08 USD million, with a peak of 185357 USD million in the fourth quarter of 2019 and a low of 33262 USD million in the first quarter of 2003.
In a downturn, who benefits?
Question from the audience: Identify and explain economic variables that may be positively affected by the economic slowdown.
A recession is a time in which the economy grows at a negative rate. It’s a time of rising unemployment, lower salaries, and increased government debt. It usually results in financial costs.
- Companies that provide low-cost entertainment. Bookmakers and publicans are thought to do well during a recession because individuals want to ‘drink their sorrows away’ with little bets and becoming intoxicated. (However, research suggest that life expectancy increases during recessions, contradicting this old wives tale.) Demand for online-streaming and online entertainment is projected to increase during the 2020 Coronavirus recession.
- Companies that are suffering with bankruptcies and income loss. Pawnbrokers and companies that sell pay day loans, for example people in need of money turn to loan sharks.
- Companies that sell substandard goods. (items whose demand increases as income decreases) e.g. value goods, second-hand retailers, etc. Some businesses, such as supermarkets, will be unaffected by the recession. People will reduce their spending on luxuries, but not on food.
- Longer-term efficiency gains Some economists suggest that a recession can help the economy become more productive in the long run. A recession is a shock, and inefficient businesses may go out of business, but it also allows for the emergence of new businesses. It’s what Joseph Schumpeter dubbed “creative destruction” the idea that when some enterprises fail, new inventive businesses can emerge and develop.
- It’s worth noting that in a downturn, solid, efficient businesses can be put out of business due to cash difficulties and a temporary decline in revenue. It is not true that all businesses that close down are inefficient. Furthermore, the loss of enterprises entails the loss of experience and knowledge.
- Falling asset values can make purchasing a home more affordable. For first-time buyers, this is a good option. It has the potential to aid in the reduction of wealth disparities.
- It is possible that one’s life expectancy will increase. According to studies from the Great Depression, life expectancy increased in areas where unemployment increased. This may seem counterintuitive, but the idea is that unemployed people will spend less money on alcohol and drugs, resulting in improved health. They may do fewer car trips and hence have a lower risk of being involved in fatal car accidents. NPR
The rate of inflation tends to reduce during a recession. Because unemployment rises, wage inflation is moderated. Firms also respond to decreased demand by lowering prices.
Those on fixed incomes or who have cash savings may profit from the decrease in inflation. It may also aid in the reduction of long-term inflationary pressures. For example, the 1980/81 recession helped to bring inflation down from 1970s highs.
After the Lawson boom and double-digit inflation, the 1991 Recession struck.
Efficiency increase?
It has been suggested that a recession encourages businesses to become more efficient or go out of business. A recession might hasten the ‘creative destruction’ process. Where inefficient businesses fail, efficient businesses thrive.
Covid Recession 2020
The Covid-19 epidemic was to blame for the terrible recession of 2020. Some industries were particularly heavily damaged by the recession (leisure, travel, tourism, bingo halls). However, several businesses benefited greatly from the Covid-recession. We shifted to online delivery when consumers stopped going to the high street and shopping malls. Online behemoths like Amazon saw a big boost in sales. For example, Amazon’s market capitalisation increased by $570 billion in the first seven months of 2020, owing to strong sales growth (Forbes).
Profitability hasn’t kept pace with Amazon’s surge in sales. Because necessities like toilet paper have a low profit margin, profit growth has been restrained. Amazon has taken the uncommon step of reducing demand at times. They also experienced additional costs as a result of Covid, such as paying for overtime and dealing with Covid outbreaks in their warehouses. However, due to increased demand for online streaming, Amazon saw fast development in its cloud computing networks. These are the more profitable areas of the business.
Apple, Google, and Facebook all had significant revenue and profit growth during an era when companies with a strong online presence benefited.
The current recession is unique in that there are more huge winners and losers than ever before. It all depends on how the virus’s dynamics effect the firm as well as aggregate demand.
