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The gradual opening of industries such as mining, fishing, some call centers and emergency repairs will help save some jobs in the country, but will not wave a magic wand at economic growth, analysts say.
Last week, Nkosazana Dlamini-Zuma announced that the National Command Council had decided in the second phase of South Africa’s closure that some industries could operate at limited capacity, while the oil refineries and coal mines supplying Eskom and oil companies can increase. 100% production capacity. Export products that were already in the country’s ports before closing can now also be shipped.
On Tuesday, President Cyril Ramaphosa also promised to address South Africa on Thursday on how exactly this gradual reopening approach would work and possibly announce which industries would be allowed to resume operations next. The government is opting for a “risk-adjusted” approach, balancing economic needs with the need to curb the spread of the virus.
Relaxation of some rules was widely expected, as President Cyril Ramaphosa told the nation as the closing period extended that the government would assess how the country can “embark on a gradual recovery of the risk-adjusted economy” by allowing some sectors re-operate under controlled conditions. Business associations, including the South African Chamber of Commerce and Industry (Sacci), had already begun pressing the government to consider a phased return to business.
“Obviously any part of the economy that we can safely launch will help, but to be honest it probably won’t make much of a difference,” said PwC chief economist Lullu Krugel.
Krugel said that while the blockade had a severe impact on the local economy, it is not to blame, and even if all industries were to resume operating tomorrow, the trail of destruction of the coronavirus (Covid-19) would remain.
South Africa faced Covid-19 already limping. The economy fell into a technical recession in the second half of 2019, after contracting 1.4% in the fourth quarter after a 0.8% contraction in the third quarter. The SA Reserve Bank now expects GDP to decline 6.1% in 2020, while other observers expect the contraction to be double-digit.
“The full effect of Covid-19 on the global economy, our trading partners and everything is culminating,” said Krugel.
More industries are expected to open
Krugel added that he expects the government to continue to announce other industries that can safely return to production over the next two weeks as new information and data on new infections become available.
Dlamini-Zuma said during Thursday’s briefing that the government would facilitate the blockade in an “orderly and incremental” manner. “We are probably going to announce every week what areas are opening,” he said.
But Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, says that even as more industries begin to resume trading, consumers have been rocked by predictions of global recession and job losses locally. So while businesses will open, the economy will not immediately commit to the changes necessary to recover.
“I think the least talked about element is the psychological impact. I think people will be more reluctant to go out and spend even if they can now,” he said.
Mthombeni said that while the 200-basis-point interest rate cut last month aims to dampen the economy against that hurt consumer confidence, and will definitely add a stimulus to the economy, they will all tread carefully on spending.
A solid recovery plan is needed
Ramaphosa announced a R500 billion Covid-19 stimulus package on Tuesday night, the biggest stimulus the government has injected into the economy.
The president took his time after last week’s Cabinet meeting to announce the stimulus that Krugel said was understandable due to the various contributions from different parties that the Cabinet had to consider in developing the recovery plan.
Following the announcement of the stimulus, Business for South Africa (B4SA), which is made up primarily of private sector leaders, said the president was able to carefully balance the allocation between aid for social stress and stimulate the economy. However, to allow the economy to regenerate, a radical economic transformation must take place and the creation of this new economy that Rampahosa promised in his speech on Tuesday.
The Undoing Tax Abuse organization said that because the international aid grants and loans that the government plans to use to raise most of the R500 billion offer of temporary relief, there must be a long-term plan that clearly shows how South Africa It intends to expand the tax base by creating a more dynamic economy, rather than increasing taxes on an overloaded tax base.
