From a worsening third wave to SARB’s quarterly bulletin release and potential interest rate hikes, the month of June has been a rollercoaster for South Africa’s socio-economic outlook. This past weekend, President Cyril Ramaphosa stated South Africa would be moving to adjusted level 4 lockdown for 14 days, effective immediately. This announcement comes a week after the government announced the country would be moving to an adjusted level 3 lockdown, and is a direct result of the infection rate that is rising at exponential levels in Gauteng. With stricter social distancing regulations comes less economic activity and foot traffic in malls and other recreational spaces. More specifically, lockdown regulations include prohibition of alcohol sales, flights limited to essential travel to and from Gauteng, and no sit downs for restaurants, only takeaways. This adjusted lockdown might safeguard lives, but livelihoods in the aviation, liquor, and hospitality industries will suffer tremendously. These sectors are still recovering from the economic turmoil 2020 brought, therefore level 4 lockdown will most likely be a huge strain on their growth and prosperity in the near future. Whilst these regulations are set to only last 2 weeks, there’s a high chance that level 4 lockdown will be extended, with further restrictions to curb Gauteng’s infection rate and prevent the third wave from spreading to the rest of South Africa.
Whilst we are now in the midst of a countrywide third wave, public sector and government forces are doing everything they can to support economic growth in South Africa. Kuben Naidoo, the deputy governor of SARB, has stated the central bank intends to maintain low interest rates for now in an effort to support our country’s economic recovery. The deputy governor is also of the opinion that, whilst further restrictions will no doubt negatively impact the country’s economy, it will not undo the growth that we’ve experienced since the start of 2021. Based on data collected after the first and second wave of the COVID-19 pandemic, Mr. Naidoo maintains the socio-economic effect of the second wave was much lower in comparison to the socio-economic effect of the first wave. This indicates that businesses and households were able to adapt to new ways of working and were capable of operating somewhat normally amidst a growing infection rate. With this in mind, a third wave may hinder business operations slightly, but not completely derail any headway made since the start of 2021, which is a positive sign for South Africa’s economic outlook.
In addition to this, the SARB has stated their projection model for South Africa indicates two interest rate hikes (of 25 basis points each) if we expect our economy to return to pre-pandemic levels by 2023. The timing of these increases is still unknown, but the primary objective of the central bank is to maintain the repo rate at 6.11% by 2023. It is vital to note that all actions the SARB take are in service of support South Africa’s economic growth now and in the future, and if our country is to revert to a pre-pandemic socio-economic state, the interest rate cannot remain low forever.
So, what does this mean for businesses? In a nutshell, South Africa’s economy will be able to weather this storm, but society’s ability to put food on the table for their families will take a huge hit. Finding employment and keeping jobs was already a difficult feat for people during lower levels of lockdown, but this lockdown might push companies to the brink and increase our unemployment rate to an unprecedented level. Businesses will survive and South Africa’s economy will thrive eventually, but the large portion of society that lives from hand to mouth may not be able to hold on long enough for the economy to recover. That being said, these stricter lockdown regulations will not last forever and as a result of our vaccination programme, there’s a chance we would have reached our peak by the end of July. There is always hope in even the darkest of places, and initiatives like COBRA is here to help companies shed some light and provide financial, legal, or business rescue advice. Please reach out to the COBRA Initiative for assistance.
That concludes this month’s wrap up!