Tag: economy

Covid-19 peak expected late August

By Khulekani Magubane for News24

Business for South Africa says it expects the national Covid-19 infection rate to peak during August 2020.

The business lobby group says South African businesses are likely to face additional job losses of about 1.5 million by the end of the year.

The group says it will take a minimum of two years for the South African economy to recover to pre-Covid-19 levels.

Business lobby group, Business for South Africa, has urged South Africans and businesses to continue with precautions in work and public life as the economic devastation wrought by the Covid-19 pandemic rages on.

In a statement released on Tuesday morning, B4SA said it expected the national Covid-19 infection rate to peak during August 2020, while daily mortalities will peak by late-August or early September.

B4SA said South African businesses were already in distress and it now expects about 1.5 million further job losses by the end of the year.

“The steep and dramatic surge in new infections indicates that we are now well along the upward trajectory of the infection curve, with South Africa recording the fifth highest number of confirmed Covid-19 cases in the world,” the group said.

The head of B4SA’s economic working group, Martin Kingston, said the organisation expected the infection rate to have “a long tail-off” and for the virus to remain a reality of daily life for up to two more years.

“Against our latest modelling scenarios, we expect that it will take a minimum of two years for the South African economy to recover to pre-Covid-19 levels, keeping in mind that South Africa’s economy was already weak at the start of 2020,” said Kingston.

Leadership and workplace culture could be “powerful factors” in ensuring employee and customer protection, said the group.

By Prinesha Naidoo and Monique Vanek for Bloomberg

South Africa’s economy probably contracted more than 30% in the second quarter when restrictions to curb the spread of the coronavirus shuttered almost all activity for five weeks, according to central bank forecasts.

The annualised drop in gross domestic product is forecast at 32.6% for the three months through June from the previous quarter, the Pretoria-based Reserve Bank said in an emailed response to a query. That would be the deepest quarterly decline since at least 1990. The central bank’s projection in its annual report that was released on June 29 shows the economy will expand on a quarterly basis in the three months through September, which means the technical recession will be over.

The economy contracted an annualised 2% in the three months through March, the first time since 2009 that a South African recession has lasted longer than two quarters. The slump was less than projected and economists including Kevin Lings of Stanlib Asset Management warned that the fall-off in the second quarter will be severe.

South Africa implemented a strict lockdown from March 27 to limit the spread of the pandemic. For five weeks, almost all activity except essential services was halted and most citizens were only allowed to leave their homes to buy food, seek medical care and collect welfare grants.

The restrictions were eased from May 1, allowing the phased reopening of some businesses and industries. Still, many companies have closed down permanently and some of those that have resumed operations are still limited as to which services they may offer.

The Reserve Bank sees the economy contracting by 7% this year and the National Treasury projects a 7.2% decline in output. That would be the most since the Great Depression, when GDP fell by 6.2% in 1931. The near-term economic outlook is highly dependent on the development of the coronavirus pandemic and the extent of restrictions on business activity to limit the spread, the central bank said in an annual report.

Tax increases are coming

According to a recent article by Business Tech,  Finance Minister Tito Mboweni has said that the National Treasury has no plans to boost certain taxes – even as the coronavirus decimates the nation’s finances.

  • Income tax – with a top tax rate of 45% – will not be hiked, as earners are already strained
  • Corporate taxes will likely not be hiked, as they already sit at 28%
  • VAT (currently 15%) will not be hiked as this move is unpopular within the ruling ANC, because it affects the country’s poorest people
  • There is the possibility of an inheritance tax
  • There is also the possibility of a so-called solidarity tax as a bid to raise additional finances, but this would be limited in duration
  • Mboweni said that government expects to miss its tax revenue target by over R300-billion this year

SA’s unemployment rate breaks 30%

Source: EWN

South Africa’s unemployment rate for the first quarter of this year rose by a percentage point to 30.1%.

The number of employed persons decreased by 38,000 to 16,4 million between January and March 2020, while the number of unemployed persons increased by 344,000 to 7,1 million compared to the fourth quarter of 2019.

South Africa’s unemployment rate increase by 1,0 percentage point to 30,1% in Q1:2020 compared to Q4:2019. The unemployment rate usually increases between Q4 and Q1 each year.

Chief economist at Stanlib, Kevin Lings, said that these numbers were exceptional.

