Money and Markets

5 signs that SA economy isn't dead yet - in fact, it's doing better than expected

Business Insider SA
Shoppers at the V&A Waterfront in Cape Town. Photo: Getty Images
  • The pandemic has destroyed the lives and livelihoods of many South Africans, with the economy shrinking by an expected 7% last year. 
  • But some sectors, as well as consumer spending, have not been as devastated as many feared.  
  • A boom in mining and agriculture, as well as ultra-low interest rates, has helped.
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South Africa was one of the countries worst hit by the Covid-19 pandemic, which may have killed more than 100,000 South Africans (taking excess deaths into account) and destroyed many livelihoods.

The economy probably shrank by 7% last year - after years of weak growth - and most analysts expected the local economy (and consumers) would be obliterated, says Stephán Engelbrecht, a fund manager at Anchor Capital. Given that government was already struggling with a crippling debt burden before Covid-19, and couldn’t support the economy, this added to the fears that it would take a long, long time for South Africa to recover.

“However, data from the past two quarters are starting to paint a very different picture of the SA economy,” says Engelbrecht. “The local consumer appears to have navigated the crisis far better than many had anticipated.”

And while the tourism and hospitality sectors continue to bleed, a surge in profits from mines, and one of the best years ever for agriculture, may have cushioned the pandemic blow.

Here are some of the encouraging signs:

Recent tax income has been remarkably strong

The latest numbers from National Treasury show that in December – despite strict new lockdown rules and a lethal second wave of Covid-19 – government’s tax revenue of almost R176.4 billion was significantly higher than the R160.4 billion earned in the same month in 2019.

This was partly due to "an extreme positive revenue shock” from mining and corporate tax, said Peter Attard Montalto, head of capital markets research at Intellidex, in a recent report. Mining income was bolstered by climbing commodity prices, as global demand recovered.

READ | Why Treasury is suddenly swimming in cash

“Year-to-date (government) revenues are therefore down ‘only’ 5.8% versus the previous fiscal year, whilst January revenue appears to be up an astonishing 39% versus a year before,” says Montalto. This is a remarkable recovery. In May last year, for example, revenue was 30% lower than in the previous year.

The upswing in tax income could mean that instead of Treasury’s expected budget deficit of 14.6%, South Africa may “only” have a budget deficit of 10.9% at the end of the fiscal year, Intellidex forecasts.  

This is still the worst deficit ever, and government is buckling under a near-overwhelming debt burden. But the stronger-than-expected tax recovery does mean that South Africans probably won’t face new painful tax hikes when finance minister Tito Mboweni presents his Budget on Wednesday.

Diesel demand is back to normal

On Monday, fuel giant Sasol released its results for the six months to end-December, noting that demand for diesel is currently almost at pre-pandemic levels whilst petrol is at between 90% and 95% of previous demand.

Wayne McCurrie of FNB Wealth and Investments tweeted that the strong recovery in diesel may be an indication that the contribution from agriculture to the economy is being underestimated.

Thanks to good rains and bumper crops, South Africa’s agricultural sector had a great 2020, despite the pandemic.

South African agricultural exports reached $10.2 billion last year – the second-best year ever. The wheat harvest was the biggest in almost two decades, while other crops like barley and canola harvests were the largest on record.

Surprising recovery in jobs

New data published by the National Income Dynamics Study show that employment levels recovered quicker than many anticipated. In October, employment almost matched February levels, before the pandemic bit.

READ | Half of all jobs lost due to hard lockdown were recovered by October, new study says

Educated young people, with at least matric, drove the employment recovery and agriculture, manufacturing, and trade all bounced back to beyond pre-pandemic levels. Unfortunately, these levels are still dismal - only 53% of respondents were employed.

Resilient consumer spending 

The latest retail sales numbers beat expectations. While total sales in December were 1.3% lower than a year before – this was far better than the 2.3% decline expected by economists polled by Bloomberg.

The recovery is also evident in festive season sales updates provided by most of South Africa’s large retailers, says Engelbrecht.

He compiled their latest reported sales numbers, which show a continued improvement:

Source: Anchor Capital

One possible reason for stronger-than-expected retail sales numbers is that South Africans are “reallocating” their spending.

Because many consumers don’t have to spend so much money on travel, dining out, entertainment and other social events, they now have more cash to spend on other things – like food, clothes and home improvements.

“Not having to incur these expenses resulted in consumers’ discretionary spending on other categories to be far greater than anticipated,” says Engelbrecht.

Also, thanks to steep cuts in interest rates, many households suddenly have more money to spend. On a property of R2 million, a homeowner now pays almost R4,000 less a month than in 2019.

According to data from Investec Securities, the SARB, and Stats SA it is estimated that household savings actually increased in 2020 as expenses dropped by a greater percentage than income:

Record export year

Thanks in part to strong demand for gold, and other commodities, as well as bumper export crops - citrus in particular - South Africa set an export record last year. 

It exported products worth R270.63 billion more than it imported in 2020 - compared to a trade surplus of only R23.66 billion in 2019. While the value of exports increased by 22% in 2020, a sharp fall in the price of oil - South Africa's biggest import product - also helped the trade surplus.

Grey line is exports, blue is imports. Source: SARS

The trade surplus should, theoretically, be good news for the rand – the demand for rand should be stronger as it means that fewer local importers had to sell rand and buy overseas currencies to pay for their imported goods.

Compiled by Helena Wasserman

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