SA’s economic plight amid the Covid-19 pandemic and national lockdown has been laid bare with its worst quarterly GDP drop on record, adding to the pressure on President Cyril Ramaphosa to push ahead with long-awaited reforms.
The collapse prompted Ramaphosa to issue a statement on Tuesday afternoon outlining the work being done by the state to promote growth, including its promised economic recovery strategy intended to help the country rebound from the crisis.
Economists said that the quarterly figures should be a wake-up call for Ramaphosa’s administration to implement urgent reforms, without which SA risked intensifying already high inequality and joblessness.
The economy has managed to eke out growth in just three out of the 10 quarters in which Ramaphosa has been president, highlighting the country’s structural weakness, which predated the Covid-19 crisis.
Ramaphosa rose to the presidency in 2018 amid a wave of optimism — referred to then as "Ramaphoria" — that he would revive an economy blighted by stagnant growth and state capture under his predecessor.
The reform agenda has instead been stymied by policy inertia and contestation within the governing ANC over how to manage the economy.
Though the state has launched a R500bn stimulus package to help sustain individuals and businesses through the crisis, some of the programmes have been beset by delays, technical difficulties and widespread allegations of corruption.
The figures show the economy is on track for its worst performance in about a century, with some economists predicting a GDP reduction in double digits, with millions more people pushed into unemployment and poverty.
"Now is the time to act quickly and boldly to place SA on a rapid growth trajectory," Ramaphosa said. "We cannot continue with business as usual.
"We will use this moment of crisis to build a new economy, and unleash SA’s true potential." Though the 51% quarter-on-quarter, seasonally adjusted and annualised contraction was a one-off event, given the pandemic, the bigger concern was the declining trend evident even before the crisis, said Maarten Ackerman, chief economist at wealth manager Citadel.
A fourth successive quarter of declines was already "baked into the numbers", Ackerman told Business Day. Stats SA’s figures are adjusted for seasonality and annualised — which, in essence, assumes the trend continues for the remainder of the year.
If the second-quarter results are not annualised, GDP contracted 16.4%.
This statistical technique "does not work as well when there is something out of the ordinary", said Stats SA deputy director-general for economic statistics Joe de Beer.
As a result, the agency included the nonannualised figure as it was more comparable with those of many of SA’s peer countries that did not annualise their figures, he said.
The outcome still placed pressure on Ramaphosa’s administration and the wider economy, particularly from a fiscal point of view, said Ackerman. Stats SA’s figures showed that spending on areas such as alcoholic drinks and tobacco, as well as on restaurants and hotels, collapsed by 92.4% and 99.9%, respectively.
SA’s lockdown, which has been one of the harshest globally, was also marked by controversy over the banning of the sale of liquor and cigarettes, both of which are important sources of tax revenue for SA’s cash-strapped government.
"Looking ahead, the solution to this economic quagmire is — as it has been for many years — the implementation of key structural reforms to the economy. Top of this list is finding a solution to the country’s electricity security," Lullu Krugel and Christie Viljoen, economists at PwC, wrote in a note.
The return of power cuts by Eskom "will completely cancel out the positive impact created by interest rate cuts" and relief payments under measures by the government to cushion workers, they said.
Next, economists will be looking to finance minister Tito Mboweni’s medium-term budget policy statement scheduled for October, for indications on how the government plans to consolidate expenditure and narrow a budget deficit that is set to come in at about 15% for 2020.
Without urgent reforms to help lift business confidence, SA risked a "self-reinforcing downward spiral" as more businesses, many of whom had barely held on through the crisis, restructured or closed down, leading to greater job losses", said Stanlib chief economist Kevin Lings.
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