“The average South African is worse off now than five years ago.”
Durban – Unemployment is expected to worsen and already cash-strapped consumers will have to dig deeper into their pockets as South Africa’s economy went into a recession for the second time in two years. According to Statistics SA, load shedding was the number one factor attributed to the 1.4% decline in the economy.
Billions of rand were lost to the economy last year after Eskom implemented countrywide rolling blackouts.
President Cyril Ramaphosa said it would take the country a while to get out of the recession, and that in addition to load shedding there were a number of reasons for the recession. “The poor growth figures for the last quarter are not pleasing, but at the same time they have not come as a shock or surprise to us. The signs were there,” said Ramaphosa.
He said load shedding had affected production in the manufacturing and trade sectors, while agriculture had slumped because of the drought. He added they were fixing Eskom and once split into three units, the power utility would be back on its feet. State-owned entities must be re-purposed for growth in the country, said Ramaphosa.
Experts warned that the recession would result in South Africans getting poorer, unemployment soaring and the government would have less revenue to assist those on social welfare grants. Efficient Group economist Dawie Roodt said food and fuel prices would not soar immediately. However, “In a household where there are two breadwinners, it could mean that one of them could lose their job,” he said.
Roodt said the reality was that the economy was not producing enough wealth to sustain itself. “The average South African is worse off now than five years ago. This recession means that the economy is so slow (and) that people are getting poorer. The rich don’t want to invest their money here so they leave, and that exacerbates the situation for whoever is left behind, and that’s the poor,” Roodt said.
“Everything is working against the South African economy right now, and the worst part is that we have politicians who think they have a grip on it all. There has been nothing tangible from the Presidency, which means there is no political leadership,” he said.
Neil Roets, the chief executive of Debt Rescue, said there was no doubt that Moody’s would cut the country’s sovereign debt rating to junk status in a few weeks, making it that much more expensive for both the government and consumers to borrow money.
Roets warned that 2020 was going to be a tough year and that consumers who had difficulty making ends meet in 2019 were going to find it much harder in the new year.
The chief executive of the Pietermaritzburg and Midlands Chamber of Business, Melanie Veness, said the recession would affect businesses across the board.
She said that some confidence-building, policy certainty and an end to load shedding coupled with proactive decision-making by the government could alleviate the deficit and would go a long way to improving the outlook for businesses.
The Durban Chamber of Commerce and Industry (DCCI) said the latest GDP results indicated the need for urgent socio-economic reforms to reverse this trend.
DCCI president Nigel Ward said that during a recession, the most significant risk to most small businesses was access to finance to continue or to expand operations.
“Since most small businesses do not have major cash reserves or substantial capital assets to leverage, acquiring additional financing for ongoing operational requirements is a necessity.
“Sadly, in the short to medium term, we expect that the majority of funding institutions will adopt an increasingly risk-averse stance. During tough economic periods such as these, businesses can also expect lower demand, resulting in lower revenue,” Ward said.
He added that they believed this would be a challenging period for all businesses, with small businesses facing the steepest uphill climb.
However, he said, the official declaration of a recession may also present an opportunity for small businesses to introduce initiatives that improved and promoted business efficiency in order to ensure operations were sustained and survival was not threatened.
Ward also expressed concern about the negative growth in the transport, communication and manufacturing sectors.
Durban is home to some of the country’s largest manufacturers, and KwaZulu-Natal’s economy is extremely reliant on the logistics sector. The lack of demand, therefore, has the potential to threaten the output of the Durban and KZN economy, he said.
“Attracting investment into the province and into Durban will be much more difficult. Investment agencies will need to work twice as hard to sell the city and the province as a preferred investment destination. We believe that an inclusive strategy needs to be developed to reposition KZN.
“In our view, the most urgent strategic action has to be around unlocking the human capital of South Africa, which would unlock the potential of this country. This starts with being strategic about accelerating access to basic skills and investing in education as a whole. We need to engage deeply on improving and increasing our productivity in order to tackle not only continental competition, but to access the global market as well,” Ward said.