Structural adjustment is not a choice anymore in South Africa, but a necessity – business chamber

The South African Chamber of Commerce and Industry (Sacci) says that as the country remains in a fragile situation, government should continue to pursue enabling policies and an environment that encourages the business sector to fast-track growth and employment creation.

The chamber published its latest business confidence index for September 2020, on Wednesday (7 October).

Since the last release of the Sacci BCI in July 2020, the index improved from 82.8 to 85.8 in August 2020 but dipped marginally to 85.7 in September 2020. After declining by 12.1 index points in April 2020 and a further 7.7 in May 2020, the BCI has now recovered some 15.7 index points up to August 2020.

However, business confidence appears to find it difficult to regain its rhythm as the BCI declined marginally in September 2020 by 0.1 index point.

The BCI was still 6.7 index points below the September 2019 level and averaged 84.3 over the first nine months of 2020 compared to 92.6 for the comparative period in 2019.

“Covid-19 and the lockdown process has had worse consequences for the business climate than the global recession of 2007/08 as the Sacci BCI is currently well below the depressed average BCI level of some 113 in 2009,” it said.

On a month-on-month basis the most negative effects by sub-indices of the BCI came from still depressed retail sales volumes, lower share prices on the JSE, and less real credit to the private sector.

On the positive side, improved merchandise export and import volumes, and manufacturing output made the largest contributions to the business climate in September, the business chamber said.

The accommodative financial environment helped to ease some of the difficulties experienced in business, it said.

Sacci said that the strict and long-running Covid-19 mitigation measures in South Africa and some of the regulatory measures had a significantly negative impact on business, households, and government revenue.

“It appears that the management of the Covid-19 pandemic by government’s Command Council had a relatively successful impact on managing the health pandemic and ensuring mortality rates were much lower than originally forecast.

“The economy however took the pain given rising unemployment, business closures and the GDP decline,” Sacci said.

Stats SA said last month that GDP in the second quarter of the year declined by 51% on a seasonally adjusted annualised basis.

Academics however, noted that the country’s GDP in the second quarter, compared to the first quarter, did not fall by 51%, but rather by 16.4% – quarter on quarter.

The commentators stressed that despite the ‘misrepresentation’ of the GDP reality by the 51% figure, it should not distract from the fact that the country is in a deep recession.

Even at a 16.4% quarterly decline, the impact of the lockdown on GDP in nominal terms has been severe, and it will take a long time for the country to recover from this position, they said.

The stats body also published its latest Quarterly Labour Force Survey for the three months to June 2020, showing that the number of employed persons decreased by 2.2 million to 14.1 million in Q2: 2020 compared to Q1: 2020.

The largest employment decreases were observed in the formal sector (1.2 million), followed by the informal sector (640,000), private households (311,000) and the Agricultural sector (66,000).

“The decline in the supply side of the economy only represents part of the salvation process of the economy that needs urgent attention. A suffocated demand side and notable dwindling fixed investment coupled to the effect on unemployment, provide the overriding challenges for the economy to grow and create jobs.

“Structural adjustment is not a choice anymore but a necessity while attending to contemporary economic restoration in the meantime.”

The chamber noted that the sequence of restoring the economy has already begun with the gradual phase-down of restrictions to level 1, but should be expedited and restrained to the highest infection areas and communities without causing further damage to the broader economy.

Corrective action is necessary for the unsustainable fiscal situation in all public sector institutions, including the likes of Eskom, SAA, PRASA, SABC, and Denel.

Sacci said that high-profile public arrests for corruption will go some way to restore local and foreign investor confidence, “but further structural economic adjustments are required to steer economic policy in a credible direction and towards growth and employment creation”.

“As the country remains in a fragile situation, government should continue to pursue enabling policies and an environment that encourages the business sector to fast track growth and employment creation at a time when the Northern Hemisphere appears to be heading into a second wave of infections.

By contrast, South Africa appears to have gone past its worst phase of its infections, it said.

“It has become apparent that the economy can be restored if a corrective phased process is implemented as a matter of urgency,” Sacci said.

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Structural adjustment is not a choice anymore in South Africa, but a necessity – business chamber