Agriculture gains not enough to save economy

As South Africa’s “only shining light” in the second quarter, the agricultural sector has fought the odds, but the economy cannot be saved by this alone, according to agricultural economist Wandile Sihlobo.

Statistics South Africa reported this week that the gross domestic product (GDP) fell by just over 16% between the first and second quarters of 2020, giving an annualised growth rate of 51%.

By contrast, the agricultural sector is the only industry that seems relatively unaffected by Covid-19’s fierce scourge on the economy. The agency attributes the growth to an increase in maize exports, as well as rising international demand for citrus fruits and pecan nuts, which helped the industry expand by 15,1%.

Locally, the emergence of a baking craze during the harder lockdown levels led to an increased demand for home cooking products.

“The sector has a relatively small share of the whole economy so it won’t be able to carry us through,” warns Sihlobo.

“Secondly, while it performed well, the job numbers that are coming out next week are likely to show a reduction of employment in the sector as a result of the Covid-19 lock down restrictions. So the seasonal labour that typically brings the numbers up may not be there this time, despite the robust growth.”

Sihlobo posits that a V-shaped recovery in post-lock down South Africa was unlikely despite prospects of other emerging economies being poised for this growth pattern.

“I think in some developing countries they could possibly see that but if you look at that possibility in SA we are unlikely to have a V-shaped recovery. Remember we have not dipped just because of Covid-19. By the time the pandemic reached South Africa we were already in bad shape. What Covid-19 has done is to exacerbate the problems we already have.”

But there is some hope springing from the continued positive performance of agriculture. The South African Farmers Union, which has been pushing for unity in the farming community, wants to take advantage of the glow-up in the sector by introducing new revenue streams that can expand its employment capacity.

“I have said this before, we can create a million jobs in this sector if there was political will to encourage investment into the sector. The banks don’t give farmers loans of more than 60% of the total capital, you have to produce the other 40% on your own. This is in part because of a lack of political will and policy uncertainty,” says Motsepe Motlala, president of the South African Farmers Union.

Partnering with local entrepreneurs, the farmers have used the lockdown period to find new markets as larger enterprises have squeezed the small producers out of most of the fresh produce market, especially in urban areas, Motlala says.

Fresh spinach is sold by a vendor on the streets of Alex, 9 September 2020. Farmers in the area are hoping to have their vegetables sold by vendors instead of vendors selling produce from the bigger farms and markets. Picture: Tracy Lee Stark

Alex entrepreneur Donald Gumula, 36, took a break from his construction business to partner with SAFU on a delivery service which would take produce straight from farmers to Alex homes. Sourcing fresh produce from as far as Bela Bela in Limpopo, Brits in North West, and Pretoria, Gauteng, the operation has four permanent employees all under 30 and operating from near their homes.

“The idea is to create enough revenue over time to expand and get even more suppliers so that I can hire more people. Right now we are working on sales based wages, because we are so small, but the growth potential for this is immense,” he adds.

Offering a word against the gloom of this week’s developments in the economy, economist Professor Phillippe Burger urges that the massive shrinkage may seem more severe than it is.

Burger notes that virtually all sectors, with the exception of agriculture and government, contracted. This was to a large extent expected.

“However, there should also be a word of caution before we go off the rails, and it relates to how we understand the 51%. The economy in Q2 is not half its size in Q1.”

“The 51% is an annualised rate, i.e. we take Q2 shrinkage and ask, ‘If the whole year looks like this, with how much will the economy shrink?’ Output in Q2 was 16.4% smaller than in Q1. That is bad as it is, but the whole year will not look like Q2 – there will presumably be a rebound as we speak, in Q3 and Q4,” says Burger.

The economy lecturer at the University of the Free State is hopeful the full year shrinkage will come in under 10%. On a year-on-year basis, GDP in the second quarter this year is 17.2% smaller than in the previous year. He hopes, on a year-on-year basis, the fourth quarter will also come in under 10%.

“We therefore have a big recovery problem, but we need to nevertheless keep a sense of perspective: we did not wipe out half the economy.”

Simnikiweh@citizen.co.za

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