“The unemployment rate from my perspective jumped quite substantially, it’s now at about 30%. What’s stood out in particular, is that in the past year, almost 900,000 more people have become unemployed and I think that is exceptional and it speaks to our inability to create jobs in a very low-growth environment.”

It’s important to note that these figures capture data from the first quarter of this year.

The rand stages a remarkable come-back

The rand has staged a remarkable recovery, gaining almost 200c against the dollar. It has bounced back from R19/$ in April to R16,61 as of Tuesday.

Here are five drivers pushing the rand from Covid-19 doldrums:

  • Quantitative easing – this occurs where central banks introduce new money into the money supply chain to support an economy. There has been a large volume of QE pumped into the system, which has seen financial markets increasingly look to invest into higher yielding assets, and with emerging market portfolio assets gaining from this investment flow, so emerging market currencies continue to strengthen substantially, she said.
  • US dollar weakness – the greenback is on the back foot currently and emerging market currencies like the rand are benefiting from the weakness.
  • Attractive yields – the rand is still attractive to yield-seekers. Many developed markets in the world have interest rates at zero or close to zero, investors worldwide are seeking yield. Despite our recent interest rate cuts, South Africa still offers some yield, which has helped the ZAR as the risk sentiment returned.
  • Positive moves on all the major equity indices – markets priced in a post-Covid-19 recovery have spurred on emerging market currencies, including the rand. As a commodity currency, the rand also benefited from strong metals prices. Commodity currencies are up by around 4% month-on-month, which show greater gains over June to date than in May.
  • Improving global financial market sentiment – the market is positive on prospects for global economic recovery.

Although the South African government has put a number of relief measures in place to help those adversely affected by the Covid-19 lockdown, the structures seem to be overwhelmed or not functioning at all.

The week before last, it was reported that not one of the channels for the application to the Covid-19 Social Relief of Distress (SRD) grant of R350 was functional. More than 4,9-million people have applied for the new grant but on Friday 22 May SASSA’s CEO, Busisiwe Memela-Khambula, confirmed that just ten people had been paid.

The TERS UIF application process caused headaches for many business owners in April. However, applications for the month of May have still not been opened, and the following message is displayed on the website:

A business contacted My Office News with the information that they had received an e-mail stating that:

Companies that are no longer in full lockdown from 1 May cannot apply for this relief fund. This option is only available if your company is still in full lockdown with no operations taking place.

This means that, although many companies will need financial assistance due to a lost of customers or rule changes during Level 4, they will not be able to access it.

The Reserve Bank partnered with National Treasury and large private banks to launch a R200-billion loan guarantee scheme, which aimed to extend loans to businesses with an annual turnover of less than R300-million for operational expenses.

However, businesses have to apply within a number of metrics set forth by the bank in question, and many are finding that the other available relief funds such as SAFT do not cover the salaries of employers, only employees.

By Marelise van der Merwe for Fin24

South Africa is likely to see long-term economic damage and “deep scarring” on unemployment numbers unless urgent reforms are implemented to attract foreign investment and improve ease of doing business.

This is because there simply isn’t enough money available locally for the country’s recovery to be driven by domestic consumption, according to Dr Morné Mostert, Director of the Futures Institute at Stellenbosch University.

Late in April, President Cyril Ramaphosa announced an unprecedented R500 billion support package aimed at mitigating the impact of the coronavirus on South Africa, with Finance Minister Tito Mboweni expected to be ready to table his adjusted budget after 24 June. R130 billion of the package will be supported by reprioritising funds from South Africa’s existing budget, while the rest must be funded externally.

That’s for the current year. The next remains to be seen.

In Mostert’s view, the Level 5 lockdown was initially successful, but the lifting of restrictions has been hamstrung by a focus on minutiae at the expense of a long-term recovery strategy. The key to a recovering job market lies in attracting foreign investment and improving ease of doing business, he argues, “not whether we can or cannot buy open-toed sandals”.

South Africa – like countries across the world – has seen job losses and a reduction in working hours since the start of the pandemic. Estimates for April suggested some 20 000 jobs were shed.

But SA is not alone. Elsewhere, there have been similar or even steeper declines. For the past nine weeks, the United States has filed a record number of unemployment claims, erasing the gains of the last decade and bringing the total to over 38 million jobless.

