THEBE MABANGA
THE DEVASTATING impact of the Coronavirus pandemic has finally been laid bare: the South African economy had R913 billion wiped of its nominal GDP in the second quarter of this year while the economy was in lockdown.
At the same time 2.2 million South Africans lost their jobs and four out of ten young people are not in employment, education or training, presenting a future risk for social instability.
These are some of the grim findings contained in the South African Reserve Bank’s Quarterly Bulletin and Statistics South Africa’s Quarterly Labour Force Survey, both released on Tuesday by Risenga Maluleke, Statistician-General and Head of Stats SA.
The South African economy was in dire straits even before the COVID-19 pandemic struck, but the measures required to stop its spread, including the national lockdown, have proven a final nail in the coffin.
The Quarterly Bulletin showed that the economy suffered in every conceivable measure when it went into total shutdown at the end of March and has had restrictions gradually eased in phases but is yet to be fully reopened.
GDP fell by 16.4 % in the second quarter compared to the first and fell by a staggering 51% on a seasonally adjusted annualised basis compared to a year earlier.
All industries showed a decline, except agriculture, which benefited from being an essential service of food production as well as good weather.
“The significant contraction in real economic activity in the second quarter of 2020 was also prominent in nominal terms, with a quarter-to-quarter seasonally adjusted, but not annualised, decrease of 17.5%, which represented a R913 billion decline in the level of nominal GDP. On a seasonally adjusted and annualised basis, nominal GDP contracted by 53.7% in the second quarter of 2020.”
The Reserve Bank further notes that consumption spending by households in the second quarter fell by 49.8% due to the national lockdown.
Spending on durable goods fell by 72% while spending on semi durable goods fell by 87.8%.
This is because most items were not deemed essential in the early part of the lockdown and has their sales prohibited.
An important measure of an economy’s future growth prospects is its Gross Fixed Capital Formation, or the rate at which a country’s public and private companies invests in capital equipment and infrastructure.
South Africa’s Gross Fixed Capital Formation fell by 59.9 % in the Second Quarter, the largest quarterly contraction on record after drastic declines in the preceding two quarters.
Capital spending by private business enterprises fell by 62.4% while spending by public corporations, or SOEs, such as Eskom and Transnet who were operational through the lockdown, fell by 81.4%. Capital spending by government fell by only 0.2%, probably because the state had to procure capital equipment for the construction of field hospital and other healthcare facilities to combat COVID-19.
The Bank says reduced spending on transport equipment was especially pronounced as new vehicle sales plummeted to an all-time low in April, with dealerships not allowed to operate under level 5 of the lockdown restrictions.
“In addition, infrastructure projects were delayed and interrupted by inaccessible project sites and restrictions on the use of essential amenities such as transport during the lockdown.”
While Gross Fixed Capital Formation is an important driver of growth, South Africa has not fared too well in this area, just as the country has not done too well in its savings rate.
The contribution of gross fixed capital formation to nominal GDP has declined significantly over time: from 32.1% in 1976, as the apartheid government invested heavily in infrastructure, to 15.2% in 2002, when the country went through a deindustrialisation phase in the 80s and 90s.
GFCF increased to 23.5% in 2008 in the wake of the longest business cycle upswing on record of 43 consecutive quarters of growth, along with average growth of 7.4% per annum in real gross fixed capital formation during the 2000s.
The Bank then notes that the ratio of GFCF fell again to 17.9% in 2019 and further to 16.2% in the second quarter of 2020, with average annual growth in 0.9% since 2010.
“The significant contribution of gross fixed capital formation, as part of the expenditure components, to growth in real GDP waned after the global financial crisis and subtracted from real GDP growth in three of the four years since 2016,” the Bank says.
So, when he gets time off from pulling his latest stunt and delaying tactic at the Zondo Commission, former President Jacob Zuma can defend his record by noting that when he took office, money was taken away from spending on infrastructure in order to fight off the effects of the recession.
He would say that, and not Nkandla or State Capture, is the reason for the worst economic performance on record.
A silver lining in all this grim outlook is that “both headline producer and consumer price inflation moderated to historical lows in May 2020 in the wake of the COVID-19 pandemic, mostly due to a significant decrease in fuel prices as the shutdown of economic activity in most economies supressed the demand for crude oil,” the Reserve Bank says.
