South Africa unrest and Covid measures are beginning to derail its financial restoration

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Religious leaders with South African flags walk near a looted shopping mall as the country dispatches an army to quell riots surrounding the imprisonment of former South African President Jacob Zuma in Vosloorus, South Africa, on July 14, 2021.

Siphiwe Sibeko | Reuters

South African economy’s good start to the year is likely to be ruined by a combination of renewed measures to contain Covid-19 and recent unrest, experts warn.

A third wave of infections resulted in the government imposing strict lockdowns towards the end of June. President Cyril Ramaphosa announced last week that the alert would be downgraded from level four to level three, with daily new cases dropping steadily from their July 8 peak and vaccinations picking up pace.

Some measures to limit economic activity remain in place, however, and the blow of roughly a month’s lockdown was recently compounded by a week of riot and looting in the economic centers of Gauteng and KwaZulu-Natal, ostensibly in protest of the arrest of former President Jacob Zuma.

Zuma surrendered to the South African Police Service on July 7 after being sentenced to 15 months in prison for failing to appear for a corruption investigation during his tenure between 2009 and 2018.

Much unrest has calmed down in recent weeks following the military’s deployment, but while the short-term economic damage may seem less of a concern than initially feared, analysts are concerned about the underlying longer-term impact on the economy as a whole.

A fire flooded Campsdrift Park, which houses the Makro and China Mall, after protests that escalated to looting in Pietermaritzburg, South Africa, on July 13, 2021, in this screenshot from a social media video.

Sibonelo Zungu | Reuters

To put this in perspective, retail and manufacturing account for around 20 percent of gross domestic product, nearly $ 70 billion, of which local banks estimate $ 14 billion could have been lost, “said Robert Besseling, CEO of political risk consultancy Pangea-Risk told CNBC on Friday.

“Also, the impact on poor communities will be disproportionate as most of the looted shops and malls are located near townships. These communities will now struggle to find food and supplies nearby, even while Covid-19 lockdowns remain in place. “

Besseling said future fuel shortages cannot be ruled out as three of the country’s refineries are now closed, two of them for maintenance reasons. Only one refinery in Free State province is still operating, while panic buying has put extreme pressure on supply chains, he added.

“Therefore, the medium to longer term economic impact of the riots is expected to be more significant than the immediate impact of the violence, which will undermine the prospects for economic recovery and potentially lead to higher crime rates and civil unrest, including counterfeit looting “Said Besseling.

Zuma’s arrest deepened the rift within the ruling ANC party between the former president’s loyalists and those pursuing the agenda of his successor, President Ramaphosa. Besseling suggested that Ramaphosa must seize this opportunity to remove Zuma loyalists from its party and government structures in order to meet its promised economic reform agenda.

Riots could not have come at a worse time

The International Monetary Fund expects South Africa’s economy to grow 4% in 2021, and all indicators so far point to a stronger-than-expected recovery from the Covid-induced recession.

GDP grew 1.1% in the first quarter, an annual increase of 4.6%, while the increased data on mobility and business confidence in the second quarter also give cause for optimism.

However, KwaZulu-Natal and Gauteng, where many ruined businesses are likely to take years to rebuild, contribute half the country’s GDP and nearly half the total population. The port of Durban in KwaZulu-Natal acts as a trading gateway to the southern subcontinent and accounts for around 70% of South Africa’s imports.

Economists estimate the cost to the economy of the destruction caused by the pro-Zuma protests at 50 billion rand ($ 3.43 billion).

In a research note last week, NKC African Economics noted that there were other major concerns besides the continued disruption in supply chains and threats to food security caused by the pandemic.

“The events that happened in KwaZulu-Natal and Gauteng couldn’t have happened at the worst possible time,” said Pieter du Preez, chief economist at NKC.

Members of the South African Police Services (SAPS) arrested a looter at the Gold Spot Shopping Center in Vosloorus, southeast of Johannesburg, on July 12, 2021.

Guillem Sartorio | AFP | Getty Images

NKC revised its economic growth forecast for South Africa in 2021 from 4.3% to 3.8%, saying the medium-term outlook is also being hampered by falling investor confidence and a lack of fiscal space, which is likely to crowd out solid capital spending.

“Early estimates of the damage are alarming as 50,000 informal traders and 40,000 businesses are affected and 150,000 jobs are at risk,” said du Preez.

“Approximately 3,000 stores were looted, 100 shopping malls suffered significant fire damage, and nearly 1,200 retail stores were hit and damaged.”

All of this came on top of the third wave of Covid-19, which was hit harder than expected due to the portability of the Delta variant, he added.

“The resulting four weeks of the Level 4 Custom Lockdowns will have an impact in the third quarter, while the current Level 3 Customs will continue to hamper activity somewhat,” said du Preez. “In general, we expect the economy to decline in the third quarter before rebuilding begins again in the fourth quarter.”

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