Economies that have historically boasted the lowest unemployment rates are beginning to waver – from Australia to the UAE and Thailand. Canada’s unemployment rate spiked to 13% in April of 2020 from 7.8% in the previous month. Jobless claims in the UK jumped 70% in April. China’s unemployment rate, described by critics as “suspiciously stable”, has been called into question in recent weeks.

The International Labour Organisation (ILO) has warned that nearly half of the global workforce is in immediate danger of losing their livelihood. That’s 1.6 billion workers worldwide. The first month of the crisis saw an estimated drop of 60% in the income of informal workers globally, while worldwide, over 430 million enterprises faced high risks of “serious disruption”.

This is bad news for South Africa, whose long-term prospects for economic recovery depend to no small extent on its attractiveness as a destination for foreign investment as well as the resilience of its trade partners.

The wellbeing of the US consumer, in particular, has a widespread knock-on effect, says Maarten Ackerman, Chief Economist at Citadel.

“The US is still the biggest economy, and the US consumer is still, to date, the most important consumer. Their consumption spending is significant,” he says. “If they are going to remain sick for much longer, that is going to have a big impact on not only SA, but the whole world.”

China, as a key trading partner for South Africa, has shown some resilience – which is good news, says Ackerman. But South Africa’s trade relationships with its African neighbours are also significant, so the economic recovery of the rest of the continent, as well as implementation of the African Continental Free Trade Agreement, remain critical.

As for the US, its sustained job losses are in line with what was seen during the Great Depression, which is bad news for spending power. Moreover, according to Mostert, the strategic response to Covid-19 in the US has also “created havoc”, with global knock-on effects.

A prolonged recession is more likely than a depression, because a major structural shift in employment is unlikely, Ackerman says – meaning jobs will not be permanently destroyed.

But the concern is that comparing cycles – the Depression, the Recession of 2008, and the coronavirus crisis – indicates that while the current decline is extremely steep, during each cycle, recovery has taken longer.

“Getting 50 million people back into the employment sector will take a lot of time,” he says.

Tough times ahead for SA

South Africa faces its own complexities. Its labour market is less flexible, which has its advantages for the consumer, but can also signal challenges for recovery down the road.

“The US has one of the most flexible economies in the world. They very easily fire people, but hire them again when the economy picks up. Companies can get lean and mean very quickly,” Ackerman explains. This is not true of South Africa, which means there may ultimately be fewer jobs lost, but these could be permanent.

“There are a couple of [estimates] but depending on how long the lockdown continues, we could have 3 – 4 million people losing their jobs that will push unemployment close to 50%.

“Unfortunately, in our case, some of that damage will be more structural,” Ackerman says. “It will be difficult to replace those jobs and get those people back into employment. We entered this in a recession and may lose some companies as a result.”

The other difficulty in South Africa is that many of its people are already struggling financially, employed or not. This bodes ill for both individuals and economic recovery overall.

Credit bureau TransUnion’s Financial Hardship Survey has been monitoring the impact of Covid-19 on consumers across the globe. Its latest South Africa Report suggested that while a comparatively smaller percentage of South Africans had, as yet, been impacted by the loss of jobs than in the United States and United Kingdom, their concerns over making ends meet were already even greater.

The South African report for the week of 4 May noted that while the minority of respondents had lost their jobs, the majority (82%) had had their household income impacted. There was an average budget shortfall of R7 542.90 when paying bills or loans, with the average respondent expecting they will not be able to pay their bills or loans in 7.3 weeks due to financial hardship.

Across the country, no province had fewer than 83% of respondents saying they were concerned about their ability to pay their bills or loans. In Limpopo, a staggering 100% were worried about their ability to make ends meet.

In the US, respondents concerned about making ends meet ranged from 45% – 62%, while in the UK, figures came in at 60% – 65%.

Rough ride

For Mostert, this is one more reason to call for urgent reforms: SA will need outside help in order to recover.

“We don’t predict the future, because that depends on what people decide. But if there is no course correction, we are in for a rough ride,” he says.

This “rough ride”, according to Mostert, which includes a very rapid decline and slow recovery; a sharp increase in inequality; “deep” and “unnecessary” scarring on the job market; total erosion of South Africa’s already poor savings track record; and exacerbated damage to unemployment numbers by the Fourth Industrial Revolution, the effects of which will be accelerated.

