While difficult to predict what the South African economy will look like post-Covid-19, Deputy Finance Minister Dr David Masondo has warned that citizens can expect a 6% contraction in economic growth this year, alongside an increased demand on health services and infrastructure.
Speaking during a May 20 webinar hosted by the University of Johannesburg’s Institute for the Future of Knowledge, Masondo lamented that South Africa’s situation was a dire one, even before the health crisis, with companies filing for business rescue as a result of consequent lockdowns to help curb the spread of the virus.
With business rescue proceedings on the rise, this is likely to result in thousands of people being retrenched and becoming unemployed as companies battle the path of bankruptcy.
The challenging environment is further exacerbated by the impact of the virus on government’s ability to generate sufficient revenue.
Masondo indicated that “serious modelling and forecasting” was taking place in government quarters, and that “there is no doubt that we are going to have a huge economic downturn”.
He, however, lamented forecasts that the downturn “would be greater than that of the Great Depression in the 1930s”.
While the Covid-19 pandemic is considered an economic shock, Masondo said this may not become reality, though that would be dependent on what was done moving forward.
“If we pay attention to putting a clear economic plan in place to grow our economy and focus on infrastructure, we should be able to avoid another Great Depression. But this also depends on what the world does, because this is a global crisis,” he noted.
However, one must keep in mind that South Africa has a debt crisis, which exacerbates the country’s economic situation. While in line with global trends, South Africa’s debt exceeds R3-trillion, with yearly interest repayments of about R230-billion.
This issue is worsened by lagging global economic growth, which further diminishes government’s ability to generate revenue.
Masondo suggested that while the reprioritisation of part of expenditure was an option, “it is difficult within the current context” considering that while government needs to lower South Africa’s debt rates, economic stimulus was also a priority – meaning that money needed to be injected into the economy to keep its engines running.
Dealing with this debt may require unconventional measures, though on a sustainable level, he said.
Further, the outbreak of Covid-19 and the global powers’ actions and inactions have ignited debates on the post-Covid-19 world order. While the current world order was already at a crossroads prior to the emergence of the pandemic, Masondo lamented the potential rise of “economic nationalism”.
Brexit and trade wars made for an already difficult economic and trade situation and Masondo was concerned about South Africa’s ability to export its goods after the pandemic.
“Our ability to export whatever we can produce and manufacture here in South Africa is going to be badly affected and, therefore, we are very worried about the possibilities of economic nationalism, particularly in the global north,” he said.
This includes the US, Canada, almost all European countries, Israel, Japan, Singapore, South Korea, Australia and New Zealand.
However, former US President Barack Obama’s adviser on issues related to sub-Saharan Africa Grant Harris emphasised that “there is still a lot that is unknown”.
“Part of what is going to determine what the world order looks like coming out of this disease, is which world leaders and which countries really step up and show leadership and show a path to bring other countries together to combat this [pandemic],” he said during the webinar.
Harris added that the pandemic would not end or be resolved until it no longer impacted on economies and people’s health, and in order for that to happen, there needed to be collaboration, despite a sense of competition among various countries.
“There have been a lot of missteps by a lot of leaders, including the US and China, so I think it’s too early to write the story of what comes out of this,” he said.