Business Maverick

Business Maverick

Business sees long and hard road for SA’s economic recovery

It’s time to cut a proper deal to grow the economy, say the writers. (Illustrative image | Source: Gallo Images / Bloomberg / Waldo Swiegers)

Business for SA has warned that the country’s economic recovery could take two years or longer because the economy was already weak at the start of 2020 and before the highly contagious virus was imported. 

The recovery of SA’s fragile economy will be a long and hard slog once the Covid-19 pandemic has either stabilised or run its course.

It will take a minimum of two years for SA’s economy to recover to levels seen before the start of the Covid-19 related lockdown in March 2020, the latest modelling exercise by Business for SA (B4SA) has shown. 

B4SA is made up of Business Unity SA and the Black Business Council and was formed to support the government’s health and economic response to the Covid-19 crisis.

B4SA has warned that the recovery of SA’s economy could take longer than two years because the domestic economy was already weak at the start of 2020 – a period before the highly contagious virus was imported into the country.  

At the time, economists were worried about low business and investor confidence, the government’s inertia over the implementation of structural reforms, and sustained power cuts that would hobble economic growth.  Despite these worrying threats to the economy, SA’s gross domestic product (GDP) was expected to grow between 1% and 2% in 2020. But adding the Covid-19 pandemic to the mix, B4SA believes that GDP will contract between 8% to 10% in 2020. 

B4SA’s projection dwarfs those made recently by the SA Reserve Bank, which has forecasted a 7.3% contraction in GDP and Moody’s Investors Service’s 6.5%, which was proffered before the start of the lockdown. 

B4SA’s GDP forecast is in line with the 8% contraction projected by the International Monetary Fund, which has thrown SA a $4.3-billion (about R70-billion) emergency loan to mitigate the social, health and economic effects of the Covid-19 pandemic. As the economy and business activity slow down, B4SA also expects further job losses of about 1.5-million by the end of 2020. 

“Economic modelling suggests that a one percentage point increase/decrease in real GDP growth leads to a near equal percentage point increase/decrease in employment,” said Martin Kingston, head of the economic workgroup for B4SA. 

The umbrella business body has set out a strategy for SA’s economic recovery, which largely focuses on the implementation of structural reforms including securing an affordable electricity supply, freeing up more digital spectrum, expanding investments in ports, rail, water, and housing investments. Other steps include the government paying small and medium-sized businesses on time, a problem that often results in the collapse of businesses. 

The rise in Covid-19 infections 

B4SA expects the Covid-19 infection rate to “have a long tail-off” and “for the virus to remain a reality of daily life for up to two more years.”

Based on the latest statistical modelling, B4SA said it expects that the national Covid-19 infection rate in SA will peak during August 2020, with daily death numbers peaking by late-August or early September. 

“The Western Cape has turned the corner with lower confirmed case numbers and slowly declining mortality figures. The load on the hospital system in the province has also adjusted to manageable levels. 

“The overall projections for the country may still shift depending on the degree to which the infection rate evolves in Gauteng, currently the epicentre of the infection, and the Eastern Cape and KwaZulu-Natal where rising infection rates remain a concern.” DM/BM

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