Taking stock. One year of pandemic economics

Heinrich Krogman

Before the virus arrived in South Africa the major concern was how Chinese restrictions would affect global markets; trying to figure out which value chains would be affected by the restrictions in Wuhan and how it might spread to Europe and beyond. Soon pandemic jokes turned into serious concern as people stormed grocery stores for toilet paper, non-perishables and grains. Masks became a more common sight, especially at airports as some of the last travel was made in the first quarter of 2020.

By 26 March 2020, the economic pessimism of 2019 could wait, there were much more serious threats on shore, and leaders were faced with unprecedented decisions about how to deal with the health crisis promoted by Covid-19. One year later food is still available, and it turns out no one needed 200 rolls of toilet paper. We have all become accustomed to wearing a mask and the frequent sanitising required. That is not to say that nothing else has changed. South Africa was in a difficult economic position before the pandemic and, as we now know, things got about as bad as we thought it would. Here are a few charts that tracked the impact of the pandemic in 2020.

Real GDP by Quarter, Constant 2010 prices, Rand billion

Source: Statistics South Africa[1]

In terms of real economic output, South Africa is essentially back in 2012/13. However, the structure of the economy has shifted slightly further towards the tertiary sector compared to 2013. The Manufacturing, Mining and quarrying, and Construction sectors’ share of total GDP decreased the most compared to 2013’s economy while the Finance, real estate and business services, and General government services sectors’ share of total GDP picked up the slack. Rather frustratingly all sectors of the economy (save for Mining and quarrying) were on a general upwards trend from 2013 to 2019, albeit at a decreasing rate.

South Africa Sectors by share of GDP 2013 South Africa Sectors by share of GDP 2020

Source: Statistics South Africa[2]

The employment rate also took a sharp turn in 2020. Initially, a large number of people were economically inactive due to lockdown restrictions and employed and unemployed figures too decreased sharply in the second quarter of 2020. As restrictions lifted and more people could return to work, the unemployment figures started to outpace employed figures. In the fourth quarter of 2020 the unemployment and absorption rate for Women were higher than Men whilst the highest rate of unemployment and absorption by population groups were in the Black/African group.

Nominal employment figures, millions

Source: Statistics South Africa[3]

Where output and employment declined, expenditure was also affected. Household expenditure saw a significant decline to a six-year low of R1.85 trillion largely driven by reductions in spending on Restaurants and hotels, Clothing and footwear, and Alcohol beverages, tobacco and narcotics compared to 2019. Gross fixed capital formation also saw a steep decline to R498 billion with all sectors coming off worse than 2019, accompanied by a huge drawdown of inventories. Fortunately, expenditure by general government was steady at R654 billion, while a generous trade surplus saw the current account balance rise to R297 billion in September 2020.

Considering these patterns, the reprioritised R50 billion allocated to social welfare was critical to keep households afloat. Businesses were not as fortunate as the reduction in expenditure meant that loans were a significant risk. This was reflected in the low uptake of the Covid-19 Loan Guarantee Scheme.

Given the massive stimulus packages from the US, China, EU, UK and Japan, one of the main concerns following the economic downturn of the pandemic is a rapid rise in inflation, something which South Africa might have a different challenge with as y/y CPI continues to come in at the bottom end of the target range while inflation for certain products seem to be rapidly increasing.

As fiscal measures are used to support households and businesses, bond buyers have their pick of the litter, albeit potentially with more risk sensitive. While South Africa’s long-term bonds have maintained their yield during 2020 (with some notable swings) yields have been rising over the last month signalling a downturn in demand.

For the economy to get back on track, government expenditure needs to be focused on increasing productivity (which means investment in physical capital) while ensuring political and fiscal stability that will continue to attract private sector investments. This is not an impossible task as there is a lot of liquidity in the global market, but investors will be watching carefully how South Africa’s recovery efforts play out, starting with the successes and failures of the Covid-19 vaccination plan.


[1] http://www.statssa.gov.za/?page_id=1854&PPN=P0441&SCH=72708

[2] http://www.statssa.gov.za/?page_id=1854&PPN=P0441&SCH=72708

[3] http://www.statssa.gov.za/?page_id=1854&PPN=P0211&SCH=72942


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