Course correction involves urgently focusing on a more business-friendly environment. Mostert cites South Africa’s sliding rankings on INSEAD’s Global Talent Competitiveness Index; it has also slid in the World Bank’s Ease of Doing Business report, dropping from position 32 in 2008 to 84th out of 190 countries in 2019.

“Jobs cannot come from government. That’s impossible,” says Mostert. “What are you left with?

“Business, in all its various forms. Unless you are going to dramatically accelerate a welcoming environment for business, including foreign direct investment, the current future will be utterly undesirable. We need something drastic to attract investment – and it has to be foreign.”

Ackerman agrees. “The trouble is that taxes are drying up, which pushes government into a debt trap. You can only borrow up to a point,” he notes. “It’s totally unsustainable.

“If we can institute some reforms we can start heading for recovery. But if not, then unfortunately we are likely heading for a bailout [from the IMF].”

To survive Covid-19, South Africa ultimately depends on spending and investment from resilient economies, says Mostert. “There is no way SA can pull itself up by its own bootstraps. We can’t do something like inspire consumer spending and hope that gives us a chance. There just isn’t money,” he says.

By Lameez Omarjee for Fin24

Interest rates may drop further this week to levels close to those last seen in the 1970s as the Reserve Bank seeks to bolster South Africa’s ailing economy.

Economists expect a cut in borrowing costs of between 25-basis and 50 basis points this Thursday following a meeting of the bank’s monetary policy committee.

SA’s economy, which already slipped into a recession at the end of 2019, could contract by double digits this year due to the sudden halt in economy activity brought about by the nationwide lockdown to stem the spread of the coronavirus.

The Reserve Bank has already joined the world’s leading central banks in aggressively cutting interest rates and increasing bond purchases in an attempt to shore up liquidity. The Lesetja Kganyago-led bank has cut interest rates by 225 basis points so far this year, having slashed rates by 100 bps at each of the previous two meetings, taking the repurchase rate to 4.25%, its lowest level since 1973. During April it bought R11.4 billion worth of government bonds and relaxed regulations to allow banks to loan more.

A cut of 25 basis points, or 0.25% on Thursday would take SA’s repo rate to 4%, while a cut of 50 basis points would mean a rate of 3.75%. The repo rate is the benchmark interest rate at which the Reserve Bank lends money to other banks.

But to bring SA’s interest rate down to 3.14% – last seen in October 1973 as a response to the oil crisis and slowing global growth at the time – it would take a cut bigger than 100 basis points, notes economist Mike Schüssler.

Co-ordination

Central bankers have acted in a coordinated manner in their response to the current economic crisis, following a similar course to that adopted after the 2008 global recession. The extra liquidity has served to shore up up global stock markets, with the JSE All Share some 2% firmer over the past month, and the rand managing to make some gains against the US dollar.

Kganyago has previously said that the bank would use its monetary policy tools appropriately, and within the bank’s mandate, to support SA’s economy.

Deputy Finance Minister David Masondo made waves in early May when he suggested at an ANC discussion the Reserve Bank could do more to help fund Covid-19 interventions and bolster the economy for growth by directly buying government bonds.

The Reserve Bank currently buys bonds from the secondary market, and says it only does so to remedy any market dysfunction.

The Bureau of Economic Research, in a market update, said the central bank may comment further on its bond-buying activities at this week’s MPC statement. “The bank stepped up its purchases of government bonds in April, but the MPC has so far stressed this should not be seen as quantitative easing but merely to ensure a well-functioning market,” the note read.

The BER expects a rate cut of 50 basis points on Thursday. Inflation is likely hovering near the lower end of the bank’s 3% to 6% target band, it said. At the last MPC meeting the Reserve Bank estimated it would tick in to 3.6% for April.

While the central has predicted the domestic economy will likely contract by 6.1% this year, Treasury has projected a contraction of up to 16.1% in a worse-case scenario under a protracted lockdown. Under this scenario, the employment rate would be pushed to over 50%.

Shallow rate cut

Standard Chartered expects a rate cut of 50 basis points on Thursday, bringing the repo rate to 3.75%, and a further cut of 25 basis points at the July meeting, said Razia Khan, the bank’s chief economist for Africa and the Middle East. Standard Chartered also revised its GDP outlook to a contraction of 6.5%.

