The Impact of COVID-19: The Conundrum of South Africa’s Socio-Economic Landscape

John Hogg/World Bank
John Hogg/World Bank

Like all countries caught in the first wave of the COVID-19 Pandemic, the Ramaphosa government has had to take some tough decisions: ease into a hard lock-down regulation or take a softer but cautious approach. South Africa was quick out of the starting blocks opting for a hard lockdown that imposed strict curfew restrictions that only allowed certain essential sectors to operate, forced small and medium businesses to endure greater strain on their operations, limited social gatherings and urged social distancing and mask wearing as part of the personal protective measures. The harshest impact was on the alcohol and tobacco industries that saw the sale of these products being banned.

Prior to the onslaught of COVID-19, South Africa had slid into a technical recession by the end of 2019. This was the second time that the country had recorded a recession under Cyril Ramaphosa’s Presidency. By the start of 2020, the South African economy was experiencing some of its worst structural economic constraints

  • Economic growth was recorded at 0.2%
  • Agriculture was the main drag on the economic growth, contracting by 1.4%
  • Formal unemployment reached 29% 
  • Youth unemployment was the biggest concern, estimated at 53.18% with those younger than 25 years old comprising a rate of 58%
  • Major credit rating agencies like Fitch and Standard and Poor downgraded South Africa’s sovereign debt from stable to negative
  • The budget deficit widened to 4.5% due to revenue shortfalls
  • State wages and spending constituted the highest spending of over 34% of consolidated expenditure in the 2019-2020 budget 
  • Bailouts to distressed State Owned Enterprises continued, while
  • Household debt constituted over 34% of GDP, meaning that more than one third of families across the country relied on debt as part of their household income.

A bleak picture underpinned the country’s socio-economic landscape. The situation was made more vulnerable by increasing inequality and the rise in basic food costs due to the volatility of the currency’s (ZAR) exchange rate which saw fuel hikes, in addition to electricity tariff income. The impact of wasteful government expenditure coupled by financial irregularities and corruption became an added burden to the socio-economic dilemma of the state. And so by the time the COVID-19 inflection point arrived, the country’s socio-economic stability was already in a fragile state of affairs. 

2021 will be much like 2020. The only difference this time around is that we have had a trial run and will hopefully be better prepared to absorb the shocks and pursue a coherent pathway to policy reform and better socio-economic outcomes. @SanushaNaidu

COVID-19: The First Wave: Tipping Point

During the first wave which took place between May – July 2020 and under level 5 lock-down measures, the intention was to flatten the curve and allow for emergency services like the medical health sector to be prepared as the infection and transmission rates increased. 

While President Ramaphosa and his government were praised for their expedient efforts to assuage the onslaught of the virus, criticism was levelled against the South African administration in terms of the debate relating to lives versus livelihoods. Given the economic predicament that faced the majority of the poor, vulnerable and marginalized, Ramaphosa and his cabinet had to reorient spending in the national budget. This took the form of a US$26 billion (constituting about 10% of the country’s GDP) relief package that saw:  

  • the adoption of the Temporary Employer/Employee Relief Scheme (TERS) being implemented under the Unemployment Insurance Fund (UIF)
  • Debt relief measures for Small and Medium enterprises negatively affected by the Pandemic, and
  • The rollout of Social Relief Distress measures including additional monetary payments for child support beneficiaries, an unemployment grant for those not receiving any form of social assistance, and the disbursement  of food parcels to vulnerable households.

In the short-term, government’s response to the socio-economic effects of the pandemic were deemed appropriate to defray the socio-economic costs of an economy that was faltering. 

Delaying the Inevitable 

As much as the social relief grants were a stop-gap measure to ease the plight of the destitute as well as of an overburdened state, the restrictive measures of the level 5 lockdown regulations exposed the untenable circumstances that South Africa found itself in. For one, government did not have the kind of cash injection to rollout a stimulus package to underwrite the socio-economic costs of the pandemic. Government saw its economic reaction to stimulate a flailing economy caught between a rock and hard place. Austerity remained a single most important feature of government’s economic policy so as to retain the dynamics of the neo-liberal architecture of a market led approach and appease international investors.   

Second, the disconnection between the macro and the micro dimensions of the economy became overwhelmingly obvious. It was abundantly clear that cottage industries and small businesses operating in sectors like tourism were not able to absorb the costs of the pandemic. Unfortunately, this meant that those with a low skill base became casualties in the unemployment scourge. 

