Michele du Plessis
The Covid-19 pandemic, followed by the unprecedented restrictions of lockdown in an attempt to protect public health, led to a sharp reduction in the local economy. As a result of the pandemic, governments worldwide increased public health spending, introduced restrictions on local businesses to curb the spread of the Covid-19 virus and took steps to lessen the economic effects of lockdown on households and businesses. Wage subsidies, income support, tax relief, lower interest rates and favourable loan schemes were introduced to support businesses. Unfortunately, many businesses failed as a direct result of the lockdown restrictions and the unemployment figures in South Africa increased.
The recent unrest experienced in KwaZulu-Natal and Gauteng during the second week of July exacerbated the state of the already fragile economy with the trail of destruction left in its wake. The looting and destruction of property and goods cost our country many millions of Rands, the loss of many jobs and the collapse of many small businesses. “Many retail shops were closed, interprovincial transport ground to a halt; diverse places of work were unable to open as normal, and citizens (afraid for their safety) stayed at home.”
PwC’s Economic Outlook document of 13 July 2021 estimated that 50 000 jobs were put at risk. “As South Africa struggles with deeper poverty, unemployment and inequality following last year’s recession, social unrest is a real concern. The Euler Hermes Social Risk Index (SRI) 2020 ranked South Africa 79th out of 102 countries (i.e. in the bottom 25%) – identifying the country as having a ‘significant to high systemic social risk.” PwC publications highlights improved consumer confidence in the economy, increased spending on durable goods and media and entertainment, as well as intentions to spend on hospitality (hotels and restaurants).
Key content in this edition of PwC’s publication includes:
• PwC’s June 2021 Global Consumer Insights Pulse Survey found that 41% of South Africans were optimistic about the economy – up from 36% in March. South African consumers are expected to spend 9.8% more on digital media and entertainment this year alongside an increase in stay-at-home activity. “This will be supported by a projected 1.9% increase in employment: Our forecasts suggest that South Africa will recover 290,000 jobs this year.”
• South Africans have significantly increased heir spending on durable household goods and many retailers expect this to continue in the months ahead. Statistics South Africa (Stats SA) previously reported that local shoppers spent R14.8 billion on household furniture, appliances and equipment during the January to April period. This expenditure was on average 18.9% youth to youth higher during the first quarter, PwC’s Economic Outlook stated.
• Over the next six months, more South Africans intend to eat out and travel locally Over the next six months, more South Africans are likely to travel on a domestic flight (42% in June versus 39% in March) and stay in a hotel (37% versus 33%) or self catering accommodation (52% versus 45%) compared to the results of the first survey.
• It’s expect for the South African economy to grow by 2.3% this year. This number could have been closer to 4.6% were it not for the negative impact of electricity load-shedding. In 2020, South Africa experienced 859 hours of load-shedding. According to PwC calculations, this cost the country an estimated R75 bn in lost GDP and an additional 450,000 in job losses. Put differently, last year’s 7.0% decline in real GDP could have been limited to around 4.7% were it not for Eskom power delivery failures.
• With inflation at comfortable levels and economic growth under pressure, the South African Reserve Bank (SARB) is unlikely to change interest rates this year. According to the PwC’s Economic Outlook, Superb News “the country is expected to be back at lockdown level 1 by September under our baseline scenario as the third wave passes – thought we are also vigilant about the risk of a fourth (less severe) wave over the December holidays. Combined with other considerations, this outlook would result in an economic growth of 2.3% this year”. The estimate is 1.4 percentage points lower than what we published a month ago.
The key factors behind this big change are
1) The move to lockdown level 4 which was not previously envisaged,
2) A slower anticipated easing of postpeak restrictions as winter moves to spring, and
3) The impact of recent unrest on regional business activity.
