The widely expected and welcome decision announced by President Cyril Ramaphosa to move South Africa’s lockdown down to Level 2 is good news for the country, says NWU Business School economist Prof Raymond Parsons.
According to him, the prolonged lockdown since March has had a devastating economic impact on incomes and livelihoods.
“Level 2 brings long overdue relief to many distressed businesses and households, and helps people to imagine an economy eventually returning to a ‘new normal’.”
A healthy economy and a healthy society remain interdependent, but a difficult road lies ahead. There are whirlpools on either side – not on one side only ‒ and health protocols remain essential.
The phasing out of the Covid-19 lockdown remains a complex process of balancing trade-offs, handling fears and maintaining trust ‒ all on the basis of shifting evidence and imperfect information, but with profound economic implications.
From the outset, the daily public health updates on the progress of the coronavirus in South Africa should have been supplemented by, say, weekly assessments by Stats SA or the National Treasury on the economic impact of the lockdown. This would have made for more balanced, coherent, credible and timely decisions on the lockdown exit strategy as the situation unfolded.
Prof Parsons adds that we should not underestimate the enormous damage done to the economy by the lockdown over the past few months.
“Unlike many other countries that were experiencing positive growth rates when Covid-19 struck earlier in the year, South Africa was already in a recession. The general economic malaise was then aggravated by the severe lockdown restrictions and the recession deepened ‒ with its concomitant widespread business failures and job losses. Despite the gradual relaxation of the lockdown rules, many businesses have closed, never to reopen.”
While the lifting of restrictions on the sale of alcohol and tobacco and interprovincial travel is to be welcomed, it will take some time for the economy to recover, perhaps up to two years.
At present the economic outlook is that South Africa’s GDP will contract by between 8% and 10% in 2020. If the economy’s basic resilience now comes to the fore as the remaining lockdown restrictions are steadily removed and we start to contemplate life after Covid-19, a positive GDP growth rate of between 2% and 3% is possible in 2021. South Africa must not expect an immediate resumption of pre-lockdown levels of business activity as the country starts to recover economically.
The overall rate of recovery in the short term depends on the strength of any revival in the world economy, on whether the economic support measures announced so far by the South African government can be more effectively implemented, and on the pace at which the remaining features of the lockdown, such as the curfew, will be phased out.
Deep uncertainties remain about the ability of the South African economy to emerge from the crisis reasonably intact, and therefore business and consumer confidence now need to be restored. But hopes of economic activity in South Africa gradually normalising in the period ahead could be dashed if load-shedding continues to disrupt daily life and cut a swathe through the productive business sector.
The latest reassurance from President Ramaphosa that corruption will be dealt with harshly is very important for South Africa’s future economic performance. However, the looting of Covid-19 funds is symptomatic of a much deeper malaise in the economy. Policies and projects that are undermined by corruption do little to attract investors, who need to be assured that tender procedures will be consistent, fair and transparent at all levels of government, including in key state-owned enterprises. Corruption perverts official decision-making, weakens competitive processes and discourages legitimate business.
Clearly, how well countries fare after Covid-19 will be determined by how quickly their economies recover from their respective lockdowns. In South Africa’s case, as the negative effects of Covid-19 gradually recede, the new economic recovery plan now promised by the government needs to embody the pro-growth structural reforms needed to put the economy onto a sustainable, job-rich growth path post-Covid-19.
With the country now moving to Level 2 of the lockdown, a golden opportunity has presented itself to revitalise South Africa’s moribund economy and get people back to work sooner rather than later, reinforced by the necessary economic reforms.
