2021 – The year that totally crippled SA’s already limping economy

A year ago, South Africans were under the impression that 2020 was one of the deadliest and costliest years in the country’s history, with Covid-19 and 300 days of lockdown costing millions of jobs, economic growth, and billions in lost revenue from tourism and elsewhere.

2021 came and showed that no matter how bad things are, they could always get worse.

Now, after 639 days of lockdown since president Cyril Ramaphosa first addressed the nation and declared the lockdown, it is clear that even those most cynical about the prospects of 2021 being a better year than 2020, couldn’t have foreseen just how bad it could get.

We are now 21 months into the pandemic, with 3 332 008 (251 266 207 worldwide) confirmed cases of Covid-19, 90 488 (5 070 244 worldwide) deaths and 27 669 950 (7 160 396 495 worldwide) vaccine doses administered.

The second wave of the pandemic came a year ago, a third wave in June/July, and now the fourth wave of the new variant, Omicron, has wreaked havoc on our lives and our economy.

The destruction was made even worse by rising unemployment and the July unrest in KwaZulu Natal and Gauteng, which inflicted damage amounting to around R50 billion. The full cost of the Covid pandemic will most likely never be accurately calculated.

In attempting though, it is important to first look at unemployment and gross domestic product (GDP) growth, because these are key indicators of the state of the economy. Even if you have a low-paid job, you have a steady income that you can use for budgeting for food and paying bills.

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Unemployment and the economy

Employment statistics for the first quarter of 2021 indicated total employment decreased by 552 000 (-5,4%) year-on-year, and 9 000 (-0,1%) compared to the previous quarter.

Statistics for the second quarter were even worse, with unemployment at 34,4%, the highest since 2008, after the country shed another 86 000 jobs in the formal sector, from 9 652 000 people employed in March 2021 to 9 566 000 in June 2021.

In the third quarter, unemployment increased to 34.9%, while total employment increased by 52 000 compared to the second quarter to 9 620 000 in September, and by 56 000 between September 2020 and September 2021, according to the results of the Quarterly Labour Force Survey (QLFS) issued by Stats SA.

This means that almost half of the south African population are not employed.

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GDP also affects the economy

South Africa’s GDP increased at an annualised rate of 4,6 % in the first quarter of 2021, and 1,2% in the second quarter, before it lost ground and decreased by 1,5% in the third.

The South African economy was expected to bounce back in 2021, after it shrank by 7% in 2020. The World Bank Global Economic Prospects Report expected the economy to recover by 3.3% in 2021 and return to a “near potential pace” of 1.7% in 2022.

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Inflation

Inflation started to increase in 2021 after starting the year on 3,2% in January, and reached its highest peak since November 2018 when it increased to 5,2%, above the 4,5% midpoint of the South African Reserve Bank’s monetary policy target range.

This eased to 4,9% in June and to 4,6% before increasing again to 4,9% in August. In November, transport costs drove consumer inflation to its highest level at 5.5% since March 2017. Four and a half years ago, in March 2017, the inflation rate was 6.1%.

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Repo rate

The Monetary Policy Committee (MPC) of the Reserve Bank cut the repo rate, the rate at which the central bank lends money to commercial banks, five times in 2020, reducing it by 300 basis points to stimulate growth and counter the adverse effects of the lockdown.

The MPC kept rates unchanged at 3.5% until December, when it increased the repo rate by 25 basis points on the back of panic about inflation, although economists were expecting it to remain the same for the eighth time.

While the MPC expects inflation to stay close to the mid-point over the forecast period, inflation risks have increased and the level of policy accommodation remains high.

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Electricity and the economy

Electricity remained a ball and chain on the ankle of the country, with more than 1 000 hours of load shedding during 2021.

South Africa loses R18 to R22 million per hour due to load shedding, but the long-term loss is even bigger and can never be measured.

This is because it does not only affect current production, which can at least be measured, but also makes investors think twice about investing in a country with frequent load shedding.

Load shedding has been with us for 14 years and it seems to just be getting worse with each passing year, while another five years of being subjected to living in the dark at short notice is forecast.

A bit of good news was that minister of mineral resources and energy, Gwede Mantashe, gave in and published the proposed amendment to the Electricity Regulation Act that will enable business and individuals to generate up to 100 MW of electricity without a licence from the national energy regulator, Nersa.

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Consumer debt

The National Credit Regulator found in a recent study that consumers struggled to repay their short-term credit, with most consumers (23%) having credit card debt that increased due to “late or missed payments” for unsecured credit transactions.

Consumers who had available funds in their credit cards used them more regularly, especially when they had lost a portion of their income or savings.

The most recent TransUnion Consumer Pulse Study also indicated that 41% of consumers remain under financial pressure as they have been in arrears with a bill or loan in the past three months, with 33% reporting that they missed one and two payments, while 17% missed three.

Consumer debt was 25% more than in 2016 with 24% less disposable income for consumers due to flat average net incomes that means they have to supplement their income with unsecured borrowing.

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Business confidence

Business confidence remained unchanged after the decline in the third quarter due to the third wave of Covid-19 and unrest and looting in July, as well as transport delays, shortages of inputs, and insufficient stock.

Although the impact of these factors has faded, companies now have to face the Numsa strike and load shedding, which affected business confidence all over again.

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Consumer confidence

Consumer confidence has increased marginally but stayed low in the fourth quarter and is presumed even lower now after the discovery of the Omicron variant.

The consumer confidence level of -9 equals the reading of the first quarter of 2021 and the time just before the pandemic hit in 2020.