South Africa will face a strict 21-day lockdown at midnight on Thursday due to COVID-19 outbreak. However, how has the COVID-19 impacted the South Africa economy?
26 March, 2020 | AtoZ Markets – There are more than 2,400 confirmed cases of coronavirus in Africa. The pandemic will pose significant problems for the continent’s under-resourced health services. World Health Organization officials have said that the statistics are likely to underestimate the actual number of cases. So far, 60 deaths have been reported.
About a third of the recorded cases in South Africa, increase overnight. The country’s health minister, Zweli Mkhize, said Wednesday that the number of cases of coronavirus had reached 709, against 554 the day before.
President Cyril Ramaphosa said that the virus was a national disaster. The country imposed travel bans on people who have recently visited eight of the most affected countries. They are the United States, the United Kingdom, China, Spain, Italy, Iran, South Korea and Germany. However, the restriction was extended to Switzerland and France on Tuesday and visas that have already been issued had been revoked.
Ramaphosa has also closed schools and 35 land ports across the country and has banned public gatherings. The government has declared that it will consider imposing a state of emergency if these restrictions do not have the desired effect.
South African will face a strict 21-day lockdown at midnight on, to avoid a “major disaster,” said President Cyril Ramaphosa. Locking the borders will confine all workers, except essential workers, to their homes, although travel for shopping or treatment is allowed. All restaurants, fast food outlets, pubs, bars and taverns will be closed, and the transport of alcohol will be prohibited.
How Is Coronavirus Affecting the Economy of South Africa?
South Africa emerged from the 2008 global financial crisis in a strong position thanks to robust the growth of economy and a budget surplus during the downturn. A rapid deterioration in public finances over the past decade means that the opposite is likely after the coronavirus pandemic. Johann Els, the chief economist at Old Mutual Investment Group, said:
“We are starting this crisis in a much worse position than the one in which we started the global financial crisis. During this period, we also started with much stronger economic growth. Now we are starting from a position of less than 1% growth in average gross domestic product per year over the past six years.”
The restrictions, combined with a slowdown in global production, could cause the South African economy to contract by 0.5% this year. It is according to the median estimate of 20 economists in a Bloomberg survey.
South Africa posted a budget surplus – the first since the end of the white minority rule – in the two years before the financial crisis. This has given the government leeway to stimulate the economy. Today it faces the biggest deficit in 28 years – and that was projected before it even took into account the virus.
Last month, the National Treasury predicted that the gap would likely widen to 6.8% of a gross domestic product during the fiscal year until March 2021.
Public debt has doubled in the past decade and may reach 78% of GDP in fiscal 2028 due to a series of bailouts from struggling public enterprises. It includes Eskom Holdings SOC Ltd and South African Airways. The government has pledged to end the deterioration in public finances and has declared that it will adjust spending plans to finance the fight against coronavirus.
Lockdown Poses Threat to Small Businesses
Restrictions related to the virus pose a significant threat to small businesses, which account for almost 40% of economic activity. A prolonged lockdown could worsen the situation in a country where more than a third of the workforce is unemployed. The unemployment rate has remained above 20% for at least two decades, largely due to insufficient economic growth.
The economy must grow more than 5% per year to significantly stimulate job creation, according to the government’s national development plan.
The National Treasury has not yet announced whether the government will support the affected businesses and households. Ramaphosa (President of South Africa) was “firm, clear and decisive,” said Fani Titi, the chief executive officer of Investec, in an interview. “Where we’ve been slower is trying to support the economy.”
South Africa’s Silence on the Economy Contrasts
The South African Treasury is subject to severe constraints. Last month, Finance Minister Tito Mboweni proposed sweeping spending cuts to reduce a budget deficit. It expected to hit its highest level in nearly three decades. The bailouts to save the bankrupt state-owned enterprises have led to an increase in debt and jeopardized the country’s latest investment-grade rating. Martin Kingston, vice president of Business Unity South Africa, the largest corporate lobby group said:
“The budget has fundamentally undermined. They cannot reset until they know the trajectory of the epidemic.
The Treasury said that provincial budgets will refocus on fighting the pandemic and that it will implement a set of economic measures. We are unable to give you a date, but soon, “said the Treasury. CEO of Investec, a lender with operations in South Africa and the United Kingdom said:
South Africa could learn from what has done in countries like the United Kingdom. Authorities in there have agreed to guarantee certain loans to companies under pressure.
Cosatu Appeal Commercial Banks to Delay Loan Payments
The Congress of South African Trade Unions (Cosatu) has asked commercial banks to delay loan payments for up to three months. He also wants lenders to reduce interest rates on mortgages by more than one percent, as did the Reserve Bank. Matthew Parks, the group’s parliamentary coordinator said:
Cosatu also wants state lenders to work with the manager of the government workers’ pension fund and private pension funds to pay the revival of vulnerable sectors.
Peter Attard Montalto, head of capital market research at Intellidex, said:
The state could offer guarantees as the easiest way to support the banks that do the heavy lifting. In reality, we see that the national Treasury offers very little support.
Cas Coovadia, managing director of the Banking Association of South Africa, said:
For now, banks are not even able to meet because competition laws prohibit them from doing so. Until I receive the exemption notice, unfortunately, I will not be able to bring the people around the table together. There has been progress. The notification has drafted, and the minister has spoken to me. I hope that by Monday we will have received the notice and that we can start.
So the government has won praise for the measures. It has put in place to contain the pandemic, fears are mounting about the economic pain to come.
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