The combined effects of existing financial stressors, such as load-shedding and COVID-19, are not unfamiliar to anyone who had paid attention to the situation beforehand. The first takeaway is that South Africa’s already meagre growth will shrink even further and quite likely continue the recession it entered in recent months. The Reserve Bank anticipates a 4% contraction in 2020.
There will be a notable drop in productivity across the board. This is most obvious among major contributors to GDP, such as mining, but also through indirect consequences. For example, reduced trade with China and India will hurt the mining sector. Other indirect consequences include the inability of retailers to pay rent, thus denying landlords.
Unemployment will rise sharply. Job losses are certain in mining and manufacturing. Drops in productivity and consumer spending will contribute to a long-tail of employment losses, particularly in sectors such as logistics and retail. There will also be significant export slowdowns, in part due to lower productivity, but also because major trading partners such as China and India will scale back as their own productivity and economies are impacted.
It has been said that more businesses may go under during COVID-19 than lives lost. While that statement has not been verified with data, it still illustrates the devastation awaiting the commercial sector. There have already been some dramatic failures as a result – such as Edcon – and more are sure to follow. This will impact the state’s tax revenue, such as for VAT and PAYE. The rise in unemployment will also put pressure on UIF while shrinking the contributing base. Personal income taxpayers are also going to shrink in numbers.
The financial sector requires additional attention. Not only is it prey to all the problems described above, but it will also be hurt as debtors fail to make good on their obligations. Though short-term ‘payment holidays’ have been introduced, it will be harder to mitigate damage in the longer term. In the worst-case scenarios, these combined factors could threaten the solvency of major and minor financial institutions.
South Africa should also be concerned about two specific sectors. The first is the disruption of education. With skills shortages already a major challenge, any delays in the education year will delay qualifying skilled graduates, and also exacerbate unemployment. There is a real possibility that a year in education could be lost.
Tourism is, likewise, very negatively affected. One of the unusual impacts of COVID-19 is the grounding and large-scale devastation of the airline industry. Current travel bans are stopping many airlines from operating. But even if restrictions were lifted, valid infection concerns among travellers will limit leisure travel. At the same time, a global recession will reduce disposable income used for holidays and travel.