With most jobs created in 2021’s economic recovery expected to come from the private sector, President Cyril Ramaphosa has said that government will need to continue working with the private sector to create “a more conducive business environment” as an enabler of job creation.
The President indicated during his State of the Nation Address (SoNA) last week that the social compact between the public and private sectors was underpinned by “a clear commitment to grow the economy and to create jobs”.
He also noted that the public sector has to stimulate private sector job creation through its policies, as these can support business and consumer confidence and boost the economic recovery this year.
Advisory multinational PwC lamented that, owing to the adverse impacts of local and international lockdowns, the company estimates that South Africa’s 2020 real gross domestic product (GDP) will have contracted by an estimated 14%.
However, fiscal and monetary policy interventions – including the Temporary Employee/Employer Relief Scheme (Ters) worth R50-billion and the three percentage point cut in the South African Reserve Bank repo rate – “reduced the size of the recession by an estimated 8.8%”.
Following the 2020 recession, PwC now expects the global economy to expand by 4.7% in 2021. This projection is, however, conditional on a successful deployment and spread of effective Covid-19 vaccines and continued accommodative fiscal, financial and monetary conditions.
By the end of 2021, or early 2022, PwC expects the global economy to revert to its pre-pandemic level of output.
However, this picture “masks an uneven recovery pattern among South Africa’s key trading partners”, PwC added in its report, noting that on the one end of the spectrum is the Chinese economy, which is already larger than its pre-pandemic size.
On the other end are mostly advanced economies that are either service based (like the UK or France) or more focused on exporting capital goods (like Germany and Japan), which are “unlikely to recover to their pre-crisis levels by the end of 2021”.
Like South Africa, PwC said the advanced economies – including India, Brazil and Russia – will have their economic fortunes strongly determined by the speed at which vaccine programmes are rolled out.
“Achieving herd immunity is not only essential for fully exiting from respective domestic lockdowns, but also the full reopening of international travel,” PwC commented.
With regard to the Covid-19 vaccination roll-out journey, the advisory firm warned that while South Africa has “an ambitious target” to vaccinate two-thirds of the adult population by the end of 2021, “it is unlikely to stop a third wave of Covid-19 infections occurring during the winter of 2021”.
The ultimate success of the vaccination programme, or the speed at which herd immunity is obtained, will be determined by government implementing all the elements of an effective vaccine delivery programme.
“No matter the strength of their health infrastructure, every country in the world will need to navigate significant challenges on the road to Covid-19 vaccination. Government leadership and support will be critical to accelerate progress toward achieving the vaccination rates required for community protection.”
PwC global government and public services leader Jessica Shannon suggested five principles that need to be considered in achieving this, the first of which is to combine global standards with a local approach.
“A careful balance needs to be struck between global standards required for vaccine efficacy and localised distribution approaches to maximise adoption. Governments have a key role to play in defining and driving each,” she explained.
Additionally, she suggested the development of a strategic communications plan, as well as consideration of the possibilities of digital infrastructure, while also developing a deployment plan considering priorities, capacity and resources.
Barriers to access will also need to be removed for all citizens, she said.
2020 ECONOMIC PROSPECTS
Further, PwC’s economic scenarios for 2021 are based on different perspectives about a potential third wave of Covid-19 infections. Despite the roll-out of a vaccine programme, the severity of this mid-year wave, and the accompanying strictness of associated lockdowns, “will directly determine the nature of the economic recovery”.
The baseline scenario sees lockdown restrictions ease further in March (to Level 2) followed by a return to the stricter full Level 3 in May to combat a third wave of Covid-19 infections, peaking at Level 4 in July.
While a subsequent easing in restrictions is expected as the winter thaws in August and September, South Africa is anticipated to remain in Level 1 lockdown from September towards year end.
The upside scenario sees a less strict lockdown during winter 2021 — owing to vaccination successes — and also a complete lockdown exit at the start of the fourth quarter. In turn, the downside scenario assumes a more severe infection level during the third wave and no exit from the lockdown until 2022.
Following the 2020 recession, the South African economy is expected to see positive GDP growth in 2021. However, much of this growth will be due to the base effects arising from the large contraction in economic activity last year, especially in the second quarter.
PwC’s baseline forecast is for GDP growth of 3.4% in 2021.
In addition to lockdown levels, this outlook also assumes the negative impact of continued electricity load-shedding, albeit not as serious as that experienced in 2020.
The upside scenario assumes less restrictive lockdowns, reduced pressure from electricity supply challenges, as well as greater fiscal stimulus on the back of better-than-expected tax collections. The upside scenario would see South African GDP return to 2019 levels by 2022.
In turn, the downside scenario sees these factors turn out worse than currently expected, with the economy remaining in lockdown for the rest of the year and heading into 2022.
Fixed investment (a key component of current and future GDP growth) will be under severe pressure this year owing to negative business sentiment and weak government finances, PwC warned, noting that the FNB/BER Building Confidence Index for the fourth quarter of 2020 commented that, heading into 2021, largescale investment projects needed to drive the recovery in the construction sector "remain elusive and could be for some time".
For example, rising vacancy rates in retail shopping malls will put the brakes on floor space expansion in this category of real estate, PwC said.
According to Google Community Mobility data, the number and duration of visits to retail centres and other entertainment locations declined by more than 30% year-on-year in January 2021.
Factories producing metals and chemicals are operating below capacity and are unlikely to expand their facilities anytime soon. A Bureau for Economic Research survey found that, in the fourth quarter of 2020, the manufacturing sector overall operated at just 67% of capacity, compared to a level of 79% in the same period of 2019.
Government spending on transport infrastructure is also being reprioritised towards healthcare and social spending needs. If previously planned expenditure is to be realised, PwC said that it would be necessary to involve more private sector investment in public infrastructure.