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According to the National Treasury projections, a difficult path is found for the SA economy, with job losses that could reach up to seven million as a result of the coronavirus pandemic.
This would bring the country’s record unemployment rate up to 50%.
In a briefing for members of the finance, appropriations and public accounts committees on Thursday, Finance Minister Tito Mboweni and Treasury Director Dondo Mogajane painted a dire picture of the state of the South African economy.
The domestic economy was already straining before Covid-19 hit SA coasts, Mboweni lamented. Downgrades on Fitch, Moody’s and, more recently, S&P ratings have also not helped the situation.
“It is a sad day for me and South Africa. If we are outside the JP Morgan index tomorrow, it is bad news,” Mboweni said of the S&P downgrade, beyond the junk status, which was announced last night.
According to a presentation distributed among members of parliamentary committees, the Treasury projects a contraction in the economy of 6.4%. Various forecasts show that the pandemic will force a slowdown in the economy, followed by a strong recovery in 2021, but that is if we do things right, Mboweni said.
The Treasury has outlined three scenarios that the economy’s recovery path could take after the blockade, but regardless of whether there will be a rapid, slow or prolonged recovery; reductions are inevitable.
If the virus can be contained quickly and if the economy can recover, job losses will reach just under three million. A slow recovery period will see more than five million job losses. And in the worst case, where it will take longer to contain the pandemic, followed by a slower economic recovery, more than seven million jobs will be lost. This will push the unemployment rate to more than 50%.
During the last global recession in 2008-09, SA lost one million jobs.
Treasury projections show that the manufacturing, construction, trade, catering and accommodation, and financial and business services sectors will be hit hardest. Wage and salary shocks would also be greater for less educated workers.
Economic stop
“The fact is that the blockade had stopped economic activity,” said Mboweni. This has had implications for tax revenue collection, which will add pressure to public spending. Mboweni said tax revenue could decrease by almost a third (32%).
The only way to close the gap is to borrow more and prioritize spending, which has ensured that the Treasury presents a tight budget much earlier this year, rather than October. Mboweni said the government will seek to eliminate “bells and whistles” and focus on what it takes to continue operating. It did not rule out the sale of state companies. “I cannot promise that there will be no sales from state companies. There will be sales from public companies that malfunction,” he said.
The government is still in talks, but has not yet completed a $ 4.2 billion installation for Covid-19 support from the International Monetary Fund. “I understand that no conditions will be imposed,” Mboweni said. The country is also finalizing a $ 1 billion loan from the New Development Bank. The government is still in talks with the World Bank to secure the support of $ 50 million.
Prioritizing health
Although the economy is hitting, Mogajane noted that health interventions must be prioritized. The government follows a three-phase approach over the next 18 months.
The first phase, which is expected to last six months, will focus on increasing health spending, supporting vulnerable households and providing fiscal support to accompany monetary policy measures, as well as the conclusion of the blockade.
The second phase focuses on recovery, which would include a continuous health response, as well as an economic focus on supporting employment and investment.
The final phase or pivot phase will focus on positioning the economy for further growth.
Starting Friday, more companies in sectors such as manufacturing, construction and retail will be able to restart operations, while adhering to certain health and safety measures.
Overall, business organizations such as Business Unity South Africa (BUSA), the Black Business Council (BBC) and the South African Chamber of Commerce and Industry (SACCI) agreed that the government was moving in the right direction by reviving parts of the economy, while still being aware of the health crisis.
“We see this as a work in progress,” said BUSA CEO Cas Coovadia. He said BUSA would continue to collaborate with the government to open more sectors at level four.
BBC President Sandile Zungu said that while prioritizing public health and saving human lives is important, companies also have a death rate. “Some companies, especially small ones, will not be able to open after closing because owners may not have the resources and reserves to help them restart. We have to think about the long-term survival of companies in SA,” he said. The government’s risk-adjusted approach to reopening sectors was welcome, but warned that companies cannot remain closed for long, he warned.
Alan Mukoki, CEO of SACCI, said that while some parts of the economy will reopen, the government needs to improve test rates. SACCI has presented to the government that before any employee returns to work, they will be tested for Covid-19. Currently, the government only requires workplaces to screen employees for symptoms. However, the virus can be transmitted by those who are asymptomatic.
Mukoki said the tests will ensure that we don’t have to go back and forth between Covid-19 transmission risk levels. “It will be much more devastating for the economy. We cannot stop and start production cycles,” he said. “We cannot do pandemic mitigation without mitigating the economic collapse. We have to do both … It is neither or it is both.”
