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.
Was there a recession in South Africa in 2008?
1South Africa has been severely impacted by the global financial crisis. For the first time in 17 years, the economy entered a recession in 2008/09. In 2009 alone, about a million jobs were eliminated. Although growth has restarted, the recovery is fragile, and another recession is a distinct possibility. Rising unemployment and poverty have put more strain on public resources, even as revenues have decreased, and political pressure is rising on the administration to rethink its economic approach.
2The impact of the global financial crisis on South Africa is examined in this study, with a focus on how the country’s highly centralized federal system absorbed and responded to the crisis. We make two claims: First, the problem has far-reaching political ramifications. The global financial crisis and the ensuing recession have exacerbated the economy’s long-standing structural issues (poverty, unemployment and inequality skewed along racial lines). Political schisms have emerged regarding the country’s best economic policies. In a country where 40% of the working-age population is unemployed and economic inequality is among the highest in the world, the crisis has only added to an already strong feeling of national crisis. Second, the state’s response to the crisis emphasized the country’s fiscal constitution’s highly centralised nature: the national government led the country’s response to the crisis since it has sole responsibility for economic and fiscal policy. The potential for a diverse reaction by various provincial and municipal governments was thus limited because the primary duty of the provincial and local orders was to implement national policy. The national response was to maintain current levels of social spending while also promoting growth and jobs through significant public infrastructure investment. This lessened the impact of the crisis on the provinces and local governments, which are in charge of service delivery, but it also reinforced the federal system’s already strong tendencies toward centralization.
The paper is broken down into three main components. The impact of the financial crisis on the economy and the three levels of government is discussed in section two (the national, provincial and local spheres of government). The third section looks at how each sphere dealt with the problem. Section four examines the influence of their measures on the country’s political economy and the federal government’s operations, before speculating on the global crisis’ long-term consequences.
Was South Africa experiencing a downturn?
According to Maarten Ackerman, chief economist and advisory partner at Citadel, the GDP estimates for the fourth quarter of 2020 have come in stronger than predicted, causing markets to react positively in terms of rand strength and bond yields.
Year-on-year, GDP declined by 4.1 percent, versus a forecast of 4.6 percent, while quarter-on-quarter, annualized growth was robust at 6.3 percent, below a forecast of 5.6 percent.
The yearly result, at -7 percent, was also marginally better than the -7.2 percent anticipated by the National Treasury last month, and much better than the -8 percent to -9 percent range that most commentators expected in the middle of last year.
“Clearly, these data suggest that the recovery persisted in the fourth quarter, in keeping with the economy’s continuing opening up,” Ackerman said.
“Moreover, these data demonstrate the benefit of the global economy opening up, laying the door for stronger growth in 2021.”
To put these figures in context, Ackerman pointed out that South Africa was already in a recession when the pandemic struck, with four quarters of negative growth, resulting in a 7 percent drop the largest in a century.
“These latest numbers show that after a year of economic recession, we have now had our second positive quarter, indicating that we have remained in expansion mode.” As a result, we anticipate excellent results for the balance of the year, especially given the low starting point.
“Despite the fact that our fundamental concerns are mostly unsolved, we should be able to escape a second-dip recession for the time being.”
Imports were higher than exports in the fourth quarter, confirming the 2021 budget statement that South Africa’s current account surplus would be short-lived.
While exports remain strong, South Africa is expected to return to a current account deficit this year, putting pressure on the currency, according to Ackerman.
“It’s heartening to see household spending increase by 7.5 percent, showing that the housing sector is reviving as well.” Gross fixed capital formation also increased by a whopping 12 percent.
“We always stress that we need to see that number flip positive and stay positive in order to set the road for future growth, and if you look at the trajectory, there have been three pretty dismal quarters followed by two very solid quarters currently.”
“This is unquestionably part of the economic recovery, and while we have a long way to go before we return to previous levels, we are on the right track as we create the groundwork for additional infrastructure development.”
According to Ackerman, the government’s 0.7 percent increase, which is largely due to an increase in civil service employment, is an issue because it contradicts the tone and talk of the February Budget Speech, which focused on addressing the public sector wage bill, public sector headcount, and the government’s self-stated commitment to aggressively cut spending.
“Regardless, every time we look at the GDP data, we see that nothing has been done to that effect, and the majority of the growth in government expenses is due to an increase in public sector employment.”
“In terms of expenditures, imports increased by a staggering 52.4 percent, indicating that the economy is coming back to work.”
“We usually run a current account deficit, and last year’s surplus was more of an exception than the rule, thanks to a huge boost in exports when the world economy reopened and a significant drop in imports due to the local economic lockout.”
South Africa also sold products to new markets in Europe, as these countries sought to diversify their economies away from dependency on Asia, according to Ackerman.
“Due to the region’s increased need for citrus and vitamin C in the wake of the epidemic, much of South Africa’s agricultural exports, in particular, moved to Europe.”
“The trade war between Australia and China has given us the opportunity to export more wine and raw materials to the Asian market.”
Only the agriculture and government sectors contributed positively to the economy in 2020, according to Ackerman.
Looking ahead to 2021, he believes that the level 5 lockdown’s dramatic base effect will sustain above-capacity growth this year.
