The world’s economy has taken a hit since COVID-19 outbreak first took hold, with stock markets reporting all-time lows and Wall Street going into its fastest bear market plunge in history. But is the fate of each country’s economy equal right now in this time of crisis?
It seems not. Where each country stands depends on where is was financially to begin with – and South Africa is one economy that was already in a precarious position. With the added impact of the coronavirus, it is possible to paint a bleak picture for the country.
In fact, Tito Mboweni, South Africa’s finance minister, has stated that the economy could contract as much as 6.4% and the deficit could grow to over 10% of the GDP as a result of the pandemic: “We are operating under very severe restraints,” Mr Mboweni said on a recent call to Goldman Sachs Group Inc clients.
So, is there a way out? Is it possible to change the country’s financial fortunes?
Prior to the outbreak of the coronavirus, South Africa was already in financial difficulty. In October 2019, the World Bank cut the country’s growth forecast to 2021, with projections at 0.8%. It narrowly escaped its second recession in two years in the second quarter of 2019, yet growth was, as predicted at the time, flat in the third quarter of the year.
Although the economy had become stagnant, the National Treasury had already taken steps towards building a stronger financial system, publishing its economic policy paper, Economic transformation, inclusive growth, and competitiveness: Towards an Economic Strategy for South Africa, in August 2019. This preempted the changes to the growth forecast for the country and appeared to be a step by the government towards reversing the negative trend.
This showed real promise and indicated that the government, led by President Cyril Ramaphosa, was determined to make some changes. However, COVID-19 has had a significant impact on any positive moves being taken.
The World Bank has predicted that sub-Saharan Africa will experience its first recession in 25 years due to the virus. South Africa, which is in the middle of a strict lockdown, is already experiencing financial turmoil as a result of the significant impact on a reduction in oil and mineral exports from the country.
However, while the outlook is looking negative right now, there is a way for the country to improve its prospects.
First, the focus on exports can be shifted. While oil is one of the largest exports and the country has leaned heavily on this over the years, it is possible to attract foreign investments. By following what the government’s economic paper set out to do and promote economic competitiveness and seeking out opportunities for regional growth, this can make South Africa an attractive investment opportunity.
This is not a pipe dream, either. Following dedicated services to keep up with the trends and the changing ZAR projections is a useful way of calculating where investment opportunities could lie in the country.
Another opportunity is in the current lack of skills. There is a shortage of those with tech and managerial skills especially in the country, so there needs to be an openness about bringing skilled workers in where possible and necessary.
While there have been business failures in recent years, such as the Eskom power plant crisis that led to arrests, acknowledging this and learning to invest in those with experience and skills to successfully manage and oversee will go a long way towards repairing the economy.
This will take time, however. But there are some quick wins if needed. For example, tourism is an area that can make a huge impact in a short time. By readdressing the visa restrictions into South Africa, the country can be opened up and attract visitors from across the globe once the pandemic subsides. Promoting the country to the world and letting tourists know it is open and ready to welcome them can see huge boosts in revenue.
Until South Africa comes out of lockdown, the economy hangs in the balance. However there are ways to make changes to the economy in the coming months, and it is possible for the forecast to become positive.