28 Jan South Africa’s Economy 2022: A Bleak Forecast
South Africa’s Economy 2022: A Bleak Forecast
It was rather difficult to make any solid forecasts for world economies in the heat of the pandemic, but with things slowly but surely going back to normal, we have a better picture of what the picture holds, and it’s also far easier to once more compare different jurisdictions.
While the forecast for South Africa had always been rather bleak, our current trajectory has been placed even lower than previous estimates.
Where is South Africa heading in 2022?
There are varied forecasts for SA posed by different groups, but these forecasts aren’t necessarily divergent; they simply hover somewhere on a sliding scale between ‘uncertain’ and ‘disastrous’.
Of course a disastrous outlook is not necessarily a sign of things to come – it’s often just a token label applied to businesses and economies by investors who want to play it safe. But are they really exaggerating?
Rand Rescue takes a look at some of the outlooks and forecasts by various experts around the globe.
Projections for 2022
The IMF tends to be quite stern in their assessments and projections for SA’s economic future, much like certain ratings agencies. Despite their general conservative view, they have provided some of the less scathing projections for our economy.
In October 2022, the global monetary group placed SA’s GDP growth for 2022 at 2,2%. This was adjusted downward on 26 January 2022 to 1,9%. The group announced a further slump in 2023, with projections at 1,4% GDP growth in 2023.
It should be noted that the downward adjustments take into account an estimated 4,6% GDP growth in 2021 after rebounding from the 2020 Covid pandemic and lockdown losses. This is quite a remarkable recovery, despite the widespread losses suffered.
Looking at their overall forecast, SA’s GDP growth is where the good news stops. Though we were nearly on par with Canada and just above Russia on the IMF GDP growth estimates for 2020, we only beat Brazil for bottom tier in 2022’s forecast, and slumps to last place for 2023.
Statistics SA places SA’s GDP contraction far higher than other institutions – with a 1,5% contraction quarter-on-quarter from the third quarter of 2021.
Their actual data will only be available in March 2022, but it’s rather worrisome that their estimations differ so vastly from other economic forecasts.
Stats SA base their estimates on the impact of lockdowns which stemmed South Africa’s tourism industry. According to travel and tourism analyst Ralph Hollister, international tourist arrivals are only estimated to reach their pre-pandemic levels in 2024.
PwC estimates GDP growth between 1,5% and 3%, stating that the high debt bill, load-shedding, further lockdown restrictions, fiscal spending and municipal coalitions and political infighting will be significant challenges in the year ahead.
The OECD places SA’s account balance as a percentage of GDP at 1,193% for 2022 (down from 4,902 in 2021) with this number plummeting to -1,145% in 2023.
The burden of echo chambers
Epidemiologists place the burden of SA’s economic recovery at the feet of those who are vaccine hesitant. Though it is not entirely unheard of, a strong moral and social link has emerged between conservative Southern Africans and conservative US citizens.
This connection has been bolstered by an increased social media take-up among older and more conservative individuals and generations. Given their relatively new uptake of social media, such individuals tend to flock towards rational silos where certain views are amplified within an echo chamber. These groups or platforms uphold distinct religious, linguistic, cultural, medical and social views and ascribe to the views of certain political leaders who dub any opposing notions as fake, falsified or part of conspiracies.
It’s nearly impossible to penetrate such groups with rational debate, and opposing extremist views which claim unquestionable allegiance to medical authorities don’t help much as it just adds fuel to a fire which generally leads to widespread ad hominem attacks with no progressive outcomes.
Vaccine hesitancy has increased among various conservative groups in South Africa of all races. The WHO states that vaccine hesitancy is generally related to safety, efficacy and novelty, but that the overwhelming factor in this case is the latter – novelty. Though older people may have received vaccinations for various diseases over the course of their lives, the expedited nature of science and the rapid influx of the virus globally has made them cautious and weary since it’s harder for them to process all the data and change. This is an understandable reaction, but when this happens en masse, individuals’ fears are watered and nurtured in a greenhouse of conspiracies. When those who oppose these individuals ignore their legitimate concerns, this simply aggravates the problem, since there are always worthy concerns when it comes to mass application of medical interventions in addition to social compliance.
Though this is not a matter which is likely to be resolved soon, this means that South Africans are likely to be barred and banned from entry in other regions OR see less visitors to the country as long as vaccination rates remain so low.
Rate hikes all over
While vaccination is low, the same cannot be said for rates.
The current and emerging slump in SA’s economic growth is not necessarily linked to poor performance by local businesses, but has more to do with the robust rate increases which consumers will face in coming weeks and months.
While Covid-19 had a dire impact on businesses and households, the blow had been buffered quite significantly by interim legislation which prohibited exorbitant price increases across the board and offered financial backing, rate cuts and payment deferrals for South Africans. With this buffer nearing its end, rate increases are on the cards across the board.
The Government and its various SOE’s have already announced proposed rate hikes coming for us.
Repo and interest rates
With the repo rate cut to 3,5% at the eve of the pandemic, it was inevitable that major adjustments would be seen in our future. It’s estimated that this rate would increase to nearly 4,5% in 2022, with further hikes in 2023 up to 5,20%.
