Incessant Load Shedding, Third Wave Of Covid-19 Mar SA Recovery

INCESSANT LOAD SHEDDING, THIRD WAVE OF COVID-19 MAR SA RECOVERY

Just when everything seems to be getting better, then struck a third wave of the COVID-19 in South Africa, an economy already on its knees. This further compounded the existing precarious situation that Africa’s most industrialized economy found itself even before the outbreak of COVID-19.

Pre-COVID-19, energy utility giant, Eskom was struggling with severe operational and financial deficiencies with the resultant power crises reflecting in decline in economic activity in the country. Consequently, the World Bank estimated that the economy grew marginally at 0.8% in 2018 and 0.2% in 2019.

To deal with the recent surge in COVID-19 cases, the Ramaphosa-led government was forced to impose another lockdown in the country. The government has also passed a legislation to make vaccination compulsory in the country. The Department of Labour instructed employers to dismiss employees who failed to take the doses of the vaccines, even though the Trade Union Solidarity said this was against the law.

However, the government’s actions may be justified because COVID-19 continues to inflict severe damages on the SA economy as depicted by the performance of some key macro-economic indicators.

Growth Prospects

Estimates from the World Bank show that the economy contracted by 7% in 2020. This is because the pandemic weighed heavily on both external demand and domestic activity due mainly to the government’s containment measures. The World Bank estimates that about 2 million South Africans could fall into poverty as a result of the severe contraction last year.

Moreover, the World Bank has indicated that the devastating effects of the pandemic will linger through to the end of the first half of the year, especially as power crises resurface. There are hopes that the economy could bounce back this year due to renewed optimism in the global economy.

According to the latest retail trade report published by the Bureau for Economic Research (BER), retailer confidence climbed to a six-year high of 54 in Q2 2021, up from 37 in Q1.

The recent rebound is in line with the World Bank’s growth expectations as the Bank projected SA’s economy to grow 3% in 2021. However, as a major net exporter of minerals and importer of oil, SA’s economic recovery hinges so much on developments in the commodities market which is still shrouded with uncertainty.

According to Statista, services constitute the largest sector of SA’s economy accounting for 61.5% as of 2019. As a result, the recent restrictions could harm the services sector and together with the uncertainties in the commodities market, pose a major risk to the outlook.

speaking_head.png

With South Africa now in the midst of a third wave of the pandemic, other risks also lie ahead for the entire trade sector. The very slow vaccine rollout could see renewed lockdown restrictions to curb the spread of the virus, harming the sector.

The weak labour market, as well as the power supply crisis at Eskom, also do not bode well for the trade sector in general

- The Bureau for Economic Research

Surge In Inflation

Recent data from Statistics South Africa show that annual headline inflation has accelerated to 5.2% in May 2021, up from 4.4% in April. This puts inflation above the South African Reserve Bank’s monetary policy target range of 4.5%. Statistics SA said this is the highest since November 2018 when inflation rose to 5.5 percent.

Rising Youth Unemployment Rates

Another major challenge facing the SA economy is rising joblessness. SA has one of the highest rates of unemployment in the world. According to Stats SA, the unemployment rate in SA currently stands at 43.2% as of the end of Q1 2021.
More worrying is the fact that the youth between the ages of 15 and 34 are the worst victims of unemployment with a rate of 46.3% as at the end of the first quarter of the year. Fresh University Graduates are also not spared as unemployment rate among them was estimated at 9.3%.

south africa unemployment editted

A recent economic outlook by PwC forecasts employment to return to its 2015 level by the end of this year as South Africa is expected to recover 444,710 jobs in 2021. According to PwC, job recovery could have been closer to 650,000 this year but for the adverse impact of electricity load shedding. As a result, it expects unemployment rates to decline to 30% by 2024.

However, attaining this level of unemployment rate will require a growth rate of about 3.5% per annum between 2021 and 2024. For SA to attain this fate, a lot is expected from the Cyril Ramaphosa’s led administration.