What is the economy’s future in South Africa?
After rebounding to 5.2 percent in 2021, growth is expected to drop to 1.9 percent in 2022 and 1.6 percent in 2023. A relatively strong increase in activity was delayed in July by social protests. However, exports and household consumption will continue to underpin GDP growth in 2021. Government social transfers and a drawdown of savings promote household consumption. Until mid-2022, increasing commodity demand and sustained high prices will boost exports and government revenues. As businesses refresh their capital assets, investment is expected to rise starting in 2022.
2022: Is South Africa in Recession?
Finance Minister Enoch Godongwana stated on Wednesday that the country’s actual Gross Domestic Product (GDP) is likely to expand by an average of 2.1 percent in 2022.
Over a three-year period, however, GDP is predicted to expand by an average of 1.8 percent.
The upward revision follows the National Treasury’s projection of 1.7 percent GDP growth over a two-year period in its Medium Term Budget Policy Statement (MTBPS) in November last year.
“We’ve downgraded our 2021 economic growth forecast to 4.8 percent, down from 5.1 percent at the time of the MTBPS.
“This revision is a result of the influence of global environmental changes, as well as our own specific issues.
“In the second half of 2021, commodity prices, which had been supporting our economic recovery, began to slow. Also, the gains we earned in the first part of the year were severely lost by violent disturbances in July and limits imposed to control the third wave of Covid-19,” he said.
Significant risks to the prognosis, according to the National Treasury, include the introduction of new Covid19 strains in the setting of low vaccination levels, rising global inflation, and ongoing power outages.
Long-standing structural restrictions, according to the National Treasury, contribute to South Africa’s high levels of poverty and unemployment. The administration is pursuing a diversified plan to generate stronger and more consistent economic growth.
“The goal of these reforms is to increase private sector confidence and investment. Over time, the combined impact of structural reforms, small business support, and new infrastructure investment will allow for higher rates of growth and job creation.
“Over the following three years, the government will take additional steps to improve public infrastructure delivery and attract private capital, according to Treasury.
In addition, over the next three years, the administration will focus heavily on improving the battle against corruption as a result of the State Capture Commission’s reports, reducing red tape for small enterprises, and bolstering the green transition.
“The National Treasury wants to pilot a climate budget tagging approach, which can inform future expenditure priorities and budget reforms, in keeping with the government’s international and local commitments to climate change adaptation and mitigation.”
According to the National Treasury, headline inflation is expected to be 4.8 percent in 2022 and 4.4 percent in 2023.
Food and energy prices, particularly municipal rates from rising electricity prices, as well as high domestic food inflation and high fuel prices, are predicted to be the main sources of inflationary pressure in 2022.
“Due to rising global crude oil prices, fuel costs increased by 40.4 percent in the year to December 2021. Fuel costs are likely to fall in 2022, although they will remain high and above the 2019 average.
“Global supply-demand mismatches have caused a spike in the price of raw materials and intermediate inputs, which will continue to push consumer inflation higher.
“The inflation prognosis is expected to rise in the medium term, owing to price pressures from food and nonalcoholic drinks, as well as petrol, energy, and other administered prices.
“Although the forecast assumes that electricity prices will rise in 2022 and 2023 in line with Eskom’s request for a tariff increase in 2022/23, there is a risk that electricity inflation will exceed the assumption due to rising costs of ensuring electricity supply, according to Treasury’s Budget Review document.
Meanwhile, the Treasury estimates that household consumption will expand by 5.6 percent in 2021, after contracting by 6.5 percent in 2020.
Until July 2021, spending levels were recovering, but then plummeted in response to public violence, and are still below pre-pandemic levels.
Consumer confidence dropped, wreaking havoc on retail operations and supply systems, according to Treasury.
“It will be aided by continued increase in private-sector salaries, expansion in household credit, and relatively low borrowing costs during the next three years.
