The economic effects of the coronavirus crisis have been extensive in South Africa (SA) and a recovery to pre-pandemic levels will take several years. While it is forecast that the SA economy will recover marginally in 2021, it is likely to be uneven and subdued.
From a global perspective, the exceptionally accommodative policies in many advanced economies and improved economic outlooks have supported a partial recovery in global financial markets. This has so far resulted in only a trickle of fresh capital flows to emerging markets whilst financing conditions remain uncertain. Furthermore, SA’s public financing needs have increased due to falling tax revenue and higher spending. The increase in the financing needs have been financed by higher private sector savings and borrowing from international financing institutions.
SA is subject to notable risks such as the slow vaccine roll-out, implying an almost inevitable third wave which could potentially result in renewed restrictions on the economy. In addition, ongoing electricity supply issues, rising fuel prices, and the recent 15.6% increase in electricity tariffs exacerbates the current situation. However, there are some potential positives on the horizon. Should the commodity cycle continue to power ahead, in-line with a stronger than expected global economic recovery, the SA mining and related sectors (e.g. manufacturing and transport) could outperform, boosting GDP via higher exports, adding to the fiscus, and hopefully also creating some job opportunities. With regards to foreign direct investment (FDI) in SA and according to data recently published in the UNCTAD’s 2020 World Investment Report (the Investment trends monitor of January 2021), FDI in SA almost halved in 2020 from 2019. However, large investment projects have been announced, including an investment by Google (US) of approximately USD 140 million and an additional investment of USD 360 million by PepsiCo. Amazon is also aiming at setting up headquarters in a R4 billion Cape Town development.
It is clear from the above that although the pandemic had ravaging effects on the economy, medium growth is expected in the near future. How large this economic growth will be is however still unclear.