Following the first Monetary Policy Committee (MPC) meeting on 27 January 2022, Reuters estimates that the SARB will raise the interest rate by 25 basis points (undetermined at the time of writing this article).
With the repo rate comes increases by financial institutions – most notably, we are likely to see massive hikes from credit providers as they seek to recover those funds they’d loaned to South Africans during the pandemic. The biggest problem is those people who have over-extended themselves and fallen behind on payments.
For while legislation limits interest charged on credit which is well paid, those interest rates sky-rocket once payments have been skipped. There is still a cap on interest for overdue credit extended by legitimate credit providers (which is quite steep), but given most South Africans cannot acquire loans legally due to affordability calculations, many individuals fall victim to loan sharks and unsecured lenders who may raise their ‘interest’ significantly in line with repo rates.
Focus Economics stated that the SARB had hinted at its intention to raise interest rates each quarter until the end of 2024.
Ever the leech on the pocket of South Africans, Eskom has requested a rate hike of 20,5% effective from 1 April 2022. The eternal drain on SA’s economy, it seems there’s no end to the SOE’s blatant sadism. Hopes for effective management and restructuring of the incompetent parastatal as promised to South Africans between December 2019 and March 2020 have been scrapped.
Not only does the decrepit SOE continually expect state bailouts, but it has shown a complete and utter inability to rid itself of corruption, maintain effective services, introduce alternative energy to the grid or manage its human resource budget against its budget.
Given that SA’s only nuclear power plant, Koeberg, is being shut down for critical upgrades and maintenance which will last a few months, Eskom is bound to use this outage as another excuse in their never ending party pack of personal exculpation to bully South Africans into submission for the umpteenth time.
To add insult to injury, South Africans aren’t allowed to seek out alternative energy at their own cost without registering these sources, paying levies for them AND feeding them back into the power grid. It seems the government is essentially forbidding individuals from seeking out clean energy at lower cost. This includes the local government of the Western Cape, who is one of the first to have introduced measures to not only bar unauthorised individual use of alternate energy sources, but going as far as using drones to scan rooftops for solar panels.
CEO of Eskom, Andre de Ruyter, seems to be living up to his name, and riding this gravy time much in the same way his predecessors had.
Petrol price increase
There was always a concern about the impact of Covid on transport and logistics, and yet this seems to be the one thing the government is not afraid of
The petrol price (93 unleaded) lept from R13,76 to R19,63 between December 2020 and December 2021 for coastal regions and R14,26 to R20,13 for inland regions according to the Automobile Association.
The Department of Mineral Resources and Energy announced another price decrease of 2,20 cents per litre for petrol and diesel on 5 January 2022, predominantly due to a drop of 7 USD per barrel of Brent Crude oil. Analysts have stated, however, that we should not count our chickens.
Throughout SA’s history there has always been a marginal cost reduction in petrol and diesel prices before a major hike. The same rationale which the Department has cited for dropping cost is likely to be the motivation for hiking prices once more in February – since oil prices are likely to rise as global land, air and water traffic picks up.
The current rise and fall aside, it’s quite shocking how a hike of more than R5 per litre over a 12-month period is not addressed more vapidly. Business Insider estimated that a mere round trip between inland and coastal regions in a standard vehicle cost approximately 40% more in 2021 than it did in 2020. The SARS estimate for a round-trip between Cape Town and Johannesburg in December 2021 stood at R10 676,9 – which includes maintenance, toll fees and fuel.
Consider the cost for the transportation of all goods and people in SA and it’s clear that South Africans are in dire straits.
Cost of living
South Africans have already seen massive increases in the cost of goods in the past two years, and this is not likely to slow down.
While the government and SARB are ready to rip off the band-aids offered to businesses and individuals these past two years, South Africans aren’t prepared for the impact.
The problem with prolonged intermissions where individuals or businesses are offered breathers is that they generally only play catch-up for their financial situations as at the start of these concessions – they aren’t prepared for the blowback two years later (in this case), when the training wheels and leeway are suddenly stripped from them.
New businesses and ventures who had established themselves in the midst of the pandemic by offering cheaper, faster or more accessible services will suddenly find that they aren’t prepared for the realities of life outside a pandemic. Their claims to fame and unique business propositions will no longer hold water. All the effort and progress that has been made in the past few months may have been for nothing for many South Africans.
Tit for tat? No sir!
The problem with such price hikes is that large corporations, businesses and retailers feel justified in hiking their own prices in line with inflation and other price hikes.
When it comes to sole proprietors, freelancers, small and micro organisations this simply doesn’t fly. Should they raise their prices accordingly they risk losing contracts or business partners. The two outcomes are simple: lose your business, or work harder for less.
Though it is understandable that large corporations would need to weigh up costs and choose suitable providers based on cost estimates, these businesses also hold down progress, competition and a higher quality of workmanship in the process as providers scramble to remain relevant.
Time to head out?
South Africa’s one claim to fame has always been a lower cost of living compared to the most popular immigration destinations – New Zealand, Australia, USA, Canada, UK and Europe – but it seems the carpet is about to be ripped out from under those who’d always boasted about it.
As the government tries to recover costs for a R500-billion pandemic loan while managing the expectations of corrupt SOEs, saffas will simply need to pay more for everything from energy, transport and business supplies to foodstuffs, education and credit.
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