World Bank forecasts ‘weak’ recovery for South Africa from Covid-19

8th October 2020

By: Terence Creamer

Creamer Media Editor

     

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The World Bank expects South Africa’s recovery from the Covid-19 pandemic to be weak relative to most other countries in sub-Saharan Africa, forecasting an economic expansion of only 2.6% in 2021 on the back of a massive 7.2% contraction this year.

In its latest ‘Africa’s Pulse’ publication, the bank attributed the sharp fall in gross domestic product (GDP) in 2020 to South Africa’s “strict national lockdown” and warned that future local lockdowns could stymie the economic recovery.

During the second quarter of 2020, which coincided with the peak of South Africa’s hard lockdown, South Africa’s GDP plummeted 17.1% year-on-year, marking the fourth consecutive quarter of decline and prolonging a recession that began in the second half of 2019.

The bank noted that other countries experienced similarly unprecedented declines, with GDP falling 11.4% year-on-year in Brazil, 9.9% in Turkey and 18.7% in Mexico.

The pandemic also took an early toll on China, where activity fell 6.9% year-on-year in the first quarter of 2020. In the second quarter, activity plummeted 9.1% in the US and 14.7% in the euro area year-on-year, the bank noted.

The pandemic also exacted a heavy toll on sub-Saharan Africa, where economic activity is expected to contract by 3.3% in 2020, triggering the region’s first recession in a quarter of a century.

By the end of 2021, the region’s real GDP per capita is likely to have regressed back to its level in 2007, the bank warned, adding that the pandemic could push up to 43-million people into extreme poverty and erase at least five years of progress in fighting poverty in Africa.

“While the sharp contraction in the second quarter of 2020 is likely to mark the low point of growth this year [in South Africa], output levels will remain constrained by strict health and safety rules to stem viral transmission, while renewed local lockdowns present a further potential headwind to economic expansion.”

SWEEPING POWER REFORM

The report is upbeat, however, on the reforms being adopted in South Africa’s electricity sector, describing recent actions to address energy shortages and reduce its dependence on Eskom as “sweeping”.

“Private companies have been invited to submit bids to supply additional renewable energy to the grid while municipalities can directly procure electricity from private sector renewable energy producers, thus ending the Eskom single-buyer model. Businesses are now allowed to produce electricity for their own use,” the bank enthused, without making reference to ongoing regulatory constraints to self-generation and municipal procurement.

The report also sees a potential “silver lining” in the way South Africa and other African countries are beginning to seize opportunities in the digital economy, including through the release of spectrum.

In addition, the opportunities associated with the implementation of the African Continental Free Trade Area (AfCFTA), which could become the largest free trade area in the world in terms of membership, were highlighted.

“The AfCFTA will cover a market of 1.3-billion people and $3.4-trillion in economic activity. By 2050, sub-Saharan Africa will account for one-third of the global labour force and the young population in the region will drive labour demand and serve as an engine of global growth in the future.”

RECOVERY SCENARIOS

The bank outlined two recovery scenarios for sub-Saharan Africa, owing to ongoing uncertainty around the spread and duration of the pandemic.

Its baseline scenario assumes that the first Covid-19 vaccine will successfully complete phase-three trials by early 2021, leading to vaccination roll-outs peaking in advanced economies and major emerging markets during the second half of 2022.

The roll-out in sub-Saharan Africa would be slower and lag that in advanced economies and major emerging markets by about two to three quarters.

The advent of a vaccine would underpin the continued recovery in consumer and business confidence amid buoyant financial markets.

“On this basis, regional GDP is projected to expand by 2.1% in 2021, below the 2.4% level of 2019, before rising to 3.2% in 2022, fuelled by a robust recovery of investment and domestic consumption.”

The bank stressed, however, that the projections masked considerable heterogeneity in prospects across countries, with Nigeria and South Africa expected to experience particularly weak recoveries.

Under the bank’s downside scenario, GDP across the region is projected to expand by only 1.2% in 2021 and 2.1% in 2022.

“The road to recovery will be steep,” the report states, while urging African countries to prioritise actions that lead to the creation of more, better and inclusive jobs.

Edited by Creamer Media Reporter

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