Money and Markets

7 things to know about the state of the SA economy

Business Insider SA
 
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A construction site of the Rea Vaya route in Johannesburg. (Photo by Sharon Seretlo/Gallo Images via Getty Images)
  • South Africa's economy shrank by 7% last year - the worst performance in almost a century. 
  • New data shows the construction industry took the biggest hit.
  • But the agriculture sector expanded by 13% last year. 
  • For more articles, go to www.BusinessInsider.co.za.


The latest numbers from Statistics SA show South Africa’s economy shrank by 7% last year – after struggling for years before the pandemic.

It was the worst slump since the depression in the 1920s:

Source: Economists.co.za

The 7% fall eclipsed the 2.1% contraction in 1992, when the country was battling a severe drought and international economic trouble. Following the 2008 global financial crisis, the SA economy shrank by 1.5% in 2009.

South Africa had one of the most stringent lockdowns in the world, and in the end, the contraction was not quite as bad as some feared. The IMF, for example, expected a 7.5% slump in South Africa’s GDP.

Here’s what we now know about the state of the economy

The construction sector took the biggest hit in 2020

Construction activity shrank by 20% last year. Much of the building sector was closed between 27 March, when lockdown started in South Africa, to 1 June, when the country progressed to Level 3 and all construction was allowed again.

Manufacturing (-12%) and mining (-11%) were next worst hit.

Source: Statistics SA

There is some hope that construction – which already showed a strong recovery in the fourth quarter – could have a much better 2021, due in part to government infrastructure spending.

Last year, the state fast-tracked 51 new infrastructure projects, including large ones for dams, roads, and affordable housing.

2020 was a bumper year for agriculture

Declared an essential service, and open throughout lockdown, the agriculture sector grew by more than 13% last year.

Bumper crops, good rain, strong export demand, and the weak rand all bolstered the sector.

Income from agricultural exports increased 3% last year, to a three-year record of $10.2 billion, with maize exports for the second half of 2020 increasing by over 200% from 2019, says Paul Makube, senior agricultural economist at FNB Agri-Business. “The citrus industry also recorded a fantastic year with better prices and strong volumes as demand spiked in major export destinations.”

The demand for meat (animal products account for over 50% of the country’s agriculture gross producer value) also remained surprisingly strong. “The animal products defied the seasonal demand pressures during winter as well as the Covid-19 disruptions and came out stronger as prices were resilient across most categories,” Makube says.

He expects another good year for the agriculture sector. “The recent harvest estimates of the country’s biggest staple, maize, point to a potential crop north of 16 million tonnes for 2021. Horticulture and livestock conditions are conducive to further stellar growth in agriculture.”

SA’s 2020 slump was among the worst in the world

Countries like China and Turkey continued to grow despite the global pandemic, but the vast majority of economies contracted last year.

South Africa’s 7% GDP slump was among the worst – although the UK (-9.9%), Philippines (-9.5%), Italy (-8.9%), France (-8.3%), and India (-8%) took bigger hits.

SA GDP per person is now back at 2005 levels

While South Africa’s economy has been stalling and shrinking over recent years, its population has been growing. This means that average living standards and wealth have been falling, as measured by the GDP per capita number (which divides the value of the economy by the number of people who live in a country):

Source: Statistics SA

GDP per capita fell in 2020 to a level last seen in 2005.

SA workers earned R29 billion less in 2020

Compensation paid to employees was almost R29 billion lower in 2020 than in the previous year, Momentum Investments notes in its report about the GDP numbers. The biggest falls were in construction (10%) as well as transport and communication (-12%). But in agriculture and government compensation increased last year, up by 3% and 5% respectively.

There are some signs of hope

South Africa showed stronger-than-expected growth in the fourth quarter, leaving the economy 1.5% larger in the fourth quarter than in the third. Fourth quarter GDP was “only” 4.1% smaller than in the same quarter in 2019, while in the third quarter, it was still more than 6% smaller than a year before.

This was due to a 21% annualised surge in manufacturing in the fourth quarter.

“In general, South Africa has done well in recovering after an extreme lockdown and that recovery has been way above general expectations,” Kevin Lings, chief economist at Stanlib Asset Management, told 702’s The Money Show. He says there was a “very impressive recovery”, across all sectors.

2021 should look better - but pre-pandemic GDP is years away

Given the partial closure of the economy in the first two months of the first quarter as lockdown measures were renewed, the growth rate from the fourth quarter is expected to level off in the first quarter of 2021, says Momentum Investments’ economist Johann van Tonder.

Intermittent load shedding will also depress growth.

But the outlook for 2021 is "moderately promising" at this stage, with growth of 3.4% expected, he adds.

While the consensus expectation seems to be that South Africa’s economy will only grow back to its pre-pandemic levels by 2024, Lings expects that it may recover a year earlier, in 2023.

He says it is possible that the economy will keep surprising on the upside, especially if the vaccine rollout is successful - which will bolster tourism and entertainment.

(Compiled by Helena Wasserman)

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