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COVID-19: Tough times ahead for SA economy

Examples of COVID-19’s shorter-term economic consequences include falling demand for airline and tourism services, disruptions to supply chains and global food systems. South Africa’s economic challenges include amongst others, high and rising levels of government debt, electricity supply constraints and high unemployment. COVID-19 can intensify an economic slowdown amidst a fragile economic outlook.

A slowdown in economic activity will add additional pressure to the government budget deficit, lower tax revenues and struggling State-Owned Enterprises (SOEs). A further economic slowdown will reduce electricity consumption and Eskom’s tariff revenue.

Dr Requier Wait, Agri SA Head: Economics and Trade Centre of Excellence, said that following the example of recent global experiences, the government’s concerted efforts to contain and mitigate the risks posed by COVID-19 should be welcomed. Whilst these measures may have short- to medium-term economic implications, the cost of not acting would have far greater longer-term negative consequences.

The South African Reserve Bank (SARB) announced a decision to cut the repo rate by 100 basis points.

The repo rate will now be 5.25% per annum, with effect from 20 March 2020. Whilst inflation expectations were a key consideration, the broader economic environment along with COVID-19, oil prices and the exchange rate had to be considered by the Monetary Policy Committee (MPC).

“The repo rate change will channel through to the prime interest rate, providing some support to a struggling economy. However, this alone will not be enough to strengthen the economy. Broader reforms, for example, as outlined in National Treasury’s Economic Strategy document [1] can add the necessary further support our economy needs,” said Dr Wait.

He said the impact of COVID-19 could vary and will be different for the various agricultural commodities produced in South Africa. Export-dependent commodities may face lower demand from markets. Logistics constraints and the availability of shipping services could also have an impact on export commodities.

“On the supply side, the availability of chemicals and other agricultural inputs could be affected by supply disruptions, however, local suppliers are working on alternative supply options.

“South Africa is a net exporter of agricultural products and domestic food security is still robust. South Africans should stay calm and work together to overcome this pandemic. Consumers should refrain from panic buying as South Africa will remain food secure for the foreseeable future thanks to our farmers.
“Agri SA will monitor the situation and collaborate with the government and industry leaders to support collective actions that can position agriculture for growth”, says Dr Wait.
Agri SA’s executive director, Omri van Zyl is part of a special task team appointed by the minister and director-general of the Department of Agriculture, Land Reform and Rural Development to address industry issues associated with COVID-19.


COVID-19: Tough times ahead for SA economy
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