BLSA: SA must gain recovery momentum
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By Busi Mavuso
While we entered 2021 under the cloud of a second wave of Covid-19 infections, the economic news so far has been much better than most of us could have expected.
This week’s data may have confirmed that last year the economy had its worst performance since 1964, but the growth of 6.3 percent in the fourth quarter suggests the economy is staging a recovery from the ravages of the “Great Lockdown” that began almost a year ago.
The fourth-quarter growth was better than the 5.6 percent adjusted quarter-on-quarter expansion predicted by the median estimate of 15 economists surveyed by Bloomberg.
Now we need to maintain that recovery as we walk what will be a long road to restoring national output and employment to their pre-pandemic levels.
Cognisant of the still very real health concerns of society at large, we urge the government to have an open channel of communication with business, labour and other social partners in determining what economic activity remains open or closed if we suffer a third wave.
What we can hold onto for now is that the worst appears to be behind us and a recovery is under way. This week’s evidence comes only weeks after Finance Minister Tito Mboweni delivered a Budget speech that proved a welcome surprise for many observers of the South African story as higher commodity prices played themselves out in stronger revenue collection and slightly lower-than-expected debt to gross domestic product forecasts.
The markets have since rallied on the back of that speech and sentiment has for the most part remained positive, at least for the country’s short-term prospects.
Last year, at the height of the health and economic crisis caused by the pandemic, the thinking was that we’d have a double-digit contraction in the economy, because we were already in recession before the pandemic hit. We should use the upswing in sentiment to zero in on our structural fault-lines that have weighed on our prospects for the better part of the past decade.
We must take advantage of the momentum to rebuild the economy and, most importantly, confidence, the first ingredient for any turnaround project. Business confidence data set to be released this week are also expected to show a positive upturn. Keeping that momentum going and inspiring a sort of snowball effect will largely depend on just how the government manages the vaccination dissemination while continuing to drive structural reforms.
The sustainability of the economic recovery that began in the third quarter of last year will be largely determined by how the Department of Health and the National Treasury work together in meeting the target of about 40 million vaccinations for 67 percent of the population.
The second wave is now clearly behind us, with a further fall in excess deaths last week. Case levels have also substantially reduced and are now at levels seen in May last year, while the case positivity rate is back to where it was in April last year. Deaths are still elevated but are falling. Our vaccination process, however, is still an implementation study, not a national roll-out as yet.
In 2021, as we have said before, “vaccination is the best economic policy”. We need to work together to accelerate it and ensure its success. The roll-out poses the greatest risk to the improved sentiment towards the country; getting it wrong will set back our recovery.
But for now, news of the recovering economy off a low base is a shot of confidence just at the right time, and it helped to offset pressure on the Treasury in its management of the fiscus. It’s not often that one can view a contraction in an economy of 7 percent and find a positive story in the numbers. It must not be wasted: a vaccine roll-out dogged by capacity issues could pop the bubble and possibly reverse the gains of more than 11 percent in the rand since we went into hard lockdown on March 27.
I’ll end this piece with the bullish forecast for South Africa this year by Old Mutual Investment Group chief economist Johann Els, who, after the release of the fourth-quarter gross domestic product numbers, was quoted as saying 2021 will be the country’s “comeback year”, with economic growth rebounding to 5 percent due to a “bungee cord rebound effect” from last year’s slump.
Achieving 5 percent growth hinges on a successful vaccine programme and implementing the reforms agreed to in President Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan.
Busi Mavuso is the chief executive of Business Leadership SA.
*The views expressed here are not necessarily those of IOL or of title sites