This time last year SA was in the throes of the second wave of the pandemic. It destroyed our summer tourism season and devastated large parts of the hospitality sector. Luckily, the effect of the omicron variant has been much milder and the government’s reaction, in rapidly loosening lockdown restrictions at the end of December, has minimised the economic fallout.
Now, with health experts tentatively suggesting that future Covid-19 variants are likely to be milder and milder, the big question is whether 2022 will mark the end of the pandemic, allowing economies to fully open up again.
Though the arrival of a more pathogenic variant remains a key risk, the emerging consensus among economists is that Covid-19 will be less of a drag on economies in 2022 as the world adjusts to living with the virus and vaccine uptake rises, either voluntarily or through enforced mandates.
This means 2022 should be the first proper year of economic normalisation after the onset of the pandemic. Countries around the world, including SA, will begin to unwind the ultrasupportive fiscal and monetary policies that have buoyed them through the Covid-19 era.
As such, global growth is set to cool amid rising interest rates. The biggest risk globally is that mounting inflation proves persistent, forcing central banks to hike interest rates more aggressively than anticipated. This could choke off some of the nascent global recovery.
Unfortunately, non-oil commodity exporters such as SA will bear the brunt of the expected fall-off in global demand since it means a softening of commodity prices — and at a time when global financial conditions are set to become more onerous.
This would represent a double whammy for SA. In 2021, we used the R120bn revenue overrun created by the commodity boom to paper over our fiscal cracks and hide our structural weaknesses. In 2022, there will be no place to hide. SA will have to stand on its own two feet as the global climate turns less supportive.
If the government had used the last two years to accelerate the pace of structural reform, SA would be able to face 2022 on a far sounder footing. Instead, the country’s structural pillars look shaky.
Sure, the first decisive step was taken in 2021 to end the energy crisis, but there has been scant movement on many other reforms. These include finalising the spectrum auction, easing visa policies to attract scarce skills, cutting red tape, liberalising Transnet to improve port and rail efficiencies, and kick-starting a major infrastructure programme.
SA’s structural rigidities, made worse by the July unrest, are depressing business confidence and investment. Until SA takes bolder reform measures, growth and employment will not pick up.
However, with the ANC elective conference at the end of the year and heightened pushback from the radical economic transformation faction against reformers such as the president, progress is likely to remain hard-won.
What this means is that persistent energy and logistical constraints, coupled with political noise, are likely to continue to depress business confidence, preventing a rebound in fixed investment this year. (SA’s fixed investment ratio dropped to a dismal 13% in 2021. Fast-growing countries typically have a ratio of 25% or higher.) At the same time, high rates of joblessness and rising interest rates will keep a lid on consumer spending.
The bottom line is that SA will be lucky to grow at 2% in 2022 — a sharp slowdown from the 5% rebound it is likely to have achieved in 2021. By contrast, average consensus forecasts remain robust at 3.9% for developed countries and 5% for emerging markets.
There are grounds to hope that 2022 will mark the end of the pandemic, but if a nastier Covid-19 variant emerges, all countries will be sent back to the starting blocks with their buffers utterly depleted.
In SA’s case, even if Covid-19 becomes less of a drag, the country is likely to remain a global laggard until it makes decisive progress against the internal structural and political forces that are holding it back.
• Bisseker is a Financial Mail assistant editor.
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