Cape Town - It’s more than three weeks since democratic South Africa was embroiled in insurrectionist looting and rioting in KwaZulu-Natal and in pockets of Gauteng, and yet President Cyril Ramaphosa’a money man, Finance Minister Tito Mboweni, has no idea as to the true economic and financial cost of the unrest.
Mboweni has been largely anonymous during most of July keeping a low profile, at least in his public utterances.
Last Wednesday he surfaced with an indaba briefing with the media, still bereft of the financial hit to the hapless South African taxpayer and no doubt the insurance companies and their reinsurers.
In a masterclass of stating the obvious which many of his compatriots have already been spouting, Mboweni declared: “In both the short and long term, social unrest will dampen business confidence, reducing private investment and future GDP growth. This will constrain economic recovery at a time when business confidence is already weak and at levels last seen in the fourth quarter of 2014. If riots persist – even at smaller magnitudes and in pockets of the country – they will have a lasting negative impact on confidence, private investment and growth.”
Lest we forget, the insurrectionists targeted their subversion as the country was consumed by a third wave of Delta variant coronavirus infections with its concomitant level 3 and 4 lockdowns. These events conspired to further undermine the economy and public confidence, but the country and its people have shown remarkable resilience in their push back.
So, what is the data of destruction and despair that Mboweni conjured up?
The estimated cost of damage to property and equipment in eThekwini alone is R15 billion.
He will need to finance a gross borrowing requirement of R550bn or 9.7% of GDP for each year of the medium-term economic forecast.
Debt-service costs will take up 21% of all revenue collected by the Treasury.
The debt burden is over 80% of GDP with rising debt service costs – more than R1 out of every R5 raised in taxes.
To help South Africans directly affected by the unrest and ongoing pandemic, Mboweni temporarily reintroduced the R350 SRD grant until the end of the financial year, at a cost of R26.7bn.
Allocated R3.9bn to the South African Special Risks Insurance Association (Sasria) to meet claims payouts to all covered businesses.
Allocated R2.3bn to support small businesses not covered by Sasria.
Allocated R950 million in additional funds to the security forces – R250m to the SAPS and R700m to the SANDF.
Allocated R5.3bn to the Unemployment Insurance Fund for the extension of Covid-TERS coverage and allocated R5.3bn to the Department of Health for more vaccine purchases and logistics.
The figures that were missing include any revision of GDP forecast for 2021/22; an estimate of insurance payouts for covered businesses and of reinsurance liabilities; estimates of the damage and looting in Gauteng; the cost to the Treasury in lost tax revenues; replacement cost of infrastructure and public assets; and the cost of stated further support measures.
Mboweni can take some solace from those self-styled assessors of sovereign risk – the rating agencies.
“Even if the unrest escalates,” stresses Jan Friederich, senior director at Fitch Ratings, “the effects on the economy should be temporary. The economy has performed better than expected – we revised our forecast for economic growth in 2021 to 4.9% in June, from 4.3% in our May review”.
According to Stats SA, the South African economy grew by 1.1% in Q1 2021 which translates into an annualised estimated GDP of 4.6%. But despite this being the third consecutive quarter of positive growth, the South African economy is 2.7% smaller than it was in Q1 2020.
Perhaps Mboweni could consult the IMF’s new Reported Social Unrest Index (RSUI) which measures the macroeconomic impact of social unrest.
In a study covering 2011-2019, published in July and includes apartheid South Africa to the onset of the unity government of Madiba in 1994, the findings are revealing.
Economic activity declines with GDP remaining on average 0.2% below the pre-shock level after 6 quarters. This impact can lead to a 1% reduction in GDP six quarters after the event depending on the severity and type of unrest – those motivated by socio-economic reasons result in sharper GDP contractions compared to those associated with politics/elections, but events triggered by a combination of both lead to the sharpest contractions.
The latter as we have recently seen in KwaZulu-Natal and Gauteng has the most damaging impact on society and the economy.
The adverse effect on GDP is driven by sharp contractions in manufacturing, services and consumption. Social unrest reduces consumer and investor confidence and raises uncertainty. According to the IMF, this adverse impact is typically larger in countries with weak institutions and limited policy space. Countries with weak fundamentals pre-pandemic are expected to suffer the most should social discontent turn into unrest.
While South Africa’s Constitution, Bill of Rights and Concourt are progressive and have proven strong in incarcerating Zuma for contempt of court, many government departments, agencies and SOEs are inefficient with bloated bureaucracies, beset by allegations of corruption and seemingly out of their depth.
The IMF’s indirect message to Team Ramaphosa is implicit: “Public protests in general can be an important expression of the need to change policy. Governments need to listen and respond, but also try to anticipate people’s needs with policies aimed at giving everyone a fair shot at prosperity. Boosting employment, containing the long-term impact of crises and protecting those who have been left behind must remain priorities.”
To ensure success and avoid strife, warns the Fund, needs reforms that require a broad social dialogue on the role of the state and how to sustainably finance budget pressures. A “Mission Impossible” for Agent Mboweni?
* Parker is a writer and economist based in London
Cape Times