South Africa was already on the worst economic trajectory even before Covid-19. The economy had already entered a recession and was facing an inevitable credit rating downgrade to junk status.
SA economy, like many other economies around the world, is in the midst of economic catastrophe, which the ANC-led government must do something about it. To do this effectively, it is important to first figure out where we are in the economy, which is quite a difficult task.
In March, Statistics South Africa (Stats SA) published gross domestic product (GDP) numbers for quarter 4 of 2019, which indicated that the economy is in recession. In June, the economy dropped by 2% (and remained in a recession). In September, the economy shoots down by 51% (extending the economic recession) due to the impact of the COVID-19 lockdown restrictions since March 2020.
The numbers that we have access to seems to go out of date very quickly. Once every month we get data estimates about the GDP, employment and unemployment levels and consumer spending. These numbers are just estimate which get updated when additional evidence becomes available.
Again, (for example) to get to know what GDP look like this quarter, we must wait until next year March which is when the GDP numbers for quarter 4 are usually released.
So how does a government device a plan to get the economy out of recession, create jobs and grow the economy if we don’t know exactly where we are right now? – the answer to the question is beyond the scope of this post.
Anyway… What do we know so far?
Unemployment is on the rise and is even worse in the rural parts of the country. Majority of those who lost jobs during the lockdown are low income workers. These are people who provided manual labour and face-to-face services. Professionals, mostly higher-income earners, were not affected as they continued to work from home.
Consumption spending plunged in the first three months after the lockdown started. However, as the government ease the lockdown restrictions, spending started picking up. Furthermore, there are reports that due to the current all-time low-interest rate, there is an increase in the demand for houses. Which drives consumer spending high. However, spending has shifted due to work from home.
A shift in consumer spending (Zandile’s example)
Before the national lockdown, Zandile was riding a bus to work. On her way to work, she would buy “Magwinya” (Fat cakes) from a street vendor. During lunch, she bought food and drink from the cafeteria. On a Friday, she would pass by a café to have two drinks before she goes home. Also, should go to a salon twice a month to style her hair.
During the lockdown, Zandile was working from home. Meaning, she stopped riding a bus and no longer spending on “Magwinya”, lunch from the cafeteria, Friday’s drinks from the café, and hairstyles.
However, Zandile did not stop spending her income. She instead shifted her spending to internet data, work from home accessories & gadgets, kitchen gadgets, more groceries, entertainment gadgets, etc.
Now, suppose we apply Zandile’s example to other millions of workers who are now working from home. The picture is terrifying. Most street vendors and small business will be forced to close their business. Thus, millions of jobs on the line.
So, what’s next for the economy? Should working from be the new normal Or people should return to workplaces post-COVID-19?