The latest economic data highlights that both economic growth and employment have not recovered to pre-Covid-19 levels; however, economic recovery should be boosted by government’s announcement to free up electricity generation, Trade and Industrial Policy Strategies’ (TIPS’s) first-quarter Real Economy Bulletin (REB) for 2021 indicates.
The REB represents a deep dive into the latest economic data.
It notes that while the growth in gross domestic product (GDP) of 2.7% during the first quarter of this year – boosted by mining – in “normal” times would have been significant, it was still 2.9% lower than that of the first quarter of 2019.
TIPS notes, as highlighted in previous REBs, that mining (as a result of export prices) continues to boost economic growth, while manufacturing saw a recovery in exports to pre-pandemic levels (only metals refineries lagged behind), as well as in terms of sales (seasonally adjusted).
The authors of the REB caution, however, that such progress could be “undermined by the resurgence of the pandemic, which affects manufacturing primarily through the impact on some kinds of consumer demand, especially food and alcohol prepared for restaurants, and through the pressure of absenteeism as workers have to quarantine or isolate”.
The automotive sector, which is the country’s largest manufactured export outside of the mining value chain, recovered both in terms of domestic and export sales.
Construction shrank slightly, “which was worrying because it had already shed a disproportionate number of jobs during the pandemic”.
Hospitality (in terms of bars and restaurants) continued to be the hardest hit industry in the economy.
In terms of employment, recovery continues at a slower rate than GDP, with the worst hit being lower-level workers – as was the trend throughout the pandemic.
From the first quarter of this year, the country had recovered almost 800 000 jobs, but total employment was still 8% below the level for the corresponding period last year (or 1.4-million fewer jobs than a year ago).
Formal managers and professionals have now gained jobs compared with the first quarter of 2020, but other workers remain 10% behind pre-pandemic levels.
Government’s announcement that it would urgently increase the National Energy Regulator of South Africa licensing-exemption threshold for embedded generation projects from 1 MW to 100 MW, promising to open up the electricity market to facilitate smaller private generation at a commercial scale, “promises enormous benefits, but also entails some risks”, the REB indicates.
With regard to President Cyril Ramaphosa’s announcement, TIPS senior economist Neva Makgetla notes that the change is “disruptive”, although it should lead fairly quickly to cheaper, more reliable and cleaner energy.
She points out that for companies, worker representatives and policymakers the challenge “will be to maximise the rewards, while managing the inevitable costs and risks attendant on any major change”.
Makgetla highlights five specific policy issues.
Firstly, the permits for embedded electricity have to be fast and easy, as promised.
Secondly, the national grid must have the resources to upgrade to meet the new demands on it, as new small producers enter production.
Thirdly, to take full advantage of the new measures, the metros in Gauteng will have to improve their local grids, especially to serve industrial and commercial sites.
These regions constitute the industrial core of the country, but they have let their electricity supplies deteriorate to the point where they harm the entire economy, Makgetla states.
Fourthly, as Eskom has to compete more on the generation side, it will be harder to ask it to be the supplier of last resort for poor and rural communities.
Currently it directly supplies half of all households and carries substantial debt because many cannot afford to pay for the service, she notes.
Lastly, as Eskom loses market share over the coming years, government is responsible for minimising the burdens on its more vulnerable stakeholders – workers, small suppliers and communities, mostly in Mpumalanga, that depend on coal-fired plants and coal mines, Makgetla highlights.