BUSINESS MAVERICK

Business coalition expects SA’s economy to contract by up to 10% in 2020 due to Covid-19

By Ray Mahlaka 14 April 2020
Caption
Business Unity South Africa vice president Martin Kingston. (Photo: Gallo Images / Foto24 / Craig Nieuwenhuizen)

Martin Kingston, the man tasked with drafting economic interventions to deal with the fallout of Covid-19 at B4SA, says there will be a downturn in GDP of between 8% and 10% depending on the extent of the lockdown.

Martin Kingston, the man tasked with drafting economic interventions to deal with the fallout of Covid-19 at B4SA, says there will be a downturn in GDP of between 8% and 10% depending on the extent of the lockdown.

A coalition of business organisations dealing with the coronavirus outbreak has warned that South Africa’s lockdown could see the economy contract by as much as 10% in 2020 and add a million people to the ranks of the country’s unemployed.

The economic contraction forecast by the coalition called Business for SA (B4SA), is the most pessimistic so far. The SA Reserve Bank and financial institutions such as BNP Paribas have pencilled in a 4% contraction in 2020.
Martin Kingston, who is tasked with drafting economic interventions to deal with the fallout of Covid-19 at B4SA, says there will be a downturn in GDP of between 8% and 10% depending on the extent of the lockdown. This is because many sectors of the economy are not productive during the lockdown, which began on 27 March and was recently extended by President Cyril Ramaphosa for an additional two weeks to the end of April.

“Before Covid-19, the economy was already weak. We see a significant contraction in the economy, with a big number of people being unemployed due to the lockdown and recent credit rating downgrades,” says Kingston.
Capital flow into the country will be restricted for the balance of 2020, he says, as trading with other countries has been limited during the lockdown.

Kingston was speaking on Tuesday 14 April during a media briefing about the interventions – spanning health, labour and support measures for the economy – that B4SA will be introducing to support the government’s fight against the pandemic.

It’s widely predicted that SA’s unemployment crisis (official rate of 29.1% during the fourth quarter of 2019), is expected to worsen.

“We think over a million people in a base case will likely be added to the unemployed ranks,” says Kingston. By the official count, about 6.7-million people were unemployed in SA during the fourth quarter of 2019 and by the expanded definition (including discouraged job seekers) more than 10 million people were unemployed.

He adds that the forecasts on the economic contraction and joblessness numbers have not been finalised as B4SA is still working on its economic data modelling, which will incorporate 50 sectors of the economy.

SA’s public finances are also expected to deteriorate further, with B4SA expecting the budget deficit to reach 10% of GDP for the 2020 fiscal year as the economic interventions to contain the spread of Covid-19 will likely cut government revenue.

The projected deficit by B4SA is markedly higher than the 6.8% of GDP budgeted in February by the government and is closer to the largest deficit recorded in SA’s history of 11.6% in 1914.

Lifting the lockdown – partially or fully – doesn’t seem to be in the offing. Kingston says there are on-going evaluations with the Presidency and National Treasury on which sectors of the economy can be opened to reboot the economy.

Supporting health and economic interventions

 

For now, B4SA has endorsed several economic interventions such as targeting the Unemployment Insurance Fund as the main mechanism through which income support will be provided to employees, either temporarily or permanently laid off; and putting in place a universal basic income grant scheme to support low-income households during the lockdown.

Kingston says B4SA is in discussions with the government and SA Reserve Bank to inject further liquidity into the banking system. “Economic recovery will be in 2021 but a large stimulus will be required. We are in discussions with the National Treasury on the appropriate structures,” he says.

On the health front, B4SA is working on procuring Personal Protective Equipment (PPE) – such as gloves, masks, full bodysuits, and others – for frontline health and essential services workers. “PPE levels in the country are not at optimum levels. We have four weeks of stock currently and we need to plug the gap in the next four to eight weeks,” says Stavros Nicolaou, an executive of Aspen Pharmacare and member of B4SA’s health working group.
Nicolaou says B4SA has recently procured PPE worth R400-million mainly from China, whose Covid-19 “crisis has de-escalated”. “We have a pipeline of R360-million [of PPE purchases], bringing the total to R760-million that we will be procuring in the next four to six weeks.”

Some 200 ventilators will also be sourced. BM

 

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