South Africa: Covid-19 Economic Impacts and its recovery plans towards impacts

South Africa, the most developed country in Africa, according to WHO, is a country that accounts for more than half of all Covid-19 cases in Africa (more than 700,000 cases and nearly 20,000 deaths as of November 2020) and is being hit in a difficult crisis caused by this pandemic.

South Africans affected by Covid 19 lined up to receive the donated food (May 2020)

Economic activity in South Africa is expected to drop 7.2% by 2020, according to an IMF staff report accompanying the government's Rapid Financing Instrument (RFI).

COVID-19 caused many issues for South Africa: jobs decreased by 18% from February to April; women and manual labor lost their jobs and so on. The industries most affected are construction, personal services, commerce, catering, hospitality, transportation, storage, and communications. The crisis also caused production and mining activities to be delayed. In addition, the government's revenue loss is expected to be $18.2 billion this year.

Therefore, a number of measures are being taken to provide relief to households and businesses:

The IMF’s relief strategy has three phases. The first phase began in mid-March with to lessen the pandemic’s immediate impact: child support packages to assuage child famine; Unemployment insurance fund to support salary; and urgent procurement and sound rules to support the health sector. Furthermore, direct grants are also distributed to small businesses, especially tourism businesses.

The second stage aims to stabilize the economy. This was driven by support from the IMF and other organizations. President Ramaphosa announced on April 21 that support, a $29.9 billion package to boost healthcare spending, financial aid to cities and temporarily open a wide payment system of social subsidies. South African companies that have built markets based on an integrated global trade network need to be aware and willing to act on the gaps that their trade dependence creates.

The third phase will help promote economic recovery and growth. The focus of this restoration strategy will be remedies motivating supply and demand through interventions such as infrastructure financing.

Ramaphosa said the government's Economic Recovery and Reconstruction Plan will focus on five areas including job creation through large-scale investment projects; accelerate the industrialization process; accelerating the process of economic renewal to maximize development potential; strengthen the fight against corruption and improve governance capacity of government agencies.

Accordingly, the government will invest 100 billion rand (6 billion USD) to create about 800,000 new jobs in the next 3 years (especially jobs in infrastructure development, education and medicine).

Regarding development investment, the President of South Africa said that by the middle of the year, the country is implementing 276 investment projects in infrastructure with total investment capital of about 2,300 billion rand. In addition, South Africa has recently added 50 key investment projects and 27 special investment projects, factors that will contribute to stimulating economic development in this country with an economic size of more than 359 billion USD.

In his speech announcing the Economic Recovery and Reconstruction Plan, President Ramaphosa also mentioned that the government of this country will extend the term of financial assistance to the unemployed by three months, plans to expand and upgrade the electricity supply system nationwide to meet the energy demand for daily life and production by 2022, and the plan to revive tourism, one of the key economic sectors facing a lot of difficulties due to the COVID-19 pandemic.

Besides, economic growth in South Africa has been at a very low level over the past decade and is currently negative.

The government is working to reverse that situation by:

• Carrying out the structural reforms to simplify higher and more inclusive growth. The telecom, electrical, port, railway and road industries will experience a reform and modernization’s reform.

• To get the best out of the free trade area in Africa, pursue greater regional integration, and establish South Africa as a platform for exports to the region, the government needs to remake the trade policies.

• Barriers to entry will be lowered to make it easier for business to start, grow and compete.

• Support will be focused on labor-intensive sectors such as tourism and agriculture, where there is more potential for people to have jobs.

• Finally, reforms will be exercised to fortify the state-owned company's governance.

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Reference

International Monetary Fund, 2020. South Africa Looks Toward Inclusive Recovery to Stabilize Debt, Boost Growth. Retrieved from URL: https://www.imf.org/en/News/Articles/2020/08/03/na080320-south-africa-looks-toward-inclusive-recovery-to-stabilize-debt-boost-growth

Phuong Dung