The United Nation’s International Labour Organisation (ILO) has named South Africa as one of the few emerging markets to experience a fall in real wages in 2020.
South Africa’s economy registered one of the largest falls in nominal and real wage growth in 2020 compared to most of our comparable emerging market peers – Brazil, Russia, Mexico and parts of the Middle East.
The ILO data shows that South Africa saw a 4.8% fall in real wages (-2.6% nominal) in 2020.
In an analysis of the data, BNP Paribas senior economist Jeff Shultz said that the relief measures provided through the TERs and social relief of distress (SRD) grant have also shrouded the true effect of the pandemic on South African businesses and households.
“When TERS and SRD measures come to an end in April, true household and corporate scarring will show its face,” he said.
“While the recent national budget speech painted a better-than-expected picture in terms of Personal Income Tax (PIT) and VAT collections – which came in at 30% and 50% above expectations respectively – TERS and SRD state support measures in 2020 helped prop up consumers and assisted in keeping companies afloat throughout last year.”
“With these measures coming to an end in April – and with the usual lags with this kind of data – we are still likely yet to see the true impact of Covid-19 and the lockdown on businesses and households.
“Stats South Africa’s monthly liquidation stats demonstrate some of what is to come, and they don’t make for pretty reading, as they remain on a sharply climbing trajectory.”
Shultz said that the Treasury’s tax revenue forecasts could also prove to be overly optimistic.
The 2021 Budget Review forecasts growth in personal income tax (PIT) averaging 6.8% nominal (2.7% real) over the medium term.
“We do still worry that the National Treasury’s tax buoyancy assumptions still look too bullish – for both PIT but also Corporate Income Tax (CIT),” said Schultz.
“Outside of the mining sector right now, corporate South Africa is suffering severe profitability constraints, with the primary and secondary sectors of the economy’s gross operating surplus at record lows, while the once-resilient tertiary sector also suffering a more than 11% deterioration in the last 10 years.”
Shultz said that the government’s trajectory and response post-pandemic was not going to cut it if the country is hoping to see growth.
“We are worried that a ‘business as usual approach’ to growth and structural reform isn’t going to cut the mustard in the economy being able to swiftly recover the potential growth losses and severe labour market scarring in the wake of this pandemic.
“The Treasury’s growth and revenue assumptions rely heavily, we think, on the swift implementation and coordination of operation Vulindlela. The buck now has to stop with the various ministries to make sure that the growth and revenue assumptions in this latest budget are achieved.
“While we believe that South Africa can achieve this, we are yet to see concrete evidence of urgency in most ministries to do what needs to be done.”