It will take years for SA’s economy to recover from ongoing violence and looting, warn economists
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Johannesburg - Economists say it will take years for South Africa’s already flailing economy to recover amid ongoing violence and looting.
The widespread looting and social unrest that’s followed the imprisonment of former president Jacob Zuma has damaged business confidence, disrupted key trade routes, and seen businesses from banks and supermarkets to small-time traders shutting their doors in the past few days.
The rand also continued to lose ground against the major currencies amid the ongoing violence and looting in areas of KwaZulu-Natal and Gauteng.
The currency lost more than 2% against the dollar at the beginning of the week, and the continuation of this week’s chaotic events could see the rand weaken further, with recovery hinging on restored order and calm.
Wits University economist Dr Kenneth Creamer said the recent looting and violence has further compounded the country’s economic woes.
“After the injustices of apartheid, South Africa, from 1994 to 2008, began to see economic indicators moving in the right direction, albeit too slowly – there was sustained investment and economic growth,” Creamer said.
“The number of people living in poverty fell and employment levels rose. For the past decade, due to a difficult global environment and to the own-goal of corruption and state capture, economic indicators have been moving in the wrong direction.
“Now layers of crisis are compounding the country’s problems – rising national debt, state incapacity, falling confidence, the Covid-19 pandemic and most recently looting and wanton destruction.”
Creamer believes it will take years for South Africa to recover economically from the looting and destruction that has taken place in the past week.
“Livelihoods of small business owners have been destroyed, commercial and industrial districts have been smashed-up and our national psyche has been deeply scarred. As President Ramaphosa said in the early days of the current crisis – we should be trying to build South Africa up, not tear it down.”
Creamer believes the country needs to get back to basics for South Africa to achieve a sustained period of inclusive growth to improve the lives of ordinary people.
“We need practical policies to improve energy security, industrial investment, infrastructure expansion and service delivery especially in areas such as education and health services. What has happened in the last few days will make the building-up of South Africa much harder to achieve,” Creamer said.
Professor Bonke Dumisa, an independent economic analyst, said the chaos in recent days has cost South Africa dearly.
“The criminal economic sabotage, in the form of looting and anarchy, has already cost the country dearly, in the region of billions of rand, since it started,” said Dumisa.
“It will take us years to recover economically. Many of the businesses destroyed in the apartheid-sponsored riots we witnessed in 1985 did not recover to this date.”
Dumisa says the government needs to act decisively if there is any hope of an economic recovery.
“How devastating an impact the looting and anarchy will have on the country will mainly depend on how the government will decisively deal with the major instigators of this anarchy, starting from the top.
“We were already facing the serious negative effects of the Junk Status, but the rand has remained very resilient. It is actually still far stronger now than where it was before the Covid-19 lockdown period.
“I am confident the rand will bounce back if the government can deal decisively with the kingpins of this looting and anarchy.”
Dumisa added that the ongoing looting and violence could also deter international investors.
“I think it will temporarily deter international investors as they fully assess if these are signs of future economic uncertainty and/or political uncertainty.”
Economic analyst and Wits lecturer Lumkile Mondi says events of the past few days have been hugely destructive to the country and its economy.
“It’s broken down the supply value chain of key supplies including food, fuel, and other necessities,” said Mondi.
“More importantly, it has impacted the insurance industry, which faces huge claims in the next few weeks. Banks too will have increased default probability from businesses and individuals that have lost their jobs.”
Despite the devastating impact however, Mondi is positive that South Africa will soon recover.
He says not only does he expect a flood of funds from international investors, but he also expects the rand to improve.
“I think this is very positive for international investors,” said Mondi. “The defeat of the RET (radical economic transformation) movement was always going to be violent and destructive since that is the only weapon they have – mayhem and instability.
“The actions by the president to react with persuasion and the rule of law is investor positive. There will be a flood of funds for reconstruction and development.
“While the looting and violence that have occurred in the past few days have increased the risk premium creating some volatility of the rand, the return to the rule of law and the current commodity upswing is also positive for the rand.”
Mondi believes economic stability will be restored as soon as there is political stability in the country.
“We will recover very quickly as the return to political stability and the rule of law returns. However, growth will be accompanied by deep inequality as a result of the destruction of jobs because of looting. Digitalisation and the future risks of vandalism are likely going to disincentive the rebuilding of malls, forcing households to buy online.”
The ongoing looting and violence has also severely impacted the country’s fuel and electricity supply.
Energy economist Lungile Mashele said the ongoing chaos in in the country has halted deliveries of fuel.
“South Africa imports the bulk of its fuel. It comes through various ports around the country. Inland fuel comes from the Island View Precinct in Durban. With the Durban port closed, fuel-carrying vessels are unable to discharge so they are stuck at sea with large volumes of fuel,” said Mashele.
“The fuel storage capacity at our ports is also limited, due to under-investment. So with vessels unable to discharge fuel, no storage, the N3 closed, and the protest action in KwaZulu-Natal and Gauteng, it means fuel tankers are unable to deliver fuel.”
Oil companies have also limited their operations due to the ongoing chaos in the country, said Mashele.
“They’ve limited their operations and deliveries for the safety of their workers. In addition, the cash-in-transit industry is not doing money drops at the moment either, so fuel stations also run the risk of robberies if they remain fully operational. We have already started seeing fuel rations and long queues in the Durban area.”
Mashele says she expects the fuel crisis to continue indefinitely.
“The South African Petroleum Refinery (Sapref) has of July 13 declared force majeure and limited their operations, this means all imported crude cannot be refined – this accounts for 35% of the fuel used in the country.
“Sapref has cited unavailability of critical materials to enable their operations, hence the suspension of activities.
“The fuel crisis sadly has already started and will continue indefinitely. Restarting a refinery does not happen overnight. So expect long queues and fuel shortages for some time to come. This will also affect fuel going to Botswana and Zimbabwe.”
Mashele says electricity supply in the country will also be greatly impacted.
“A number of components for power stations come through Durban Harbour – equipment such as cables, batteries, generators, engines, solar panels and transformers are stuck at the port or were burnt in factories,” said Mashele.
“These components are not just for South Africa but for inland countries such as Botswana, Zimbabwe and Zambia. This will force some independent power producers (IPPs) to also declare force majeure. Power projects will not be completed on time, thus extending South Africa's power crisis.
“Luckily for South Africa, most of the renewable energy IPP projects currently under construction use other ports in the Eastern and Western Cape.”
Delivery of coal in the country and overseas has also been affected after several coal delivery trucks were set alight in the past week.
“The burning of coal delivery trucks is two pronged. It has an impact on the delivery of export coal which leaves via the Richards Bay Coal Terminal to SouthEast Asia. This is mainly serviced by black-owned mines who risk losing lucrative contracts and could jeopardise power supply in those countries.
“It will also have an adverse impact on Eskom operations, however Eskom is mandated to have coal stockpiles for several weeks. In 2020 their average coal stockpiles were 50 days, so a short-term interruption will not affect them.”
Mashele says, however, that should chaos continue in the country, Eskom could be forced to shut down some of their coal plants which will result in frequent blackouts.
“If this situation is protracted, the country will definitely experience blackouts at a level never experienced before,” said Mashele.
“I'm deliberately not calling it loadshedding, because that is attributed to demand and supply. If the situation persists, Eskom will have to shut down their coal plants or perhaps leave one or two plants operational while they ration coal.”