The effect on GDP of the looting and destruction in KwaZulu-Natal and Gauteng in July could linger over the ensuing six quarters, finance minister Enoch Godongwana said during his first appearance in the National Assembly on Wednesday.
But he cautioned that it was too early to give accurate figures, which would only be revealed in the GDP figures for the third quarter to be released by Stats SA. The Treasury has predicted that the unrest will shave less than one percentage point off GDP in 2021.
Godongwana fielded a number of questions from MPs during a question-and-answer session involving the economic cluster of ministers. These include the ministers of finance; employment and labour; agriculture, land reform & rural development; communications & digital technologies; mineral resources & energy; and forestry, fisheries & the environment.
The questions related to the economic cost of the unrest, policy measures the Treasury will implement in the short to medium term to unlock SA’s economic growth potential and to provide relief to the poor, and measures to be adopted to prevent corruption in procurement by all spheres of government.
Godongwana said the looting and destruction had a crippling effect not just on the economies of KwaZulu-Natal and Gauteng but on the country as a whole and on the Southern African Development Community (Sadc) regional economy.
“It is expected to weigh on GDP growth in an otherwise modest recovering economy. The estimated costs to the economy have widely varied, but the consensus estimate is about R50bn. National Treasury suggests that the unrest could have under a one percent point [decline] from the GDP growth in 2021. These impacts could be lasting as the cost of the unrest on unemployment and sentiment could persist beyond 2021.
“This view is also reflected in the literature, which estimates that economic impacts of unrest episodes linger, with GDP potential trending 0.2 percentage points below the pre-shock unrest levels for at least six quarters after the event.
“Business sentiment has been negatively affected, translating into a stall in investment activity and affecting the competitiveness of the SA economy. Value and supply chains have been disrupted in key sectors,” Godongwana said.
“SA’s risk premium, which has been trending downwards between March and June 2021, is likely to increase as a result of the unrest. Longer-term borrowing costs represented by government bond yields have also remained elevated. Taken together, the unrest presents an untimely and negative shock to SA’s growth prospects.”
He firmly rejected the argument by EFF MP Floyd Shivambu that the Treasury’s fiscal policies amounted to austerity, noting that R100bn would not have been allocated to infrastructure over the next three years if this was the case. He added in reply to another question that the government was probing the policy of localisation and why it had failed.
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