6 ‘shocks’ that cost South Africa R850 billion

 ·8 May 2024

Six successive shocks over the past three years have cost South Africa’s economy as much as R850 billion ($46 billion), according to estimates from the Department of Trade and Industry.

Trade, Industry, and Competition Minister Ebrahim Patel said the economy was upended by two global and four local crises that manifested in quick succession between early 2020 and the third quarter of last year.

The cumulative output lost to the South African economy as a result is estimated at between R650 billion and R850 billion, he said at the release of his department’s Industrial Policy & Strategy Review report. 

The shocks were listed as:

  • The global pandemic
  • The worst civil unrest since apartheid in July 2021
  • The war in Ukraine
  • Severe flooding in the eastern coastal province of KwaZulu-Natal province in 2022
  • Load shedding and
  • Logistics constraints

The shocks came just as the economy was recovering from an era of endemic corruption known as state capture during President Jacob Zuma’s tenure, which targeted state-owned companies such as Eskom and Transnet, according to the report.

The crises delayed and then shifted the focus of industrial policy, according to the report.

The report said that without them and assuming the country had simply matched growth trends seen in the decade prior to the pandemic, South Africa’s gross domestic product would have been between 3% and 5% larger in constant rand terms than it currently is.

The economic growth rate has averaged 0.5% since 2020.

Additionally, the SARB Monetary Policy Review for April said load-shedding is expected to decrease gradually in the next three years but will still be a significant drag on growth.

For the Reserve Bank’s projections to match reality, load shedding would have to be in effect for all but 38 of the remaining 238 days of the year (as of 8 May 2024).

The graph below shows the SARB’s outlook for load-shedding over the next few years.

In 2023, South Africa’s Gross Domestic Product (GDP) grew by only 0.6%, which the SARB deemed insufficient given the increasing population and labour force.

The Reserve Bank predicts that growth will slowly improve in the near and medium term as the electricity supply gradually increases.

This improvement will be supported by private investments in renewable energy generation and increased maintenance by Eskom.

“Although the full implementation of the energy and logistics sector reforms will ease the performance challenges in these network industries, inadequate electricity supply and logistical bottlenecks are expected to remain a drag on the economy,” the SARB said.

The SARB projects real GDP and potential growth to improve to 1.2% this year and rise to 1.6% by 2026.

However, even if achieved, these growth rates remain well below South Africa’s long-term average growth rate of about 2.0% and far below the 4.1% average growth for emerging markets in the current year projected by the International Monetary Fund (IMF).

“In the near term, uncertainty around the reliability of electricity supply persists as the grid remains fragile amid still-elevated unplanned outages, as evidenced by the occasional bouts of Stage 6 load-shedding earlier this year.”

Reported with Bloomberg

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