Headline CPI inflation has since accelerated from a 16-year low of 2.1% in May 2020 to 3.2% in July.
A statistic that ought to worry all South Africans is that 2.2 million people lost their jobs in the second quarter of 2020, according to Stats SA.
This means that the number of the formally employed fell from 16.3 million in the first quarter to 14.1 million In the second quarter.
This is the largest quarterly decline in employment since the Quarterly Labour Force Survey has been compiled since 2008.
“In what can only be described as surprising, Stats SA today released labour numbers showing that the unemployment rate declined… The statistics body does however caution against making strict comparisons to previous quarters because of data collection limitations,” said Nedbank in a research note.
The data collection limitation is that the survey is usually compiled in face to face interviews, but this time had to be telephonically due to COVID-19, which restricted access to household without landline telephones or invalid numbers.
The surprising element is that the number of unemployed fell by 2.8 million from 7 million to 4.3 million but that is not because people found jobs, it is only because companies were closed, and job seekers were restricted in movement.
This led to the labour force shrinking by 5 million people, from 23.4 million to 18.4 million.
This then translates to the growth in non-economically active people, for reasons other than being discouraged, such as students and the idle growing by 5 million as well.
This change in size and composition of the labour force led to the official unemployment rate technically falling from 30.1% in the first quarter of this year to 23.3% in the second quarter.
The unemployment rate according to the expanded definition of unemployment increased by 2.3 percentage points to 42 % in the second quarter of this year compared to the first.
The number of discouraged work-seekers decreased by 447 000, again a surprise as it means some people started looking for work as soon as lockdown restrictions eased.
The fact is five million more adults of working age, the 2.2 million who lost jobs and the 2.8 million unemployed who “disappeared”, will now require support from the Unemployment Insurance Fund (UIF) and then grants if they cannot find alternative employment.
Over the first two quarters, unemployment fell across all ten industries, with the largest decline recorded in Community and social services, which fell by 515 000, followed by Trade which shed 373 000, Private households , including domestic workers, at 311 000, Finance (283 000), Construction (278 000) and Manufacturing (250 000).
“The latest labour figures make forecasting future employment figures challenging because doing so would require knowledge of how many of the non-economically active (for reasons other than discouragement) group would once again enter the labour force,” says Nedbank.
“The numbers however also signal how difficult the economic recovery will be, with so many having completely just dropped out of the labour force.”
The Green Bank say that chances of a V-shaped recovery, or a quick bounce back, “are probably out of reach and the South African economy will need some form of further stimulus.”
To the dismay of many, Nedbank then points out that “the Reserve Bank, by keeping rates on the hold, have signalled that they have done as much as they can for the recovery, therefore other more structural changes will have to take place to put the South African economy a better footing.”
This for a Bank sitting on a 3.5 % rate cut cushion, no threat of inflation and some R 700 billion in reserves.
“The advance and deepening of the second radical phase of our democratic transition is required to achieve an economic and social development turnaround,” the South African Communist Party said in a statement.
“Therefore, structural and systemic transformation of our economy is the way forward, as opposed to neoliberal economic reforms.”
The SACP does not offer examples of structural and systemic transformation.
For example, would successfully restructuring Eskom, lowering its debt and split it into three divisions and make it efficient represent structural and systemic transformation or would that be neo liberal economic reforms?
Finally, the Quarterly Bulletin reflected that South Africa has entered a period of high indebtedness, even before its formal approach to the International Monetary Fund and New Development Bank.
“The preliminary non-financial public sector borrowing requirement of R160 billion in the first quarter of fiscal 2020/21 (April–June 2020) far exceeded the R62.9 billion recorded in the same period of the previous fiscal year,” the Bank says.
This could be due to the deficit in revenue and spending across government COVID-19.
“The response to COVID-19 was also evident in the change from a social security fund cash surplus in the first quarter of fiscal 2019/20 to a sizeable deficit in the first quarter of fiscal 2020/21.”
This is probably in part due to spending on COVID-19 relief grant.
State Owned Enterprises also drew significantly on borrowings, probably to finance their own COVID-19 mitigation measures.
(COMPILED BY INSIDE POLITICS STAFF)
