A looting shock to SA’s economic recovery – economists

‘A looting shock to SA’s economic recovery’. This is what economists at the Bureau of Economic Research at Stellenbosch University, call the shock of events over the past week. The cost of the unrest will only be quantified in a few weeks, if not months, but the researchers say the economy has been (and will be) affected.

Along with the Covid third wave and the harsher lockdown restrictions, the unrest and looting will put significant strain on economic activity at the start of the third quarter of 2021, with gross domestic product (GDP) set for a large contraction.

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Impact on GDP

The most immediate and direct impact on GDP will be the loss of household consumption and industrial production in KwaZulu-Natal and to a lesser extent in Gauteng over the past week. Many businesses from various sectors, including retail, manufacturing and even mining in parts of KwaZulu-Natal were forced to close. Some retail chains closed temporarily as a precaution.

Although mobility data indicates that fewer people visited food and pharmacy stores all over the country since level 4 of the lockdown was introduced, there was a dramatic drop last week, especially in KwaZulu-Natal. The shock of the past week may weigh on consumer and business confidence for some time, with a potentially negatively impact on consumer spending.

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Directly affected businesses

The researchers say what worries them even more is the outlook for businesses directly affected by the looting, as well as the extent of the longer-term damage to production capacity, infrastructure and other facilities. Not only cleaning up and restocking will be required, as entire facilities will have to be rebuilt due to arson and other destruction.

Massmart reported looting of over 40 stores and two distribution centres, while four facilities had significant fire damage. Mr Price lost 7% of its total footprint, Pepkor lost almost 9% of its footprint, while Tiger Brands lost stock of more than R150 million and 200 liquor stores and warehouses were looted. Rebuilding the malls that were burned down could take at least two years.

Lost jobs

Thousands of people lost their jobs last week and they have little opportunity to find another job. Even successful claims may take some time to be paid out, which will further delay the rebuilding. Some businesses may even decide to shut down.

Supply chains

Supply chains are still significantly distorted and even trade with the rest of the world has been negatively affected with harbour activity in Durban and Richard’s Bay coming to a virtual halt last week.

In addition, the N3 highway between Durban and Johannesburg was closed for almost a week and transport on the Natcor freight rail line linking KwaZulu Natal and Gauteng was also halted. South Africa was already struggling with strained supply chains and shortages of some raw materials as a rapid pick-up in global demand resulted in global supply chain blockages.

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Shortages of food, fuel and medicine

The disruption of supply chains and temporary closures of key production facilities, as well as panic buying, has led to shortages of food, fuel and medicine in some parts of the country. The country’s agricultural production is not concentrated in one province, but KwaZulu-Natal is a key entry point for many imported food products, while Gauteng is a key centre for agri-processing.

The temporary, precautionary closure of the country’s largest petroleum refinery, Sapref and scheduled delivery disruptions caused fuel to run out in some parts of the two provinces, but the fuel supply should remain sufficient and local shortages should also be replenished relatively quickly, the researchers believe, but localised shortages can contribute to supply-chain disruptions.

Looting as a superspreader event

The looting saw large groups of people in close proximity without their masks on, turning it into Covid superspreader events while also affecting the vaccination roll-out as many sites were forced to close.

The looting of major generic medicine manufacturer Cipla’s factory, as well as the looting of many other medicine warehouses and distributers, will further affect the health services.

Depressed consumer and business confidence

The harrowing reports of violence, death and destruction elsewhere, as well as a sense of despair will depress consumer and business confidence in South Africa, which could, especially now, have negative implications for consumer spending as well as capital expenditure outlays, as well as private sector fixed investment.

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Foreign direct investment

The unrest could also hurt South Africa’s image as an attractive investment destination as the “gateway to Africa”, the researchers say. “Beyond the short-term impact on financial markets, with the rand initially sliding significantly last week, this could hurt foreign direct investment flows as well as international tourism to SA.”

They point out that South Africa was in the middle of its quarterly forecast review before the unrest started. “Considering the better-than-expected Q1 GDP outcome, as well as signs that some momentum was sustained in Q2, we were likely to upwardly adjust our forecast for full-year growth for 2021, despite earlier identified risks of load-shedding and stricter lockdown restrictions.

“However, the likely adverse confidence, spending and production effects of the riots meant that we held off on the upward revision for now, leaving the GDP forecast for 2021 unchanged at 3.9%.”