South African economy in ICU: How do we get out of it?

The South African economy is in dire need of resuscitation. A development economist from the North-West University (NWU) says that not since World War II have the local and global economies been affected in such a devastating way as by the impact of Covid-19.

According to Prof Danie Meyer, director of the TRADE research focus area at the NWU, all continents and regions of the world have been severely negatively affected. He says the road to recovery is expected to be long.

“Table 1 contains a summary of the economic growth performance of the main economies of the world and trade partners of South Africa for Quarter 2 of 2020, compared to the same quarter in 2019. The extent of the destruction of economies is clearly to be seen in the table.”

Prof Meyer says the BRICS countries – with the exception of China – have been really badly affected, and the pandemic has been a huge setback for these countries in their quest to eradicate poverty and inequality.

“The positive growth rate in China is interesting, and it should be questioned if the results can be trusted. The G7 group of countries had an average decline of 11,9% in growth on an annual basis.”

Table 1: Summary of economic growth rates of main economies in Quarter 2, 2020 (Quarter 2, 2019 to Quarter 2, 2020)

Country/region

Economic growth rate

Country/region

Economic growth rate

Australia

-6,3%

Poland

-7,9%

Brazil

-11,4%

UK

-21,7%

China

+3,2%

US

-9,1%

India

-23,5%

EU (27 countries)

-14,2%

Japan

-10,0%

G7 countries

-11,9%

Source: OECD, 2020.

Prof Meyer says with regard to South Africa, Statistics SA released the GDP results for the second quarter of 2020 on 8 September. “As was expected, the country’s economy has been decimated by the total and prolonged lockdown imposed by the government. The results indicate the biggest contraction of the economy on record.”

He says data indicates that South Africa has had four negative growth quarters in a row now, with Quarter 2 of 2020 achieving a staggering negative growth of -51,0%. “Real GDP values in constant prices adjusted for inflation indicate that in Quarter 2 of 2019, the size of the economy was R3 155 350 million, whereas now, in Quarter 2 of 2020, the value has declined to R2 597 611 million. The size of the South African economy has therefore shrunk to pre-financial crises values in 2007. It should be noted however that the decline in gross domestic Product (GDP) if calculated from Quarter 2 in 2019 to Quarter 2 in 2020 was actually much lower at 17.2%.”

Prof Meyer points out that the agricultural sector was the only sector showing positive growth, while manufacturing declined by 74,9%. Domestic consumer spending decreased by -49,8% quarter to quarter. Local investment was down by -59,9% on a quarter-to-quarter basis.

“A major structural problem in the economy is the size of the government sector which is now the largest of the economic sectors. The question can now be asked: how do we pick up the pieces and rebuild the economy?” Prof Meyer suggests the following solutions:

  • A good start may be to have an economic development plan with a five-year detailed strategy with specific projects for implementation.
  • Policy uncertainty should be reduced to facilitate investment.
  • Electricity supply should be improved.
  • A bottom-up approach from local to national should be followed. If all local regions have positive growth, the national economy will display positive growth.

For more information, contact Prof Danie Meyer at 082 850 5656 or daniel.meyer@nwu.ac.za.

Submitted by BELINDA BANTHAM on Tue, 09/08/2020 - 17:44