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COVID-19 wrecks plans to reboot ailing SA economy

Eyewitness News logo Eyewitness News 2021-01-01 Theto Mahlakoana
a person holding a sign: FILE: Workers from Hemel en Aarde restaurant in Hermanus take part in the million seats on the streets protest on Wednesday, 22 July 2020. © Supplied. FILE: Workers from Hemel en Aarde restaurant in Hermanus take part in the million seats on the streets protest on Wednesday, 22 July 2020. JOHANNESBURG - Crashing markets, sinking economies, a global financial system in turmoil.

Unfortunately for South Africa, all these events unfolding as a result of the COVID-19 pandemic came amid a series of recessions and declining growth.

This has seen plans implemented over the years to help the economy bounce back gather dust as the recovery and reconstruction plan was put in motion.

The past 20 years have been hellish for the South African economy, with many downturns and gross domestic product forecasts showing contractions while all major sectors declined.

READ: How the stresses and strains on sa’s economy played out in Parliament

However, through it all, financial markets had not suffered major losses until the COVID-19 pandemic, which has had wide-ranging severe impacts on stocks, bonds and commodities.

Markets specialist Peter Brooke explained the depth of the crash: "So, in a way, that tells you how strong the COVID-19 impact was because it drove everything, in all different asset classes, so it was the overwhelming story or theme for the year."

Government officials did not fold their hands either.

Treasury and the SA Reserve Bank (Sarb) went on overdrive, working out solutions to the crisis which if left unabated, would have seen the economy sink even deeper.

WATCH: All the ups and downs the Budget Speech 2020

In an extraordinary move, in March the Sarb announced that it would deploy several measures, including quantitative easing, and bought an unspecified amount of government securities or bonds in the secondary market.

Interest rates were also lowered to record proportions as Brookes explained: "We have cut interest rates to the lowest levels since 1973 in South Africa, so that's obviously already a big and important factor. So while we still have lockdown and people can't go about their business, the benefit of that doesn't come through, but next year we should see some benefit from that starting to come through."

Development economist at the University of Stellenbosch Business School, Dr Nthabiseng Moleko, described the economy as reaching desperate times in 2020.

South Africa went into the year with targets of less than a percentage point economic growth and a debt-to-GDP ratio of 60%, which has since ballooned.

ALSO READ: COVID-19 and the SA economy in 2020: ‘We need to close the hippo’s mouth’

Moleko detailed the dire consequences that followed: "What then happened as a result of COVID-19, we saw the massive economic shock of trade and investment levels slumping, we saw economic sectors close 30% to 90% contraction, we saw household wages and also aggregate household demand drop significantly because economic activity could not happen due to lockdown. This effect was merely a shock effect. You must also recall during the year, some of the key things before COVID-19, we also had a downgrade from one of the rating agencies. This continued post-COVID-19."

To make matters worse, as the country battled the health crisis that seeped into every facet of society and life, the ratings agencies also threw down the gauntlet.

Having been downgraded in past years, the economy was this year rated at sub-investment grade or junk status, meaning that even the loans acquired from international bodies would be costlier than usual.

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Moleko said that this, coupled with the increase in inequality and unemployment, spelled disaster.

"COVID-19 has contracted sub-sectors of the economy severely, we have seen the R304 billion contraction in terms of the projected revenue collection. This directly impacts the ability of the state to roll out social programmes, but also how is the state trying to use alternative resource mobilisation mechanisms to try to boost economic stimulus packages rather than borrowing from Bretton Woods institutions."

But with indications that some economies globally are already rebounding, Brooke said that there was no reason why the same could not be expected of the South African markets.

Moleko was also of the view that a rebound was still very much on the cards for South Africa.

"South Africa's economy can definitely rebound. We need to put the South African economy on a different growth path. We need to look at alternate ways to grow the economy. We've got to look at reinvesting into the economy, particularly into productive investments, capital into factories, into manufacturing, our gross fixed capital formation is on downward trajectory and we're not seeing reinvestment sufficiently into your productive sectors, so we need to enable that."

While it's hard to predict the future of a pandemic, the specialists have made it clear that the decisions of government and other key players in the economy in the coming months remain integral to how the country fares in 2021.

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