The year 2020 will be remembered as one of unprecedented uncertainty, and 2021 looks set to not buck its predecessor’s trend. Prof Raymond Parsons from the Business School at the North-West University (NWU) looks ahead at what the new year will hold for the South African economy and consumers alike. This is the first part of a series of articles.
As the world and South Africa continue to struggle with the seismic impact of the Covid-19 pandemic and with renewed surges in Covid-19 cases, social tensions are surging and severe socioeconomic consequences abound.
“Throughout this process, some countries have fared better than others, and there have been winners and losers. Yet serious mistakes were inevitably made and painful lessons have been learned about a virus that has created enormous challenges for policymakers all over the world. It is clear that, in the face of the recent renewed surges in the pandemic, Covid-19 exit strategies are, more than ever, 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,” says Prof Parsons.
He furthers warns that South Africans should continue to batten down the hatches, as the storm is far from over. South Africa needs strong nerves in 2021.
“For many other countries the original shock of Covid-19 early in 2020 interrupted a positive growth cycle. However, the South African economy was already extremely vulnerable when the pandemic hit. South Africa fell into the small group of emerging economies whose weak economic conditions would be severely tested in exceptional circumstances. ‘When the tide goes out,’ prominent financier Warren Buffet once said, ‘you see who has been swimming naked.’ An initial drastic and prolonged lockdown aggravated the very troubling conditions such as recession, unemployment, low business confidence, delivery problems, junk status and corruption that had been prevalent in South Africa even before the advent of Covid-19. The economic devastation showed up vividly in high-frequency data and in very negative growth and employment trends as the year progressed. The existing fault lines of unemployment, poverty and inequality in South Africa were therefore simply reinforced by the subsequent developments triggered by Covid-19,” Prof Parsons explains.
Although the government did its best to stem the resulting tide, damage was inevitable and, in some instances, irreversible.
Prof Parsons says that, against this backdrop, the government was not inactive on the economic front, nor was the SARB slow initially in cutting interest rates and avoiding a liquidity crunch. On the public finances side, available fiscal space was already extremely constrained amid escalating public debt and serious warnings of a looming sovereign debt crisis. Welcome temporary economic support measures such as the distribution of an economic “package” in April, a supplementary budget in June and the MTBPS in October could in any event only partially offset the overall contractionary impact of Covid-19 on the economy. Economic damage has still been widespread – some of it irreversible.
“Small businesses have been particularly vulnerable, while business liquidations are now 24% higher than a year ago and about two million jobs were lost in 2020. In effect, just as South Africa was running out of time and money, Covid-19 burst onto the scene and, unsurprisingly, economic uncertainty rose, confidence plummeted and the country’s economic performance deteriorated further as the year unfolded,” says Prof Parsons.
However, as the lockdown in South Africa progressively eased, the seeds for recovery were sown.