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Africa|Business|Manufacturing|Power|Tourism|Manufacturing
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South Africa unlikely to see solid economic growth in near term, says GlobalData

24th January 2022

By: Marleny Arnoldi

Deputy Editor Online

     

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Against a backdrop of travel bans, higher inflationary pressures, high unemployment figures, lower vaccination rates and electricity supply constraints, analytics company GlobalData believes South Africa’s immediate economic growth prospects are grim.

The company has revised its 2022 gross domestic product (GDP) growth rate forecast for South Africa to 2.1%, down from a forecast of 2.5% made in December 2021.

Economic research analyst Gargi Rao explains that, despite recording four consecutive quarters of growth between the third quarter of 2020 and the second quarter of 2021, civil unrest in July, tighter Covid-19 restrictions at times and persistent supply chain disruptions triggered a contraction in South Africa’s economic growth in the third quarter of 2021.

According to Statistics South Africa (Stats SA), real GDP growth contracted by 1.5% quarter-on-quarter in the third quarter of 2021, compared with 1.2% in the second quarter of 2021.

This year, the country’s economy is being impacted by tightening restrictions and constraints, GlobalData says.

South Africa has been hit by even more travel restrictions this year – around 91 countries currently have a ban on travel to South Africa, compared with the 60 that first applied travel restrictions in mid-2021.

“Such tight restrictions continue to deter growth prospects for the travel and tourism industry,” comments GlobalData.

Travel and tourism analyst Ralph Hollister remarks that international tourism provided a solid contribution to South Africa's GDP, prior to the pandemic. “We predict that international arrivals won't reach pre-pandemic levels until 2024 in South Africa, further slowing economic recovery.”

Moreover, African countries continue to have low vaccination rates when compared to other regions. As of January 24, South Africa has only fully vaccinated 27.9% of its population, compared with Brazil (70.4%), China (87.6%) and India (49.8%).

Epidemiologist Bishal Bhandari notes that, historically, vaccine hesitancy was always very high in South Africa and this is not unique to the Covid-19 vaccine.

“Low uptake of this vaccine is thus unfortunate, but not unexpected. Now, the low vaccination rate has made South Africa vulnerable to Covid-19 and its multiple variants,” he adds.

COST PRESSURE

Stats SA noted a manufacturing activity plunge of 8.9% year-on-year in October 2021, compared with October 2020.

Rao comments that input prices for manufacturers rose steeply, versus output prices, which resulted in downward pressure on production.

The South African government’s decision to increase the national minimum wage also added to production costs for businesses.

Owing to weaker sentiment among investors and firms amid power shortages, rising input costs and low vaccination rates, business confidence has dwindled since August 2021.

Moreover, with subdued demand, retail trade growth slipped from 3.5% in September 2021 to 1.5% in October 2021. Looting and closure of retailers in KwaZulu-Natal during the civil unrest also resulted in food shortages, which led to a decline in household consumption expenditure in the third quarter of 2021.

Soaring fuel prices and transportation costs have been squeezing the overall profits of South African firms.

As of October 2021, the consumer price index shot up to 5.5%, the highest in more than four-and-a-half years, according to Stats SA. Higher production costs and slowing economic growth could increase the risk of stagflation in the short term.

Rao says borrowing costs for businesses and consumers are likely to increase as a result of inflationary pressures in the short term.

With the reserve bank hiking policy rates to tame inflation, growth prospects could slow down for businesses this year.

“South Africa needs to critically formulate and implement policies that aid inclusive economic growth and job creation.

“While short-term disruption owing to supply chain issues and travel bans are inevitable, governments need to ramp up the vaccination drive this year, as well as introduce economic reforms aimed at long-term growth that can boost both consumer and business confidence,” he suggests.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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