Ramaphosa’s View On Youth Unemployment

Gratifying it was to see President Cyril Ramaphosa admit that the greatest challenge facing young people in South Africa is unemployment. According to him, this is “something that has worsened under the COVID-19 pandemic”.

H.E. Ramaphosa stated that the government’s foremost priority is creating more opportunities for young people, and supporting young people to access these opportunities.

Everything that we do as a government contributes towards improving the lives of young people. Tackling youth unemployment requires accelerating economic growth, particularly in labour-intensive sectors, and building the capability of the state to fulfil its developmental role.

Among the interventions for dealing with youth unemployment is the establishment of a National Pathway Management Network, ‘SA Youth’, to make it easier for young people to view and access opportunities and receive active support to find pathways into the labour market. The program is among the priority actions of the Presidential Youth Employment Intervention, launched just before the national lockdown in 2020.

“The Presidential Youth Employment Intervention was built on the understanding that, to address the youth unemployment crisis requires innovative thinking and strong partnerships across society”, the President said.

Revenue Woes To Deepen As Covid-19 Shrinks SA’s Tax Net

COVID-19 has impacted severely on the labor market of the SA economy, mainly through the imposition of restrictions last year. The loss of jobs took many tax payers out of the domain of the government. According to South African Revenue Service (SARS), it expects to have 6.9 million taxpayers in 2021, down substantially from 7.6 million in 2019.

Meanwhile, Professional services firm, PwC, explained that hundreds of thousands of low-skilled workers lost their jobs in 2020 which placed them below the personal income tax threshold. PwC however, noted that the number of high-income workers has remained relatively stable between 2019 and 2021 because higher-skilled workers were less likely to lose their jobs in 2020.

Also, PwC highlighted that only a small percentage of the eligible taxpayers in the country actually honor their tax obligations.

It is estimated that just 25% of those who pay income tax pay 80% of all personal income tax that is collected. Over the past few years, a smaller proportion of taxpayers have become responsible for an increasingly large portion of total personal income tax payable.

1000x 1
H.E. Cyril Ramaphosa, President South Africa

Impacts Of Current Lockdown On Economic Activity

Recently, Professional services firm, PwC published its latest forecast scenarios for South Africa’s lockdown levels, and their likely impact on the economy. The report, published just prior to the country’s move to a level 3 lockdown on Tuesday, June 15, focused on both upside and downside scenarios, and a baseline assumption.

Based on current projections, the country is currently straddling the baseline and downside scenarios with much of the focus on the severity of South Africa’s mid-year wave.

PwC’s economic scenarios for 2021 are strongly influenced by different perspectives about the severity of the third wave of Covid-19 infections. The severity of the mid-year wave, and the accompanying strictness of associated lockdowns, will primarily determine the nature of the economic recovery.

Also, PwC considered the adverse effect of load shedding and the positive impacts of fiscal and monetary stimulus on the economy. The baseline GDP scenario for this year is based on expectations of an adjusted level 3 lockdown (3 lite) in July to help combat the rising third wave of Covid-19 infections.

AP 20132607181938 editted

While a subsequent easing in restrictions is expected as the winter thaws in August and September, South Africa is anticipated to remain in level 1 lockdown from September towards year-end. This scenario sees the economy growing by 3.7% in 2021.The forecast also includes an assumption of continued electricity load shedding akin to the 2020 norm.

The upside scenario sees fewer days of load shedding for the remainder of the year, a less strict lockdown during winter due to vaccination successes, and a complete lockdown exit from September. This would see the economy grow by 5.9% this year.

 

The Minister of Food and Agriculture, Dr. Owusu Afriyie Akoto has appealed to consumers to avoid the panic buying and stocking-up of foods amidst the lockdown directive from the president.

His appeal follows the panic buying and massing up of people at various markets to buy food items in large quantities in preparation for the partial lockdown announced by the president.