Many economists and business leaders are warning that South Africa faces an economic crisis due to the prolonged and strict lockdown in the country.
One of these economists is Mike Schussler, who recently discussed the impact of COVID-19 on the economy.
Schussler said the economy was already in a dismal state prior to the coronavirus outbreak and subsequent lockdown.
He said South Africa had big deficits, extreme unemployment and inequality, low growth, and uncertainty on land and property rights before the coronavirus crisis.
With the country’s GDP expected to contract by over 6% this year, things are set to get much worse.
South Africa already had 10.4 million unemployed people this year and many more people will now sit without work.
Schussler predicts there can be anywhere between 1.3 million and 2 million jobs lost in South Africa because of the coronavirus crisis.
This will drive the expanded unemployment rate up to 48% from the current 38%. Schussler added that 50% is also a clear possibility.
The hardest hit will be blue-collar workers like waiters, cashiers, factory employees, contract cleaners, hotel staff, and hairdressers.
Schussler said white-collar workers like civil servants, bankers, lawyers, accountants, and journalists are more protected as they can work digitally.
This means unemployment numbers will rise in the middle and lower-middle class. The rich and upper-middle class will be somewhat isolated from much of the chaos.
Job cuts have already happened
The job losses and salary cuts which Schussler and other economists have warned about are already starting to happen.
The Sowetan reported that “dozens of companies across various sectors” have started to serve employees with retrenchment notices.
One of these companies – Vaal Main Reef – said it was experiencing “significant economic stress” because of the lockdown, which necessitated job cuts.
Kangra Coal is another mining company planning to cut staff. It said it foresees losing all its 428 employees because of “depleted coal and effects of COVID-19 on operations and markets”.
The airline industry is particularly hard-hit by the global coronavirus outbreak and the subsequent travel bans.
South African Airways, which has been struggling for years, is expected a lay off thousands of employees and possibly close down.
Many employees are also facing salary cuts and short time. ArcelorMittal workers are facing salary cuts between 40% and 45%, effective for at least three months starting in April.
EOH’s executives face a salary reduction of 25% while other employees will work fewer hours and get a 20% salary cut.
Pam Golding Properties told staff it would cut salaries and reduce working hours by 30% in April to address the effects of the lockdown.
Other companies like SA Rugby, Independent News Media, and Mail & Guardian are considering pay cuts and other interventions to make ends meet.
A look at South Africa’s economy
Schussler has provided a range of graphs and charts to illustrate the difficulty facing the South African economy.
They paint a concerning picture of the local economy before the effects of the coronavirus crisis started.
He further warned that South Africa cannot afford to close the economy in the draconian way the government has done so far.
Many industries have come to a complete standstill. This includes restaurants, hotels, entertainment, airlines, clothing stores, and car dealerships.
Schussler said consumer spending, measured through cash and card payments, has declined by 45% since the lockdown started.
Car sales, which were already down 29% in March, will probably drop to almost zero in April.
Electricity use in South Africa has also seen a rapid decline, to levels last seen during the 2008/9 financial crisis.
Here is a look at the economic information shared by Schussler in his recent presentation.
South Africans will get much poorer
South Africa’s GDP per capita, which is a good measurement of a country’s standard of living, will show a big decline this year.
Schussler expects it to take nearly a decade to return to current levels.
South Africa has a very high unemployment rate
South Africa has one of the highest unemployment rates in the world. This was before the coronavirus outbreak and is now set to get much higher.
Deep economic recession
South Africa is facing the deepest economic recession in our lifetime.
High government expenditure
South Africa’s government expenditure is much higher than in other emerging markets around the world.
Government wage bill increasing all the time
The government’s wage bill is increasing all the time and is not even covered by personal income tax.
As a percentage of GDP, it is one of the highest state wage bills in the world.
Biggest government deficit in history
South Africa now has the biggest government deficit the country has ever seen, and this was before the coronavirus crisis hit.
High debt-to-GDP ratio
South Africa’s debt-to-GDP ratio is much higher than other emerging markets and is rapidly increasing. It is set to get much worse with the coronavirus outbreak.
South Africa is paying high interest on its debt
South Africa has one of the highest interest rates for its government debt.
Low foreign direct investment in South Africa
South Africa is the only major emerging market with a negative foreign direct investment (FDI) position.