Economists are growing increasingly concerned about South Africa’s economy. This is because the country’s three major macroeconomic problems – lacklustre economic growth, growing inflation and very high unemployment – have been exacerbated by a series of major disruptions.
These include the COVID Pandemic. It started as a medical crisis, but quickly escalated to become an economic crisis. Millions lost their jobs when economic activity stopped under lockdown.
In the middle the pandemic violence that lasted for eight days in Kwa-Zulu Natal, and Gauteng, a flurry of violence erupted. Further pressure has been piled on by Russia’s invasion of Ukraine which is pushing up food prices.
The most recent blow has been devastating floods in some parts of the country that caused loss of lives and massive destruction of infrastructure, including to the country’s biggest port in Durban.
These events have impacted an already fragile economic system. Since 2009, South Africa’s economy has been at the receiving end. Since then, it has never seen the same economic growth levels as before the 2007/2008 global downturn (financial crises). According to some reports, the crisis led to job losses in the amount of about 1 million. A decline in commodities demand resulting from changes to commodity prices led to a decrease in economic growth.
Slow-paced investment further contributed to the continued economic stagnation. Other factors contributing to economic stagnation were restrictive macroeconomic policy and budgetary cuts.
Prior to the pandemic South Africa had entered into a technical recession – when an economy experiences economic decline in two successive quarters. The quarter three decline in Gross Domestic Product was 0.6%, while the quarter four drop in GDP growth was -1.4%. The trend of low GDP growth continued and became worse after COVID-19 was introduced.
The causes of disruptions
The pandemic South Africa’s economy became more depressed during the pandemic because production in most sectors came to a halt due to hard lockdowns imposed in an effort to curb the spread of the virus. Many businesses closed temporarily and others permanently. Millions of South Africans lost their jobs as a result.
The violence:Businesses, shops, warehouses, and other buildings were set on fire in KwaZulu-Natal in July 2021. The economic disruption, which lasted eight days, is estimated to have cost more than R50billion and almost doubled the GDP. 2 million jobs.
The floodsThe most recent heavy rains major infrastructural damages were caused in Durban and other parts of the Eastern Cape. Some sectors were also affected by the disruption. even forced some businesses to shut-down. Many businesses were rebuilding after they were destroyed in the July 2021 civil unrest. This resulted in job losses and further increased unemployment.
The Ukraine warBoth Russia and Ukraine have the same name big players in global food markets, there is a shortage of wheat, maize and sunflower oil. The war will result in slower growth and increased inflation. South Africa is no exception as prices of food items such as oil and grain shoot up.
Inflationary pressures can also be triggered by an increase of fuel and commodities prices. This has led to the South Africa Reserve Bank increasing the repo rate on two consecutive occasions adding an extra pinch to the consumers’ woes.
The obvious question is, is there anything we can do? The answer is yes.
What is possible?
It is evident that since the global financial crises in 2008, South Africa’s economic growth has been on the decline. In particular, the decline in growth has been dramatic with an average rate of growth of 1.7% from 2008 to 2016, and a further decrease to 1% between 2015 and 2016.
This decline in economic growth adversely affected job creation and led to jobless growth. This was evident when South Africa went through a technical recession in 2019. little growth and decreasing levels of employment. Younger people are more affected by this. There is a high demand for work, but a limited or no supply. Because of the economic state and the high cost of doing business, potential employers have limited options for hiring new employees.
Moreover, the consumer’s purchasing power is deteriorating on daily basis due to high prices for food, electricity, interest rates (cost of borrowing) and many more. High inflation, which has been on the rise since 2018, is further compounding this problem. averaged 5.9%. This is the current inflation rate in South Africa.
It is imperative to devise quick economic solutions to address the issues of rising unemployment, rising costs and low economic growth.
South Africa must address the energy crisis first, as it is affecting already hurt businesses. A good place to start is to allow an independent producer of power into the energy market.
The second is the urgent need to increase labour-intensive jobs (in tourism and agriculture). Industrial-based jobs, which have been in decline for many years, must be revived. This type of employment will be more inclusive.
Third, many young people have entrepreneurial ideas. There is therefore a need to have proactive regulations (exemptions), which minimize the barriers that small and medium enterprises face in entering markets that are dominated by large firms.
These interventions can lead to inclusive growth
Additionally, the private sector should be involved in the funding of small and meduim businesses as part social responsibility.
The government must address the issue of rising prices. As an extra intervention, the government should manage the prices for some staple foods. These are often too costly and not affordable for many. While temporary interventions may be possible, long-term intervention is possible.