Latest News Editor's Choice

Business / Economy

South Africa's economy has been crushed by COVID but could be on the mend

by Staff writer
21 Jul 2020 at 21:06hrs | Views
South Africa's economy is forecast to drop by a robust 7.2% in 2020 which would be the worst performance in nearly 90 years. The pandemic has spread throughout the region generate a devastating toll on commerce. In late June, and emergency budget was delivered by the Finance Minister Tito Mboweni following an announcement by the country's statistics body which showed that the South African unemployment rate had increased by 1% to 30.1%, the highest on record. The lockdown has crippled economic growth but there are concerns that reopening will accelerate the spread especially in the Western Cape region.

The Lockdown Crippled the Economy

What appears clear is that there is a desperate need for monetary policy and fiscal stimulus to help economies heal from the devastating toll of COVID-19. To help avoid the spread of COVID throughout the country, the South African government mandated the strictest lockdowns in the world. During the peak of the lockdown, the government mandated that there was almost no outdoor movement and a very strict shelter in place was created even banning the sale of cigarettes and alcohol. The lockdown was very effective initially, but it has taken its toll on economic activity.

The country is now in the process of reopening in phases. The issue of reopening South Africa appears to be a contentious one, with more than 40% of the South African population living below the poverty line. Most of the poor population are employed by factories and production lines shut down due to the coronavirus outbreak. Unfortunately, with the help of the government, these people are at risk of hunger without an income.

At the beginning of June, the mining sector and manufacturing businesses were allowed to return to standard production, and people were allowed to move around outside to go to work, shopping, and worship. The ban on alcohol sales was also lifted. The most populous areas were also the hardest-hit regions. The Western Cape province, which includes Cape Town, accounted for approximately 60% of all coronavirus cases, with over 47,000 infections. By mid-June South Africa had a total of 83,890 confirmed cases of coronavirus, with a total death toll of 1,737.

The upshot is that the lockdown has halted job creation. The National Treasury forecasts that the impact of the virus and resulting lockdown period could lead to job losses of between 690,000 and 1.79 million in the country.

South Africa has lost at least 40% of job opportunities in the year 2020, to date. In July, there are plans to re-open restaurants for sit-down meals which is expected to give a boost to the South African hospitality industry. Compared to the beginning of 2020, job openings are down approximately 16%-20%.

There is a silver lining. There had been a very large increase in remote working positions in South Africa. The number of COVID-19-related positions had also increased by over 200% since April. Opportunities to work remotely for those who have the skills has been a shift to a new normal. This is not related specifically to South Africa but more of a global phenomenon. Those will the skills and the means to work at home, including programmers as well as analysts, have been able to find new work opportunities. The ability to use products like Zoom, Teams and Slack has made working at home more efficient and has created a new normal for those who have access to WIFI and cellular services. It has also increased share trading in different spots around the globe as many people are now looking to the markets to make money.

The Need for Stimulus

President Cyril Ramaphosa was lauded for the lockdown as it likely saved thousands of lives.  Despite a rapid rise in cases, Ramaphosa pushed to continue to ease lockdown restrictions in mid-June to help revive the South African economy. The focus for the President was the fiscal stimulus which would help to spend and hopefully help South African's weather the storm. Mboweni proposed spending an additional $1.9 billion for COVID-19 related healthcare. South Africa is looking for support outside its borders. It has asked global financial institutions including the World Bank and the International Monetary Fund to raise at least $7 billion for funds that are needed to support its economy.

The Rand Has Generated Volatility

The South African Rand has experienced a wild ride during the spread of COVID. After tumbling nearly 35% from the begging of 2020 to the lows seen in March and early April, the currency has strengthened as the dollar has lost steam. This has allowed Rand to claw back approximately 10% of the losses experienced in 2020.

Source - Byo24News