With South Africans still shell-shocked by the coronavirus-inspired lockdown, now only entering into its second week, a key question is what will be the long-term impact of the pandemic for an already fragile economy. Some of the world’s biggest and most resilient face unemployment levels reminiscent of 1930’s 'Great Depression'; what will be South Africa’s fate?
The United States, the world’s biggest economy, is expected to reach unemployment levels as high as 32% by the middle of the year. This week, its jobless numbers soared to a new record high with 6.6 million Americans filing for unemployment claims, a week after 3.3 million claimed.
While some, like Geoff Jacobs, president of the Cape Chamber of Commerce & Industry, argue that predicting how the SA economy will look once the pandemic is over would be "…just plain guessing", the forecasts point a desperate position for an economy that already fits the definition of a textbook recession – two consecutive quarters of negative growth.
As a result of load shedding, record low business and consumer confidence after what’s been termed the "wasted nine years", the economy has struggled to breach 2% growth for much of the past decade and economists surveyed by Fin24 expect an even deeper recession as a result of pandemic.
FNB expects the SA economy to enter a short but deep recession this year, estimating a contraction of 4.5% y/y for the year – considerably worse than the 1.5% contraction experienced in 2009, during the global financial crisis.
For the second quarter that began just last week, Absa says SA GDP could shrink by as much as 23.5% compared to the first three months.
SA will be particularly hard hit by the impact of the pandemic because structural reforms and "saving or consolidations for a rainy day" had not been implemented, according to Peter Attard Montalto, head of capital markets research at Intellidex.
"The important thing to consider is not the depth the of the crisis now, but the fact that SA is likely to have permanent losses of output - to the order of R300 billion in today's prices - and then permanent steps up in unemployment."
Not only does South Africa sit with the highest inequality in the world, the country also has an unemployment rate at 29.1%, the highest among countries tracked by Bloomberg. Should these forecasts come to pass, the jobless rate is expected to rise significantly higher with Business South Africa expecting a possible loss of some 150 000 jobs a month.
FNB sees unemployment in the country increasing from 29.1% in 2019 to around 31% in 2020. That would make it the highest unemployment rate on record and is commensurate with the unprecedented drop in GDP growth.
SA lost about one million jobs in the global financial crisis of 2008.
Jason Hamilton, guest lecturer in corporate and development finance at the University of Stellenbosch Business School (USB) and director of First River Capital, says the measures now taken and the likely further measures to be implemented or held in place after the 21-day lockdown will see the immediate budget deficit increase from the projected 6.8% of GDP to at least 10% to 12%, adding additional pressure on an already limited budget.
"South Africa is in for a very difficult four- to six-year period," says Hamilton, adding that a full recovery path would be a three-year cycle and not only a few months.
Fiscal woes and IMF temptation
Dr Morne Mostert, director of the Institute for Futures Research at the University of Stellenbosch, believes the avoidance of a loan from the International Monetary Fund is unlikely, "…following which the gravy train, if it is still moving, will come to a grinding halt."
French lender, BNP Paribas, expects National Treasury to revisit its fiscal framework in the coming months with a budget deficit of 9.1% of GDP for FY 2020–21, the base case.
While BNP Paribas does not foresee an imminent IMF programme for SA, it thinks it is possible for the country to approach "external sources" for targeted financing.
Load shedding still lurking
Before the outbreak of Covid-19, the biggest structural impediment to growth in SA was the lack of power, something that will remain after the worst of the pandemic has passed. Adrian Saville, CEO of Cannon Asset Managers, says it is important to realise that load-shedding is not going to go away.
"Even if Eskom’s operational challenges might have been relieved by lockdown, their financial challenges will have been amplified as revenue will have fallen and load-shedding will remain a reality until Eskom's capacity is upgraded."
Futurist Mostert says South Africa’s new normal will include a greater sense of vulnerability in general.
"Closet dictators will aim to exploit the crisis to blame incumbent governments for the fall-out. In this sense, strong-man government may make a comeback, and the rights of citizens may be eroded while the legacy of the crisis lingers."
"With drastic isolation, a new digital elite may emerge which has had unlimited internet access. During this time, the digital elite will have maintained and grown their professional networks, reinvented their supply chains, managed their finances and educated themselves and their families. All while the data-disadvantaged have languished in intensified exclusion," he warns.