Money and Markets

SA’s economy may be tanking — but one big sector exploded with growth of 28%

Business Insider SA
SA's agricultural sector has seen strong growth, thanks in part to a bumper maize crop.
  • SA's economy shrank by 2% in the first quarter - but agriculture grew by a massive 28%.
  • This was thanks to good weather, bumper harvests and a weak rand, which helped exports.
  • Agriculture could grow by 10% this year, one expert predicts.
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Even before the biggest blow of the coronavirus crisis landed – and despite a rush to stockpile goods ahead of the national lockdown – SA’s gross domestic product (GDP) shrank by 2.0% in the first quarter of 2020. 

Source: Statistics SA

This was the third consecutive quarter of economic contraction, but actually a much better performance than many were expecting. A Reuters survey among economists showed a median expectation of -3.8%.

Still, the first quarter showed a 21.5% contraction in the mining industry. As the coronavirus pandemic took hold of China, demand for iron ore in particular, disappeared.

Manufacturing shrank by 8.5% in the first quarter and the construction industry by almost 5%, as work dried up from across all types of building projects.

While food and alcohol sales rose strongly in the third quarter, as South Africans stockpiled before the lockdown, there was a sharp fall in clothing sales, and transport and restaurants already started to suffer:

Source: Statistics SA

But there was one sector that shot the lights out: agriculture grew by 27.8% in the first quarter, from the last quarter of 2019 (after seasonal adjustment).

Good weather conditions, much larger harvests and a weaker rand – which helps South Africa exports overseas – all contributed to a strong performance. 

South Africa currently expects its second-largest grains harvest on record – the maize harvest alone should be 38% biggest than last year, says Wandile Sihlobo, chief economist at the Agricultural Business Chamber.

In the first quarter, almost 513,000 tons of maize were exported – 86% more than a year before. Harvests of sunflowers and soybean were also larger, while the groundnuts harvest jumped 169% from last year, reports Paul Makube, senior agricultural economist at FNB Agri-Business

South Africa has generally also had a good fruit harvest this year, with the citrus industry recently noting a 13% increase from last year in available supplies for export markets in 2020, says Sihlobo. There is also a broad recovery in the production of deciduous fruit, with apple and pear production up by 5% and 1%, respectively in 2020.

The bumper conditions in SA agriculture come after a very lean year due to various droughts and foot-and-mouth disease. The sector has been shrinking for four consecutive quarters, contracting by 7% last year.

But, amid all the doom and gloom elsewhere, 2020 should be its time to shine.

“This will be underpinned by a recovery in all major subsectors of agriculture; namely livestock, field crops and horticulture production. This is all on the back of favourable weather conditions during the 2019/20 production season,” Sihlobo says.

"Given the huge harvest outlook and activity in full swing for both the summer and winter grain and oilseed crops, as well as citrus, it is expected the current stellar performance from the sector will spill over into the subsequent quarters despite the Covid-19 disruptions,” adds Makube.

But while Sihlobo expects that agriculture could grow by 10% this year - this probably won’t save South Africa from the worst economic contraction in living memory. Last week, Finance Minister Tito Mboweni warned that South Africa's economy could shrink by 7.2% this year.

Momentum's Herman van Papendorp and Sanisha Packirisamy said in a note that they expect growth to contract by 8.1% this year, and only expect a 2% recovery next year "as an increase in the number of business closures and persistently higher levels of unemployment detract from the expected upturn". They believe that economic activity will only return to pre-Covid19 levels by 2023/2024. 

Still, more data that came out on Tuesday showed small signs that the economy started to recover during lockdown.

The SA Revenue Service reported that exports almost doubled from April (Lockdown Level 5) to May (Level 4), reaching almost R50 billion. This is still around 9% lower than in May 2019, but at least some indication of signs of life.

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