South Africa’s new level 2 lockdown restrictions – and what they mean for the economy

After data published last week confirmed that a historic GDP collapse is likely in 2020, the news of eased restrictions and a move to a level 2 lockdown is welcome news for the economy.

On top of the easing of lockdown restrictions, president Cyril Ramaphosa also announced that government is working with partners on an urgent economic recovery programme that places the protection and creation of employment at its centre.

However, the Bureau of Economic Research (BER) at University of Stellenbosch has now raised concerns that government is dithering on the merits of a plethora of economic recovery proposals, with little in the way of action.

“An entire month after the ANC and a major business grouping released their respective economic recovery blueprints on 10 July, a Nedlac task team is only now being put together to evaluate the proposals and draw up a set of priority actions required for economic reconstruction,” it said.

The BER said that time is of the essence as more people lose their livelihoods, and the longer the country waits to implement growth-enhancing reforms, the greater the hole that the country will need to dig itself out of.

“This apparent lack of urgency to implement recovery policy proposals is another reason why, at this stage, we unfortunately expect a very protracted recovery from SA’s deepest GDP contraction since the 1930s depression,” it said.

Below the group further unpacked the new restrictions and what they will mean for the economy.

• All restrictions on inter-provincial travel will be lifted. This is important for a number of reasons, but especially for the hard-hit hospitality sector. Many hotels, game parks, etc. depend on tourists from outside of their home province. Indeed, SANParks tweeted early on Sunday that their online booking system was experiencing major technical difficulties amid an unprecedented surge in booking activity after the lifting of the inter-provincial ban. The words ‘pent-up demand’ come to mind here. Even so, the environment will still be far from normal for these establishments as the ban on international travel will remain in place.

• The suspension of the sale of alcohol will be lifted. However, liquor outlets will only be allowed to sell alcohol for off-site consumption from Monday to Thursday, from 09h00 to 17h00.

• Restaurants, bars and taverns will be permitted to operate and sell alcohol for onsite consumption. However, this will be with a restricted number of visitors.

• The general limitation on no gatherings of more than 50 people remains in place.

• The national curfew from 22h00 to 04h00 will also continue, curtailing the hours under which these institutions may trade. The move to Level 2 is certainly a major improvement from Level 3, but not back to the pre-Covid norm.

• The tobacco ban will be lifted.

• Family and social visits will be allowed, but are not encouraged.

• Sporting events will be allowed, but without spectators. Gyms and fitness centres can also reopen.

The further relaxation of restrictions adds to the view that the third quarter is likely to see a notable GDP bounce after the Q2 crash, said the BER.

“However, we remain of the view that the Q3 recovery will not come close to regaining the output lost in Q2 2020.

“For one, the return of load shedding should limit the pace of the recovery. After implementing stage 2 load shedding last week, Eskom said yesterday (Sunday) that the power system will remain severely constrained this week due to the unavailability of eight generation units.”

In addition, administrative delays in compensating individuals for a loss of income is problematic, the BER said, while the period for which people can claim support under the Temporary Employer/Employee Relief Scheme (TERS) ended on Saturday.”

Tourism industry

Data published by Statistics South Africa on Monday (17 August) shows that the tourism industry was decimated by the country’s coronavirus lockdown.

Measured in nominal terms, total income for the tourist accommodation industry decreased by 95.3% in June 2020 compared with a year prior.

Income from accommodation decreased by 94.5% year-on-year in June 2020 – the result of a 92.3% decrease in the number of stay unit nights sold and, a 29.5% decrease in the average income per stay unit night sold.

The main contributors to the 94.5% year-on-year decrease in income from accommodation were:

• Hotels (-93.9% and contributing -61.9 percentage points); and
• ‘Other’ accommodation (-95.2% and contributing -27.3 percentage points).

Total income for the #tourist accommodation industry decreased by 95.3% y/y in June 2020. Income from accommodation fell by 94.5%

Read more here: https://t.co/asbgCKkgWK#StatsSA pic.twitter.com/Dj7UAFjkHm

— Stats SA (@StatsSA) August 17, 2020

Alcohol industry 

The Beer Association of South Africa (BASA), said that the removal of the prohibition on alcohol sales was a positive move, but noted that many businesses in the industry had still not recovered from the first nine-week ban in place from 27 March to 31 May.

The group said that up to 8,000 licensed taverns and 30% of craft breweries were bankrupted over this period.

It added that the second ban, that came into effect on 13 July, forced an additional 15% craft breweries and thousands more taverns to shut down permanently.

In addition to jobs losses, the bans forced South African Breweries to cancel R2.5 billion in capital and infrastructure upgrades this financial year; it is currently reviewing a R2.1 billion planned spend for 2021.

Heineken South Africa has also halted plans for a R6 billion brewery expansion in KwaZulu Natal, which would have created 400 new jobs.

“It is therefore critical that we do not ever have a repeat of the situation we had on 12 July 2020, where an immediate ban on the legal trade in alcohol was announced – without the industry being given any prior warning or opportunity to engage,” BASA said.

“This posed major logistical and operational challenges for beer manufacturers, distributors and retailers. The sudden announcement also placed a huge financial strain on businesses who had bought stock, which they were prevented from selling, which had to be subsequently discarded due to being expired.”

Read: Ramaphosa sends warning to South Africa ahead of move to level 2 lockdown