The South African economy has recently reported the worst fall during the close history of the country. The issue has arisen due to the social distancing laws as well as other restrictions applied by the government to quell the coronavirus infection rates.
African countries are a bit of a mixed basket when it comes to the reaction towards the coronavirus pandemic. Some countries totally ignored the warnings, while others decided to implement partial rules to keep the economy going. Others, like South Africa, enacted the world’s strictest lockdown which helped manage the infection rates for the time being. However, it became visible quite soon that the quarantine would drive a number of people to literal hunger. The growing unemployment rate as well as the overall unhealthy nature of the country’s economy mixed with the unorthodox political situation has forced the government to ease up. The important note is that there are a number of slums in South Africa that are extremely hard to regulate when it comes to social distancing. There are a big number of people living in poor neighborhoods under conditions that do not even allow basic hygiene. This is why the government has decided to bring in the military to assist the local police forces in their efforts to keep people in check.
Earliest Lockdown
The decision first came from President Cyril Ramaphosa who made sure to put South Africa on the frontiers of fighting the Covid-19 infection. He rolled out a plan to test millions of citizens and contain the virus before its spread to the masses. It was estimated that if the country relied on social immunity there would be as many as 1.2 million infected individuals with 300,000 on their deathbeds. The president became extremely popular among people with his decision to take care of the problem at its root before things became direr. Health Minister, M.D. Zweli Mkhize was even tasked to crisscross across the country and make sure that every citizen is informed of the potential dangers of the virus and validate the decisions made by the president. During the first 3 weeks of the lockdown only groceries, filling stores, pharmacies, banks, and hospitals were open to business. Everything else would be shut down at once. At first, things were going fine with only 4,000 infected. However, as we have already noticed, the government quickly noticed that the people did not have enough finances to sustain themselves and had to ease up on some of the restrictions.
Fast forward a couple of months later and the country’s healthcare system started to fail. The hospitals were filled up with almost 650,000 infected out of which 15,000 were reported as deceased making South Africa the worst-hit nation in the whole African continent.
Economic Impact
The Gross Domestic Product (GDP) is showing a fall of 16.94 percent during just three months period. This is in comparison to the previous quarter which also took a serious hit on its own. The numbers add up to an annual fall of 51 percent which places this event as the sharpest decline since the 1990s. It is worth noting that due to lack of finances the government also failed to roll out any meaningful financial stimulus packages to the local households to help them survive the lockdown period. However, strangely enough, the restrictions applied to alcohol and tobacco consumption which is quite a questionable decision at best.
The people of South Africa started searching for new ways to utilize their existing assets to make some kind of revenue since most of the industries have been shut. South Africa has shown a gradual increase in the foreign exchange market (Forex, FX) volume as well as a surge in the popularity of trading South African rand. This is due to the fact that those people who had an active internet connection and even the most basic smart device like an Android or iOS mobile device including tablets and smartphones or laptops or personal computers noticed an opportunity to start investing in currency-pair trading. South Africa has recently become very successful in this endeavor even during the novel coronavirus pandemic.
The Financial Sector Conduct Authority (FSCA) which succeeded its predecessor Financial Services Board (FSB) has made sure to implement a big number of regulations for active brokerage firms. This has ensured that the South African brokers provide affordable and best quality service in the whole region. The affordability is the main reason why so many people were able to take part in the process.
For example, XM minimum deposit in ZAR is just R100 which puts the company’s services in a category that most of the citizens can utilize. The popularity has increased so much that the South African rand is now considered the 18th most popular currency being traded on the Forex out of more than 100 different national currencies. Forex is not the only prospering industry though there is a boom going on in every other market as well including cryptocurrencies, precious metals, bonds, stocks, and etc.
What About the Future?
Razia Khan, who is chief Africa and Middle East economist for Standard Chartered has stated in the interview that the GDP fall is troublesome. He added that although this seems like the lowest time period for South Africa during this year, the market tendencies and movement shows that this is not the end of it, and the situation will continue to worsen as time goes by. The main economic drivers, the labor-intensive sectors like mining and manufacturing, are both showing big declines in the government statistics.
On Monday South African statistics office showed that there were fewer than 1,000 daily cases for the first time since early May when the surge in the major cities like Johannesburg and Cape Town began. Thus the government decided to lift some of the heaviest restrictions including the ban on alcohol and tobacco consumption. However, there are still a number of activities that remain to be lifted. One of the most notable ones being a nightly curfew. International travel is also restricted and the borders are tightly closed and controlled. The economy is still very much constrained. Mr. Ramaphosa has been fighting an uphill battle due to his predecessor, Jacob Zuma’s corrupt and problematic legacy including structural problems like massive power blackouts that have been plaguing the country for a very long time now. Recession is, unfortunately, nothing new for the South African economy. This is the second time when the country entered such a heavy economic situation. GDP per capita is declining and still falling short of the population growth. The economic reopening has faced a huge number of obstacles in its path including one of the most massive electric outages during the recent history. This is due to the biggest power station, which is owned by the state, at Eskom going down.
The shadow Minister of Finance of Democratic Alliance, the biggest opposition party in the country, Geordie Hill-Lewis, has made a remark in an interview that the failure to implement structural reforms from the African National Congress has left the country’s economy especially vulnerable for a crisis like Covid-19 pandemic. He reinforced the notion that this is exactly the reason why the South African recession has become historic worst during the last couple of decades.
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