The South African economy post Covid-19
With the threat of a third wave hanging over the country, ongoing load shedding, rising unemployment, and the uncertainties surrounding vaccines and the distribution thereof, most of us would be forgiven for avoiding any discussions about the outlook of the economy. Contrary to what many think, it isn’t all that bleak. Make no mistake, we have a tough road ahead, and it may be some time until we can get comfortable again but South Africans are a resilient and resourceful bunch, and our economy is bound to reflect that. The property sector, as a microcosm of the whole, will reflect many of the same struggles and in the end, the same triumphs.
On the African continent, South Africa is the country that was the worst affected by Covid-19, with (at point of going to print) 1,5 million cases recorded, and 52 000 deaths, half the deaths on the continent. The effects of the pandemic is clear as South Africa’s economy contracted for the first time in 11 years in 2020 with the GDP shrinking by 7%. Compare this with a 0.2% expansion in 2019. With one of the hardest lockdowns on the planet being implemented, this contraction should come as no surprise.
Of course, many of the challenges that face our economy were already present pre-Covid-19, the pandemic merely exacerbated them. Take for example the high unemployment rate. Everybody knows unemployment in South Africa is not a new concern. However, the hard lockdown tarnished many industries, creating large-scale job losses. A recent labour-force survey by Statistics South Africa showed that the unemployment rate reached an alarmingly high 32.5% in the final month of 2020, the highest since 2008. In the first month of lockdown alone, 2,2 million South Africans lost their jobs.
Then there is the collective national headache known as load shedding, an ongoing concern since 2008. But as Finance Minister Tito Mboweni recently said: “SA’s economy is likely to weaken further if there was no reliable supply of electricity.” And finally, the much-anticipated vaccine rollout. In a recent behind-closed-doors call involving a group of domestic and global investors, Treasury’s Director-General Dondo Mogajane said: “A successful vaccine rollout is likely to boost domestic economic growth, enabling renewed trade and releasing pent-up demand. A slow rollout poses the most significant threat to economic recovery.”
However, positive sentiments can be found in every corner with more and more economists choosing a glass is half full approach. Johann Els, Chief Economist for the Old Mutual Investment Group believes that there is optimism about economic growth prospects and South Africa has a number of factors that could help lift growth, including very strong post-COVID pandemic global economic support to drive positive investment. He went on to say that he expected 5% plus growth in 2021.“The missing link is stronger confidence and 2021 could be the turning point for confidence. Businesses need confidence to thrive. Better confidence brings better growth and better growth brings better confidence, and so the cycle comes into play.” Els said.
Then, in terms of support for the Property Sector, the recent budget speech by Finance Minister Tito Mboweni didn’t offer much. No direct relief in terms of the purchase of residential property with no adjustments being made to the transfer duty exemption threshold, which remains at R1 million. There were also no changes to the Capital Gains Tax threshold. However, what was significant was the fact that income from property taxes, which was expected to be flat from 2020, is now expected to grow by R1.4bn to R16.8bn in the year 2021/22.
But these things become minor details inside a strong or stalwartly recovering economy. If the economy as a whole picks up, everyone will benefit in a specific way. As most in the property sector will agree, the most important factor which will determine the recovery of the SA economy and in relation, our sector, is the continued efforts to secure and rollout Covid-19 vaccines. Not only will that boost confidence in all sectors, but the property industry can also give rising unemployment a massive boost in the opposite direction, as it is traditionally one of the largest job creators. Property exists because of construction, and construction cannot happen without hands meaning the creation of jobs.
The jury is out in terms of the overall economic recovery prospects, but all things considered, it does seem things could be looking up. All in all, the stage is set for what is to be a, somewhat nerve-wracking, somewhat exhilarating, but never boring, 2021. Optimism on the horizon for a better future for all South Africans!