French international banking group BNP Paribas has published a research note analysing South Africa’s outlook for 2021 and the major events to look out for.
Following a record slump in growth and activity in 2020, the group said that it expects the key focus in 2021 to be on the strength and sustainability of South Africa’s recovery. However, it does not expect this to be a bumper year for the country.
“We have long held the view that South Africa’s recovery in 2021 would disappoint most expectations.
“Fundamental to our thinking is that many of the structural weaknesses that pushed the economy into recession before the pandemic, in particular lack of stable electricity supply, will scupper the pace of recovery.
“A successful vaccine rollout to the broad population already seems to be hitting some snags at the same time as the country faces a severe second wave and a new strain of infections, risking a return to stricter lockdown regulations in Q1”.
Below the group provided a calendar of the events that South Africans should keep an eye on.
Another hard lockdown
The country re-entered a ‘level 3’ lockdown from 29 December, and as widely expected, this was extended in an update given on 11 January.
To keep the economy as open as possible, this level 3 is a watered-down version of that introduced in March, BNP Paribas said.
However, regulations again ban the sale and public consumption of alcohol, and are stricter in terms of a curfew (21h00 – 05h00) and international travel restrictions. “So activity looks to be getting off to a rather poor start this year.”
“Our base-case forecasts do not assume that a hard lockdown’ will be implemented because we think that economic considerations will be given more weight than in the initial wave.
“Should infections be seen to be spiralling out of control, however, we cannot rule out harder regulations with a greater economic impact.” it said.
BNP Paribas said that the largest fiscal drag on South Africa’s economy will likely come from another year of unstable electricity supply, with load shedding seen as one of the key reasons for a tepid rebound.
Despite collapsing domestic demand and drastically curtailed supply-side activity, Eskom implemented record load shedding in 2020, with more than 1,600GWh of power generation taken offline.
Energy supply estimates from the CSIR suggest that the supply gap could be more than 60% larger this year.
“Large swathes of load shedding, therefore, seem unavoidable this year, in the absence of marked improvement in Eskom’s energy availability factor, which fell to just 55% in the early weeks of January,” BNP Paribas said.
The analysts believe that the South African Reserve Bank will largely keep the policy rates at 3.5% for the entirety of 2021, with little reason to begin normalising them again this year.
“We think that the SARB will prefer to keep its foot steady on the accommodation pedal, though we do not rule out the potential for additional modest interest rates cuts early this year, particularly if a more severe second wave brings with it renewed lengthy hard lockdown measures. ”
BNP Paribas says that the government’s public sector wage deal is likely to remain a major point of contention in 2021, and could lead to further strike action.
“We see a good chance of widespread strike action as early as February, possibly tempered by Covid-19 restrictions and existing high levels of unemployment,” it said.
The deal could also impact the tripartite alliance between the ANC, Cosatu and the South African Communist Party.
BNP Paribas said that trade federation Cosatu has lost a large number of members in recent years, however, it said that the wage deal is likely to dominate the agenda.
BNP Paribas said that the ANC has historically performed worse in the local government elections than in the national elections – and its performance in local elections has been declining.
However, it is cautious about predicting this as a continuing trend in 2021 – primarily because of the ongoing turmoil in the Democratic Alliance, but also due to the apparent popularity of president Cyril ramaphosa.
The group also expects little economic or political innovation from the Economic Freedom Fighters.
“We think the ANC might see this year’s elections as a chance to recover or solidify its position, especially in politically and economically important metropolitan municipalities.
“In areas where the ANC cannot achieve a majority in the local elections, we think the ANC might be able to govern in alliance with smaller parties.”