The South African Reserve Bank (SARB) has cut the country’s benchmark interest rate by 100 basis points, taking the repo rate to 4.25% per annum.
This move follows a 100 basis point cut on 19 March 2020, after a state of disaster was declared in the country due to the global coronavirus pandemic.
Economist Mike Schussler highlighted that South Africa’s repo rate is now the lowest it has been since 1973, when the world grappled with the Yom Kippur War and the oil crisis.
The low repo rate is a clear indication South Africa’s economy is facing a tough time. This was further confirmed by the latest SARB economic growth figures.
The Reserve Bank expects South Africa’s Gross Domestic Product (GDP) in 2020 to contract by 6.1%.
Schussler highlighted this is the biggest decline since the Great Depression in 1931.
He said the economic impact of the coronavirus on the South African economy is so severe that it will be remembered forever.
South Africa’s Great Depression of the 1930s
To put Schussler’s comments into perspective, it is of value to look at the Great Depression of the 1930s in South Africa.
It hit the country in two waves. The first was the effect of the Wall Street crash of 1929, which was followed by Britain abandoning the Gold Standard in 1931.
What made matters worse was that South Africa was also hit by one of the worst droughts in the country’s history.
Without any significant rains in 1931 and 1932, crops did not grow and farm animals did not have food and water to survive.
Thousands of labourers were laid off and farmers, their families, and labourers migrated to cities in search of work.
A large percentage of South Africans lived in poverty during this period. This forced the government to implement drastic measures.
South Africa is facing a tough year ahead
Schussler’s views about South Africa facing a challenging year ahead are echoed by Efficient Group economist Dawie Roodt and Free Market Foundation CEO Leon Louw.
Roodt told MyBroadband the coronavirus crisis will damage an economy that was already crippled.
He said between 100,000 and 200,000 businesses could be shut down permanently and estimated that 1 million jobs could be lost in South Africa this year.
“I believe these are conservative numbers that I’ve given you and I think there’s a good possibility that these may actually be worse than what we expect at the moment,” said Roodt.
Louw said their research suggests the lockdown costs the country at least R10 billion each day, or R350 billion over five weeks.
He said the R350-billion economic loss can never be recovered and will have an impact on the country for many years to come.
Companies are already cutting salaries and staff
The economic impact of the coronavirus pandemic and the subsequent lockdown is already being felt by businesses and employees.
Many companies have informed their employees of cost-saving initiatives, including salary cuts and four-day work weeks.
ArcelorMittal South Africa closed its offices during the lockdown, and announced short-time and salary reductions for all employees with effect from April 2020.
Edcon, which operates Edgars and Jet, notified suppliers that it would not be able to pay them. It added that it may need to consider a form of bankruptcy after the lockdown.
EOH has announced several drastic measures, too, which include a 20% pay reduction across the board, except those earning less than approximately R250,000 per year.
Other measures include a review of all fixed-term and consultant contracts, and reassessing the retirement policy for those over 65 years old.
Many other South African companies are also implementing or considering salary cuts, including Pam Golding, the Mail & Guardian, Independent Media, and Woolworths management.