“Despite certain challenges in Q1 2021, such as load shedding and level 3 lockdown limitations in force from December 29, 2020 to March 1, 2021, the first quarter should nonetheless print a solid positive number, clearing the path for the recovery to continue throughout 2021.” As a result, we’re looking at a 3.5 percent growth rate in 2021.”
“Unfortunately, most of that is coming through as a base impact,” he said, “so we shouldn’t get too thrilled about this number because it won’t be sustainable.”
In three years, that number will revert to around 1.6 percent, as the minister also stated in his Budget Speech. And, regrettably, this isn’t enough to address our systemic difficulties, according to Ackerman.
“It’s hard to think I’m still repeating the same thing, but there’s still a lot of reform work to be done in order to achieve growth rates north of 3% on a long-term basis.” Some small measures have been taken, which will hopefully lead to larger steps toward the kind of growth that this country requires in the years ahead.
“Many of the reforms and infrastructure plans that have been handled so far will take time to trickle through the economy it doesn’t happen overnight or over quarters, and we won’t see the benefits of these decisions for several years.”
“We must thus be patient and recognize that these initiatives will only be reflected in data in years to come and only if we stay on track.”
When did the 2020 recession begin?
According to the official documenter of economic cycles, the Covid-19 recession is one of the darkest but also the shortest in US history. The decline lasted only two months, according to the National Bureau of Economic Research, from February 2020 to April 2020.
What caused the global recessions of 2008 and 2009?
- The Great Recession refers to the global financial crisis that occurred in 2008-2009.
- It all started with the housing market bubble, which was fueled by an overabundance of mortgage-backed securities (MBS) that packaged high-risk loans together.
- Reckless lending resulted in an unprecedented number of defaulted loans; when the losses were added up, several financial institutions failed, necessitating a government rescue.
- The American Recovering and Reinvestment Act of 2009 was enacted to help the economy recover.
What triggered the financial crisis of 2008?
Years of ultra-low interest rates and lax lending rules drove a home price bubble in the United States and internationally, sowing the seeds of the financial crisis. It began with with intentions, as it always does.
When was the last recession in South Africa?
“The recovery is now losing steam, and a recurrence of Covid-19 could necessitate more stringent containment measures. Until vaccines are widely available, we foresee only a limited comeback.”
A Bloomberg poll of 14 economists found that the median forecast for increased output was 54.4 percent. The rand rose as much as 0.8 percent against the dollar to 15.0331, its highest level since February.
It could take at least five years to get back to pre-Covid levels “On the condition that we stick to changes,” Thabi Leoka, an independent economist, said over the phone. She claims that, unlike after the 2008-09 crisis, when South Africa’s economy was bolstered by strong global growth, the government can no longer rely on a linear worldwide recovery to boost GDP.
GDP shrank by 7.9% in the nine months leading up to September, compared to the same period last year. That’s the clearest indicator of how much the economy would contract for the entire year, and it’s in line with government and central bank estimates.
According to Hugo Pienaar, chief economist at the Stellenbosch-based Bureau for Economic Research, a reappearance of the epidemic in South Africa is one of the biggest downside risks to growth next year. According to him, the conclusion of the temporary Covid-19 support measures means the economy would be substantially less robust in the fourth quarter and the first three months of 2021.
Household expenditure, which accounts for around 60% of GDP, climbed by 69.5 percent on an annualized basis from the second quarter. Investment increased by 26.5 percent, as measured by gross fixed capital formation.
Globally, increased coronavirus cases have impacted some of South Africa’s most important commercial partners and sources of tourism revenue, while an increase in infections at home could result in some restrictions being reimposed. This would make it more difficult to reduce the official unemployment rate, which rose to a 17-year high in the third quarter, boost revenue collection, and reduce the government’s large budget deficit and rising debt.
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.
Is there a recession in South Africa in 2022?
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.
Did Covid cause the downturn?
The COVID-19 pandemic has triggered a global economic recession known as the COVID-19 recession. In most nations, the recession began in February 2020.
The COVID-19 lockdowns and other safeguards implemented in early 2020 threw the world economy into crisis after a year of global economic downturn that saw stagnation in economic growth and consumer activity. Every advanced economy has slid into recession within seven months.
The 2020 stock market crash, which saw major indices plunge 20 to 30 percent in late February and March, was the first big harbinger of recession. Recovery began in early April 2020, and by late 2020, many market indexes had recovered or even established new highs.
Many countries had particularly high and rapid rises in unemployment during the recession. More than 10 million jobless cases have been submitted in the United States by October 2020, causing state-funded unemployment insurance computer systems and processes to become overwhelmed. In April 2020, the United Nations anticipated that worldwide unemployment would eliminate 6.7 percent of working hours in the second quarter of 2020, equating to 195 million full-time employees. Unemployment was predicted to reach around 10% in some countries, with higher unemployment rates in countries that were more badly affected by the pandemic. Remittances were also affected, worsening COVID-19 pandemic-related famines in developing countries.
In compared to the previous decade, the recession and the associated 2020 RussiaSaudi Arabia oil price war resulted in a decline in oil prices, the collapse of tourism, the hospitality business, and the energy industry, and a decrease in consumer activity. The worldwide energy crisis of 20212022 was fueled by a global rise in demand as the world emerged from the early stages of the pandemic’s early recession, mainly due to strong energy demand in Asia. Reactions to the buildup of the Russo-Ukrainian War, culminating in the Russian invasion of Ukraine in 2022, aggravated the situation.