Third, by the time the country moved to lock-down level 3 restrictions, the war on the invisible enemy had become a battle of lives versus livelihoods. Food security was rife with female-headed households being the worst affected. This was as a result of businesses and industries collapsing with formal and informal employment opportunities taking on a bleak outlook.

Fourth, the ugly scourge of corruption and financial irregularities and tender fraud of government contracts for Protective Personal Equipment (PPEs) reared its ugly head. For instance the payments through the TERS programme had been frozen when it was discovered that the scheme was being defrauded by unscrupulous business owners who were not giving the money to their employees. Then there were the PPE corruption scandals, ranging from price collusion between retailers on masks and sanitisers to large-scale contracts that deviated from tender processes and were awarded to individuals that had close links to the ruling party. 

It became unconscionable that at a time of an unprecedented crisis, selfish material interests were put ahead of easing the pain and suffering of the many by ensuring that ‘A better life for all’ can be pursued. In addition, the scorecard on government achieving its implementation goals on the rescue package was viewed with mixed reactions. Bureaucratic inertia and institutional bottlenecks made the distribution of grants and relief measures that much harder. As the Institute for Economic Justice had outlined in their fact sheet ‘government needs to radically reduce onerous requirements, cumbersome processes, and stringent eligibility criteria’.

The Second Wave: Over the Tipping Point

In many ways the second wave, which occurred between December 2020 and January 2021, followed the first. The easing of lockdown measures did little to mitigate the risks in social behaviour. If anything, as lower lock down regulations took effect, the idea of a new economic normal returned to business as usual. The toll of the first wave saw people wanting to enjoy their civil liberties, while for the many of those employed in low cost industries, the necessity to keep a job and earn a living was much more important.

By the time the second wave with its new variant had embedded itself in the landscape of the country, South Africa was struggling to push through the recession. If anything the recession had become more acute and the festive holiday season saw another adjusted level three lockdown with mask-wearing becoming legally mandatory. But the dye had been cast and the socio-economic picture was bleak to say the least. 

In the Finance Minister’s budget speech delivered on 24 February 2021, the contextual analysis of the country’s economic and social situation was alarming. To this end:

  • The economy contracted by 7.2%
  • 2.2. million jobs were shed in the second quarter of 2020
  • Unemployment spiked to its highest levels at over 32% in the fourth quarter of 2020
  • Revenue collection from taxes dipped well below expected returns
  • Less disposable income at the household level
  • Poverty and Inequality was increasing 

The writing on the wall

The COVID-19 pandemic exposed the inevitable regarding South Africa’s socio-economic structural conditions. Issues of distrust were accompanied by levels of apathy towards the ruling elite in actually being able to address the pandemic. There were bigger existential questions in respect of whether state institutions were able to provide the necessary social services and protection to improve the lives of ordinary people. The conundrum that South Africa faced in the way that its socio-economic architecture was impacted by the COVID-19 crisis was that most of the challenges facing the poor and vulnerable were not due to the pandemic but rather to the bureaucratic nature of the state and its lack of efficiency.

As the country moves towards the local government election, it will be significant to monitor electoral behaviour of the majority of vulnerable and indigent that have been negatively impacted by the pandemic. The warning signs are already there where there does not seem to be much value being given to the democratic dispensation. Service delivery protests are becoming a daily feature of township life where material circumstances, lives and livelihoods have not changed. 

Even the middle class have felt the pinch of the pandemic. It is very likely that more middle class households will find themselves having to be prudent with their finances. 

Added to this is the exacerbating effect on foreign economic migrants who will have to deal not only with the harsh effects brought on by the virus but also xenophobic backlashes. 

2021 will be much like 2020. The only difference this time around is that we have had a trial run and will hopefully be better prepared to absorb the shocks and pursue a coherent pathway to policy reform and better socio-economic outcomes. The challenges for government is to be bold in its policy certainty, reduce an oversized and predatory bureaucracy and mitigate the risk of a third wave which South Africa cannot afford. 

Sanusha Naidu is a senior research associate with the Institute for Global Dialogue. She is a regular commentator on domestic affairs and foreign policy issues. The view presented is personal.

Article by:

Sanusha Naidu
Foreign Policy Analyst

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