Poor choices have caused permanent damage to South Africa’s economy: economists

South Africa’s economy suffered greatly in the second quarter, the latest domestic trade data shows – but while this can be blamed on the Covid-19 pandemic and resulting lockdown, a lot of damage has also been created by poor decisions from the government.

This is according to economists from the Bureau for Economic Research (BER), commenting on the latest developments and data published in South Africa.

Stats SA published details on food and beverage, retail and wholesale trade sales for the months of April and May. These three sets of data provided a consistent message with four key trends visible, the BER said.

These were:

  • A plunge in activity during April with historic monthly and annual declines;
  • A sharp monthly increase in May from the April low;
  • Sales that continued to see a sharp annual decline in May;
  • Activity levels that remained well below pre-Covid levels in May.

The BER noted that trade data from Stats SA showed that retail sales collapsed by 50.4% year on year in April, as stringent level 5 lockdown regulations prohibited sales of non-essential goods. The print was the largest decline on record.

“Monthly sales dropped by 50.7% in April. This was followed by a 74.2% month on month increase during May as the country moved into level 4 lockdown, which permitted more consumer good to be sold,” the group said.

The main contributors to the annual decline in May were all other retailers (-6.5% pts), retailers in food, beverages and tobacco in specialised stores (-2.2% pts) and general dealers (-2.1% pts).

Meanwhile, after contracting by 35.4% m-o-m in April, wholesale trade sales rose by 29.7% m-o-m in May. On an annual basis, sales of wholesalers were still down by 20.7% in May.

However, although the month on month rebound was strong, the level of retail sales was still down by 12% on an annual basis in May, it said.

Government choices

While these conditions reflected the impact of the Covid-19 pandemic and lockdowns put in place to curb the spread of the virus, trade was also limited more than possibly needed by some decisions by the government, the BER said.

Notably, the Restaurant Association of South Africa provided shocking figures on the impact of both the initial lockdown and the re-introduction of the ban on alcohol sales and the reinstatement of a night curfew in early July.

According to the association, 16,000 restaurants have already closed down.

“This speaks to the likely permanent damage inflicted by the Covid-19 crisis, but also in some cases the irrational decisions taken by government,” the BER said.

All restaurants ceased trading at the commencement of the nationwide lockdown on 27 March 2020. Restaurants could commence trading on a delivery-only basis from 1 May 2020, with collection service being permitted from 1 June 2020. Full sit-down service could be resumed on 29 June 2020.

Financials published by the Spur Corporation on 23 July revealed how significantly franchises have been impacted by lockdown over this period.

Total group sales across its restaurant brands in May declined by 85.7%, with total sales for 12 months ended June down 21.7%. Some brands in its portfolio lost 100% of sales during lockdown, with only some slight recovery seen in more recent weeks.

Tax losses

However, with the re-introduction of the alcohol ban, restaurants have again been brought to their knees – while government itself loses billions of rands in taxes.

In a statement on Tuesday (21 July), the South African liquor industry said that the total excise due for July is estimated to be R2.51 billion. It added that in August, the estimated excise would be R2.58 billion and that total excise payments due to SARS over these two months is R5.1 billion.

SARS commissioner Edward Kieswetter said that the decision to ban alcohol and cigarettes has had a material impact on tax collection.

While he said he couldn’t go into detail around the valuation of the prohibition, SARS has seen a 51% decrease in excise collections in the current financial year, the equivalent of some R18 billion.

Of this, cigarette and alcohol sales make up a significant portion, he said. The bigger problem, Kieswetter said, were the implications further down the line.

If sales come to a complete stop over a longer period, the industry will face more job losses and the closure of smaller businesses and farms.


Read: Why South Africa’s alcohol ban gets it wrong: experts

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Poor choices have caused permanent damage to South Africa’s economy: economists