South Africa’s plan to revive an economy mired in the longest recession since 1992 will fail unless it deals with structural constraints such as power cuts, central bank Governor Lesetja Kganyago said.
A recovery program agreed on earlier this month is banking on the rejuvenation of the energy-intensive mining industry to help counter the devastation wrought on South Africa’s economy by the coronavirus and a lockdown that was imposed to curb its spread.
After the economy shrank the most on record in the second quarter, the country was hit by a new wave of electricity outages, known locally as load-shedding, in July.
“We experienced electricity load-shedding in an economy that was just starting to open from the virus lockdown," Kganyago said Wednesday in an interview with Johannesburg-based radio station Power FM. “With these structural constraints you can provide all the stimulus you want, but it’s not going to grow the economy.”
Kganyago said he has not seen the recovery plan and that it needs to be credible and implementable. President Cyril Ramaphosa has said he’ll release the plan once the cabinet has signed off on it.
Kganyago’s comments come almost two weeks after the monetary policy committee left its benchmark interest rate unchanged at 3.5%, the lowest level since it was introduced in 1998. While the central bank has been criticized by politicians and labor unions that say it should be doing more to support the economy, it has cut the key rate by 300 basis points this year. That’s among the biggest downward moves by global central banks, according to data compiled by Bloomberg.
The lockdown to curb the spread of the coronavirus pandemic that’s been in place for six months and shuttered most activity in April and May will contribute to an 8.2% contraction in gross domestic product, according to central bank forecasts.
Even with a rebound expected in the third quarter, it will take “roughly up to 2023 to get back to where the economy was in 2017,” Kganyago said. “Even before Covid, this economy had significant structural constraints that we had to deal with as a country.”
Africa’s most industrialized economy is stuck in its longest downward cycle since World War II, with the past decade being the worst for growth. Total output expanded by 15.9% between the first quarter of 2010 and the final quarter of 2019, compared with 18.9% and 16.7% in the 1980s and 1990s, according to central bank data.