By Reon Janse van Rensburg

According to the World Bank’s Global Economic Prospects Report published earlier this month, the South African economy is expected to recover by 3,3% in 2021 and return to an “near potential pace” of 1,7% in 2022. This is after the South African economy shrank by almost 7,8% in 2020.

However, South African economists are less optimistic about the forecast and expect 2021 to be a year of misery.

The South African economy face further credit downgrades in 2021 due to non-payment of the country’s debt, especially if no drastic economic improvement can be perceived. According to Annabel Bishop, chief economist at Investec, there will be further credit downgrades by three of the world’s major credit rating agencies, namely Moody’s Investors Service, S&P and Fitch, if the country does not achieve the expected 3% growth.

This means where South Africa is currently rated in the B-class, two further downgrades will take the country right past the C-class of risky investments to the D-class due to defaulting on loans.

According to Bishop, there are 18 million South Africans who are currently dependent on grants to survive. However, she warned that if South Africa was downgraded and declared a defaulter, the country would no longer be able to continue borrowing money to pay these grants.

Bishop also believes that the bad news for the South African economy does not stop there. She mentioned that over the past few years, foreigners have begun to lose their appetite for South African government bonds and that South African banks have begun assuming responsibility for the state’s default on debt.

In a note to investors, Momentum mentioned that South Africa would be fortunate if the economy managed to grow by 2%.

The World Bank report shows that the Covid-19 pandemic brought about a drastic drop in per capita income, which has plunged millions of South Africans and many people of sub-Saharan Africa into poverty.

The report indicates that per capita income fell by 6,1% – the worst contraction on record – caused by accompanying lockdown regulations that disrupted most economic activity.

According to the World Bank, a further 0,2% decline is expected in 2021 before per capita income will strengthen somewhat in 2022.

The report shows a further expectation that the decline in per capita income in a quarter of sub-Saharan African economies will set back the average person’s standard of living by a decade or more, with even worse setbacks in countries such as Nigeria and South Africa, home to a quarter of this region of Africa’s population.

According to the report, the world economy is expected to grow by 4%, but this is based on the assumption that the initial vaccinations will be widely distributed throughout the year. However, the World Bank foresees that the distribution of vaccine in the sub-Saharan region will have to overcome many obstacles, including poor transport infrastructure and weak health systems with limited capacity.

The World Bank report indicates that South Africa’s early and hard lockdown, which brought the economy to a near standstill and caused the disastrous economic contraction of 7,8%, could have been even worse if the government had not provided monetary support and adjusted fiscal policies.

Morné Malan, head of Communications at Solidarity, explained that according to the UN, more than 130 million additional people worldwide are facing famine this year – mainly due to lockdown regulations. It is clear that no virus is as deadly as governments’ efforts to fight this virus. Lockdown regulations destroy economies and when the economy shrinks, the cost is not merely monetary. Unfortunately, many of the poorest people also pay with their lives.

According to the World Bank, South Africa is also facing other challenges such as the state-owned enterprise Eskom. This state-owned enterprise, which continues to apply load shedding despite a turnaround strategy, and which cannot supply power without power outages, is hampering the economy and preventing investors from investing in the South African economy.

Now, at the beginning of 2021, South Africa is also experiencing the beginning of a second wave of infections that have already resulted in revised lockdown regulations and stricter measures. There are also worrying rumours of even stricter regulations because the number of infections is still increasing daily and health services cannot cope with the increasing pressure.

Experts also warn that large-scale bankruptcies will be seen in 2021, and the banks will not be able to handle it if the country is down-graded even further.

Sources:

Global Economic Prospects Report – https://www.worldbank.org/en/publication/global-economic-prospects

World Bank warns of extreme poverty setback as South Africa is buffeted by Covid – https://www.engineeringnews.co.za/article/world-bank-warns-of-extreme-poverty-setback-as-south-africa-is-buffeted-by-covid-2021-01-05

2021: Jaar van ‘ellende’ wag op SA ekonomie – https://www.netwerk24.com/Sake/Ekonomie/2021-jaar-van-ellende-wag-op-sa-ekonomie-20210111