“The extension of the special COVID19 social alleviation of distress grant in 2022/23, as well as a relatively moderate fourth wave of illnesses, will promote consumption in the near term, followed by further loosening of COVID19 limitations at the end of 2021.”
A negative job outlook and increased inflation, according to Treasury, will likely slow the pace of recovery in 2022.
What is the state of the South African economy?
In 2019, South Africa’s real GDP increased by 0.2 percent. The epidemic, as well as the containment efforts taken to stop the virus from spreading, wreaked havoc on the economy. Construction, transportation and communication, manufacturing, and mining all declined by 8.2 percent in 2020, resulting in a drop in real GDP. On the demand side, all components decreased, with investment contracting by the most, 32.4 percent. To aid firms and households affected by the pandemic, the Reserve Bank of South Africa lowered the policy rate by 300 basis points in 2020, from 6.5 percent to 3.5 percent. Inflation is expected to fall to 3.4 percent in 2020, staying within the reserve bank’s goal range of 3 percent to 6%. The budget deficit is expected to rise to more than 14% of GDP, owing primarily to expenditure requirements to mitigate the economic impact of the pandemic. Because of the high price of gold it exports, a low bill for fuel imports, and growing agricultural exports, the country will achieve its first current account surplus in 2020, expected to be around 1% of GDP. Despite the epidemic, the banking system in South Africa is healthy, with a capital ratio of 16.3 percent, which is more than the regulation requirement of 10%. Domestic lending to the private sector increased by 3.5 percent to $280 billion in November 2020, from 139 percent of GDP in December 2019. The three major credit rating agencies downgraded South Africa’s domestic and foreign currency credit ratings to subinvestment grade due to persistent economic problems. Nonetheless, in the third quarter of 2020, real private investment increased by 33.2 percent. Due to the severity of the epidemic and legacy challenges of low human development, social indicators are expected to stay inadequate. Since March 2020, over 2.6 million individuals have lost their jobs, raising the unemployment rate to 30.8 percent in September 2020, up from 23.3 percent in December 2019.
Due to persistent structural constraints such as inconsistent electricity supply and work rules, real GDP growth is expected to rise to 3.0% in 2021, but the rate of recovery will decrease to 1.6 percent in 2022. Inflation is forecast to average 4.2 percent in 2021, remaining within the reserve banks’ goal range of 3 percent to 6 percent in 2022. The current account surplus is projected to dwindle as oil prices rise, thereby raising the import bill. In the medium term, public debt might reach more than 90% of GDP, with forecasts of it stabilizing at 95% in 2026. In October 2020, the 2020 Medium Term Budget Policy Statement (MTBPS) forecasted a much higher budget deficit and a slower debt consolidation in the medium term. Due to the high debt-service costs and worsening balance sheets of state-owned companies, as well as the persistent financial problems of municipalities, these projections will increase risks.
Over a five-year period, the 2020 MTBPS outlined ways to cut the public sector wage bill and state-owned company investment in order to narrow the budget deficit and stabilize the debt-to-GDP ratio. Through 202324, the Treasury plans to save about $1.8 billion on the wage bill, which is the primary source of the fiscal imbalance. The move has already increased the likelihood of widespread strikes among the 1.3 million public employees. Demands for government-guaranteed debt to support increased levels of capital investment will also be resisted. This might force South African Airways to declare bankruptcy and force Eskom to implement cost-based pricing, which would be efficient but unpopular. South Africa’s government pledged to investing in public utilities by 2020, with significant private sector engagement. South Africa’s gross international reserves rose marginally from $52.4 billion at the end of March 2020, enough to cover 6.9 months of imports, to $53.8 billion at the end of November 2020, enough to cover 8.3 months of imports. This improvement is primarily due to foreign borrowings received on behalf of the government from multilateral banks, especially the African Development Bank, in order to deal with the pandemic problem.
Will South Africa ever be considered developed?
Despite its richness of commodities and natural resources, as well as tremendous advances in the fields of industry and manufacturing, South Africa remains on the list of developing countries.