The South African economy post COVID-19’S wrath
After President Cyril Ramaphosa announced that the mandatory wearing of masks had been lifted, South Africans took their first breath of the normality they once knew. However, not only did people fall victim to COVID-19’s wrath, but the South African economy also took a heavy beating. This article will shed light on some of the weaknesses of our crumbling economy and where we stand today. South Africa faces three major macroeconomic problems: sluggish economic growth, growing inflation, and high unemployment.
The pandemic exposed the structural weakness in the local job market. Many small, medium and micro enterprises (SMMEs) suffered from a shortage of supplies and lost stock and equipment during the lockdown, forcing millions of people to lose their jobs. Many studies revealed that job losses in COVID-19 times are disproportionally concentrated among low-income earners. Low-wage workers suffered almost four times more job losses than high-wage earners.
This is worsening the already severe inequalities faced by South Africans. Before the pandemic, around 20%of our population was below the poverty line. It was estimated that after the pandemic and other factors such as the 2021 July looting and floods in KZN and wildfires in the Cape, a further 3 million people could fall below that line. This pushed the unemployment rate from 29.1% in 2020 to 34.5% as of the first quarter of 2022. Mzansi’s youth suffer the most, with 63,9% of individuals between the ages of 15-24 and 42,1% of those aged between 25 -34 years being jobless. The World Bank argues that if South Africa can increase its self-employment rate, which currently sits at 10%, to a level around other developing economies like Turkey, which currently sits at 30%, then it could reduce its unemployment rate by half.
With global supply chain disruptions, backlogs, and forced production reduction due to the lockdown, many businesses are under severe logistical stress in managing stock. This has caused food insecurity and an increase in the cost of living. Items such as fuel increased by 32.5%, electricity increased by 14.4%, and meat increased by 9.4% in the past year. With these drastic increases, the middle to lower-income earners struggles to put enough money together to feed their families for the month. Further pressure has been piled on by the ongoing Russian invasion of Ukraine, pushing food and oil prices up. However, trade treaties were signed by the two nations in July to allow the grain and other scarce food sources to leave Ukraine.
Read our article on the Russia-Ukraine War and see how it affects you.
The supply constraints and increased demand, especially for local goods, have put immense inflationary pressure on the economy. The SARB reduced the repo rate to a historical 3.50% pa during the midst of the pandemic was a necessary move for survival. “However, the massive drop-off in demand for goods and services due to lockdowns, social distancing measures, job losses and curtailed discretionary spending have outweighed these supply constraints, driving down inflation.” Explains Itumeleng Merafe, Head of Interest Rate Structuring at Investec. The SARB must balance keeping interest rates low to encourage spending while controlling inflation. Economists urge the government to keep the economy open to international trade and promote entrepreneurship.
South Africa is set for a few bumpy years as the economy finds the best-case scenario to manage the initial shocks caused by the COVID-19 pandemic. The message is loud and clear for the youth of Mzansi. They need to work on self-employment, which will stimulate economic growth and reduce the unemployment rate while navigating the harsh business climates of a struggling developing economy. No one said the journey would be easy.
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