Khan noted that most of the country would shift from lockdown level 4 to level 3 near the end of the month, but expects a slow recovery in economic activity in metropolitan areas, including Cape Town, which are the “epicentres” of the outbreak. “Metropolitan areas still account for a disproportionate share of South Africa’s economy. The risk is that a restrictive level4 shutdown will remain in place in metropolitan areas, where economic activity is most concentrated,” Khan said.

PwC Strategy& Africa economists Lullu Krugel and Christie Viljoen also expect a rate cut of 50 basis points.

“Given the deterioration in the economic outlook since the last monetary policy meeting – where it was conceivable that the easing of lockdown regulations would be much more accommodative from May 1 – the SARB will definitely revise its economic growth forecast to show a deeper recession this year.

“Hopefully, South Africa will get more information from the Cabinet in the coming week on the future easing of lockdown restrictions – this will directly impact the central bank’s economic forecasts,” they said.

In an EWN article last week, South African Revenue Service (SARS) commissioner Edward Kieswetter said that the number of businesses that would undergo business rescue this year would rise due to the devastating impact of the Covid-19 lockdown.

“Forty-two percent of businesses feel that they cannot operate throughout the COVID-19 pandemic, 54% of businesses feel that they will not survive between one and three months, and 46.4% of businesses have temporarily closed their doors.”

The following companies have filed for voluntary business rescue in recent times:

  • Phumelela Gaming and Leisure – on 8 May the financially distressed Phumelela entered voluntary business rescue, as the business came under severe pressure from the suspension of horse races since the implementation of the Covid-19 lockdown.
  • Afarak Mogale and Afarak South Africa – on 8 May, the alloy producer Afarak Group announced that its South African operation would be going into business rescue, citing stagnation in the economic activities, which has permeated the world economy. Afarak voluntarily filed Afarak Mogale and Afarak South Africa for a business rescue process.
  • SAA –  although the national airline was placed in voluntary business rescue in December and government announced that it would avail R4-billion to the airline to deal with its short-term liquidity problems until 31 January 2020, the Covid-19 pandemic further cemented the airline’s demise. Airlines around the world ground to a halt and the South African government denied a further funding request.
  • SA Express – on 6 February 2020, South Africa Express Airways, a state-owned airline, was placed into business rescue. In March, business rescue practitioners at SA Express said that the airline could not be saved, and moved to liquidate it.
  • Edcon – before SA moved into lockdown at the end of March, the Johannesburg-based company was already under significant strain from a series of structural changes in the retail market as well as an economy that has failed to break through the 2% growth mark for the past five years. On 29 April the 90-year-old retailer went into voluntary business rescue.
  • Comair – the airline announced on 5 May that it is unable to operate given the current coronavirus restrictions in place, and its board decided the best option to ensure the long-term survival of the company is to implement a business rescue plan. The business rescue move is designed to make the airline more “efficient, agile and customer-centric”. It reported a half-year loss of R564-million. The 19-year-old Kulula was South Africa’s first low-cost carrier.

South Africa’s Unemployment Insurance Fund has paid out just over 3.3 billion rand ($177.3 million) to people whose work and income have been affected by the coronavirus pandemic and a lockdown to curb the spread of the virus.

The fund has processed more than half the 103,000 applications that it has received from employers on behalf of about 1.75 million employees, Tourism Minister Mmamoloko Kubayi-Ngubane told reporters in a virtual briefing on Tuesday. That means that more than 862,000 people will receive their benefits. About 10,000 applications could not be processed due to errors and the affected companies have been notified to correct their applications and resubmit, she said.

The government has been criticized for inefficiency at the UIF, with the 40 billion rand set aside to compensate temporarily laid-off workers not being distributed fast enough. The fund is working to meet extra requests for assistance, Kubayi-Ngubane said.

Africa’s most-industrialized economy will implement a curfew from the start of May as it plans a limited return of its workforce into an economy that’s virtually ground to a halt due to a lockdown to curb the spread of Covid-19. This economic risk-adjustment plan spans six to eight months and the governments sees the peak of the virus curve in September, according to a statement from the Government Communication and Information Service.

The government has approved an allocation of 235 million rand to small businesses’ payroll, rental and utilities for the next three months. This funding will protect about 11,000 jobs, GCIS said.

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