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Messe Frankfurt South Africa: Bleak outlook for SA economy predicted

The outlook for the South African economy is bleak and a post COVID-19 recovery will take as long as five years and by that time the local economy will be 8% smaller than it was pre-pandemic

The outlook for the South African economy is bleak and a post COVID-19 recovery will take as long as five years and by that time the local economy will be 8% smaller than it was pre-pandemic. This according to Jeff Gable, the head of Fixed Income Currency (FIC) research at ABSA. He was one of the keynote speakers at the recent Hypermobility 2020 virtual conference organised by Messe Frankfurt and naamsa, in association with AutoTrader who released the 2020 #MobilityUnusual Special Report for free.

Gable said the global economic downturn, which from a predicted 3.3% growth in 2020 to a decline of 4.4% was the biggest fall since the Great Depression of the 1930’s. He added that Sub-Saharan Africa was also in dire straits, with a switch from 3.5% economic growth for the region to a decline of 3% and the rate of recovery is not easy to predict, making medium- and long-term planning very difficult.

The ABSA executive said that the South African economy was not in a good situation even before it was hit by the global pandemic, with the economy growing by barely 0.5% in 2019.

“The impact of COVID-19 is substantial and its effects are going to be long lasting and it will probably be five years before we get back to where we were at the end of last year,” explained Gable.

Reserve Bank interest cuts have given consumers approximately R50-billion in spending power, but there will be far less money in circulation at the end of this year, due to the ongoing loss of jobs, very few bonuses being given, as well as low wage increases if any at all and the reality that it seems the public service wage bill is to be reining in by Treasury.

Gable added that although the prime lending rate was at its lowest level since the 1960’s, but the rates for longer term loans are much higher and this is placing huge strain on the government, with lower tax collection and huge debts that need to be serviced. A growing share of taxes collected is going to paying interest on loans, which is impacting on government spending in most sectors of the economy.

The ABSA executive went on to say that the lack of business confidence was of great concern, as there had only been two quarters in the last 10 years when the indicator had been in favourable territory and that was in 2011 and 2015. Consumer confidence is also very weak, and that extends to the high-income earners too, with little appetite to buy durables, which includes motor vehicles.

Gable concluded by saying that the economic environment, both globally and locally, would remain uncertain and volatile until thoroughly tested and proven vaccines are rolled out globally. The recovery that follows will be led by the private sector as the world’s governments all have depleted finances.

However, there was some good news on the financial front, arising from the establishment of the African Continental Free Trade Area (FTA) Secretariat, where the recently appointed Secretary General is a South African, Wamkele Mene, who addressed delegates at Hypermobility 2020. The FTA is due to become operational on January 1, 2021.

Mene stressed how imperative it is for an integrated African market to be established saying that Africa had been, basically, an exporter of raw material and an importer of most manufactured goods.

Speaking from Ghana, Mene said that in 2019 seven of the 10 fastest growing economies in the world were in Africa, but this is no longer the case and the outlook for Africa post-COVID-19 is bleak.

“This may seem the worst time to launch the FTA, but although this could be true, I I believe it may be challenging, but it will bring creativity to the fore in terms of finding ways to grow the African economy, “said the enthusiastic Secretary-General.

“Most African countries have poor infrastructures with small markets and a shallow industrial base. This must change. We must accelerate beneficiation programmes for our raw materials to add value. Here we must look to government/private partnerships as well as the private sector to lead the changes,” he added.

He explained that the use of American dollars for most trade in Africa was time-consuming and expensive, so a priority for cross-border trade is going to be electronic payments and settlements, facilitated by the African Export-Import Bank (Afreximbank). The aim is to have digital cross-border trading operational by the beginning of 2021. In addition, digital platforms will be integrated into systems used to find markets for products made in Africa by linking seller and buyer.

“What we will need is strict adherence to customs governance, particularly regarding the rule of origin. We must ensure that the system is not used to facilitate the passage of products from a third country through the customs posts as we know that preventing customs fraud will be a big challenge. Our objective is to increase inter-Africa by 81% by 2035,” Mene concluded.

SOURCE: HyperMobility 2020

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