By Adri Senekal De Wet and Dr Chris Harmse
ALTHOUGH 2021 imposes just as must downside risks for the South African economy, there are signs that upside factors may prevent most risks.
With the right policy intervention, both globally and domestically, together with a successful vaccination program across the world, and especially in South Africa, the world and the local economy may recover strongly.
The World Bank in its latest Global Economic prospects (January 2021) forecast the following scenario for the world economy
- Global economic growth in real production will advance by 5 and only 1 percent below the pre-Covid19 pandemic projections and subside somewhat to 4.8 percent in 2022 as the impact of the pandemic on investment and human capital will erode growth prospects in both developed economies (DE’s) and emerging economies (Ems).
The downside risks that remain are:
- The possibility of a further increase and the spread of the virus;
- Delays in the procurement and distribution of the vaccine;
- More severe and longer-lasting effects on potential output from the pandemic, and
- Financial stress triggered by high debt levels and weak growth.
In 2021, the Davos agenda will host two events in place of the usual annual meeting. A virtual event in January, The Davos Agenda, will focus on the future of work, accelerating stakeholder capitalism, and the Fourth Industrial Revolution. A special live annual meeting will be held in Singapore from May 13-16.
Against this downside risk of a stronger world economy and faster recovery may be induced given that the pandemic vaccine inoculation remains on track and will at least led to a 75 percent application to the 10 biggest DE’s.
The World Economic Forum forecasts that if these 10 major DE’s spread the vaccination evenly among themselves the $38 billion price tag for the vaccines may yield an increase of $480bn to their real economic activity by 2025.
In is also expected that the East Asian economies and other Emerging Markets will recover sharply during 2021.
Given this more positive outlook will the South African economy also follow? For an economic growth rate of 4.0 percent in 2021, against the expected -0.7 percent in 2020, as well as to bring the unemployment rate back to around 28 percent, the following upside movements will have to take place – wish list:
Vaccinate 75 percent of the total population in 2021.
Abandon the governments command council so that no level of lock down is applicable by the fourth quarter of 2021. Lockdown phase 1 should be reintroduce at the end of the first quarter.
A near-record summer agriculture crop.
- Strong increases in commodity prices and exports.
- Recovering in retail sales, manufacturing and motor car sales.
- A near-balanced national Budget with minimum tax increases, if any, lower than inflation salary increases for civil servants.
- No further bail outs for SOEs.
- The implementation of the president’s recovery plans.
Foreign rating agencies and foreign investors will have to see positive outcomes and evidence of the president’s recovery plan in terms of:
The creation of jobs, primarily through aggressive infrastructure investment and mass employment programmes.
- The reindustrialisation of the economy, focusing on growing small businesses.
- Accelerating economic reforms to unlock investment and growth.
- Evidence of clamping down on crime and corruption.
- Improving the capability of the state on all three levels of government.
How the ANC will deal with the outcomes of the Zondo commission and other cases against prominent government officials will also have to be transparent and precise.
Adri Senekal De Wet is Executive Editor of Business Report and Personal Finance and Dr Chris Harmse is an economic consultant CH Economics
BUSINESS REPORT