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A glimmer on the horizon for SA’s economy

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By Tim Cohen
02 Jan 2022 2

Tim Cohen is editor of Business Maverick. He is a business and political journalist and commentator of more years than he likes to admit. His freelance work has included contributions to the Wall Street Journal and the Financial Times, but he spent most of his life working for Business Day. After a mid-life crisis that didn't include the traditional fast car, Cohen now lives in the middle of nowhere in the Karoo.

The Year of our Lord 2021 has been a grinding year. The startling impact of the Covid-19 crisis that was dominant in 2020 infected 2021 like – there is no other word for it – a virus. The crisis lasted longer and was more debilitating than almost anyone expected, mutating into successive waves that washed over us in 2021.

So here we stand at the end of 2021 at the end of yet another wave. It’s just exhausting. When will this all finally conclude? When will normality ever return? These questions pervade our sense of being like an icy wind; invading us, surrounding us.

During this whole period, the pounding, overriding theme can be summarised in a single word: vulnerability. Everything from our physical beings to our economic health has been under sustained attack. Yet our situation is not entirely as gloomy as it might seem because 2021 also brought one major change over 2020: vaccines.

Think of what the global vaccination effort implies: technological innovation, a sense of a global humanity, taking the initiative, moving from defence to offence. Beyond the national bickering, notwithstanding the dreadful vaccine inequality, the dawn of a new year coincides with a tantalising possibility: Covid-19 is now on the run. And unlike almost every other global calamity, the solution was a consequence of human endeavour rather than merely human perseverance.

In this contradiction between calamity and innovation is the key to what the future holds.

For South Africa, the coronavirus pandemic had consequences that, in many ways, were entirely foreseeable; it drew out and writ large SA’s economic and political weaknesses. Entering the crisis weak, SA’s decade of decline suddenly came home to roost with a rude bump.

The consequences of years of corrupt and dysfunctional government were laid bare for all to see.

The outstanding statistic of 2021 was SA’s third-quarter unemployment rate; unemployment hit a new record high of 34.9%, while under the expanded definition, which includes discouraged jobseekers, the rate rose 2.2 percentage points to a shocking 46.6%.

This means almost half of the economically active population has no job. SA’s jobless rate has never been higher. And the youth unemployment rate is now 66.5% under the narrower definition, which is surely a recipe for social and political unrest.

Looking over a longer spectrum, this now means that, since the beginning of 2020, formal sector jobs have declined from 16.4-million to 14.2-million. Averaged out, that means SA is losing jobs at the rate of 100,000 a month.

And the two key political events of 2021 derive immediately from that brutal fact: first, the result of the local government elections, in which for the first time the ANC fell below a plurality of the vote.

And the second was the widespread looting that happened in July, in which more than 300 people were killed and damage worth about R500-billion was sustained.

How does a country bounce back from this? The year 2022 could answer that question. After the gritty year of 2021, searching for points of light is a difficult affair, and yet there are some.

The economic malaise was offset by commodity price rises around the world, which resulted in the mining sector having a stunning year, and the knock-on effect was that government revenue increased faster than expected.

It’s so quaint now to look at the budget expectation in February 2020, when real GDP was expected to grow at a modest 0.9%. Try minus 6.6%. At that point, growth in 2021 was expected at 3.1%. Try growth of 5% if we are lucky. That means SA’s economy declined on average over the past two years yet again.

Without growth, inflation has understandably been tame, but that too is changing.

Levels of global debt are now verging on the extreme, following the aggressive response to the pandemic. In the G20, fiscal packages are estimated at more than $10-trillion. No one questions the humanitarian and economic need, but the reckoning is coming, and that is visible in rising inflation around the world.

SA is no exception here; at the start of the year, debt was about 63% of GDP, and that was anticipated to grow to 81.8% of GDP. In the event, SA was saved by the commodity boom and a rebasing of its GDP. By the end of the year, the debt to GDP ratio was projected to end the year at around 70%. Still, this means debt repayments now constitute more than 20% of national revenue.

Out of that gloomy context, the South African phoenix must rise from the ashes and soar aloft. Right? Sadly, that is not what is going to happen, but with luck and good judgment, things might get a little better.

The SA government has over the past 10 years consistently over-estimated economic growth, but 2021 broke that trend. At the start of the year, growth was expected to come in at 3.1% and, in fact, it seems likely it will come in just above 5%.

After this rollercoaster ride, what can we expect for 2022?

The omens don’t look terrible. The vaccine effect expected in 2021 that we have seen in developed countries is not complete in developing countries, so it seems safe to expect some “normalisation bounce”. There is some doubt whether the strength of commodity prices will decline more than they have in 2021, but generally they remain robust – at least for the time being.

Like all calamities, the coronavirus pandemic has changed the way we live, and more pertinently the way we work. More work is happening outside the office than ever before, this we know.

But inside our iconoclastic isolation, the world is more international than ever before. The connection with the rest of the world is tighter now and the desire – necessity even – for innovation is now stamped indelibly on everything we touch.

We may not see the benefits of this change in approach, there may be dangers we cannot now see, but we are now changed in ways we might not be able to immediately recognise. To fully recognise the changes, we truly need new year. So bring it on. DM168

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