Michelle Austin | Finance Specialist | Director | Leadership Professional | Keegor Group | mail me |
As South Africa’s electricity crisis worsens, accompanied by increased interest rates, food and petrol prices, the country’s potential to enter a recession rises exponentially.
As most economists have noted, South Africa presently falls short on both micro and macroeconomic benchmarks, from exports and imports to infrastructure development and ballooning interest rates.
Saddled by corruption, ongoing load shedding and high unemployment figures, experts have placed a 45% chance of South Africa experiencing a recession in 2023.
What is recession?
A recession refers to a significant, pervasive, and long-term decline in economic activity. It is declared when a country’s economy experiences long-term negative gross domestic product (GDP), a rising unemployment rate, and a rise in inflation.
Pundits estimate South Africa’s GDP growth will slow to 1.2% this year from 2.3% in 2022. This will have a knock-on effect on the socio-economic stance of the country, further increasing unemployment and limiting businesses’ ability to grow or borrow funds for expansion.
Like any recession period, more businesses are likely to cut down on their staff complement. In addition, the electricity crisis is further hampering businesses’ ability to operate, which may mean some businesses shut down completely.
However, there may be some reprieve for South Africans. The recent State of the Nation Address (SONA) offered some positive plans from the government. The first is the announcement of an electricity minister who will be responsible for mitigating the devastating rolling blackouts faced by the country.
Should this electricity minister and Eskom be able to restore a stable power supply, South Africa’s ability to handle bulk imports and exports will likely stabilise, adding much-needed growth to the national purse.
Proposed plans
To further ingest economic growth and confidence President Cyril Ramaphosa said the government was looking at ways to accelerate its support of small businesses, especially after the fallout caused by COVID-19.
“The National Treasury is working on adjustments to the bounce back loan scheme to help small businesses to invest in solar equipment and to allow banks and development finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels to the customers.“
– President Ramaphosa
I believe that the proposed plans, should they come to fruition, will positively impact the economy. However, in the meantime, the government needs to action immediate solutions that will protect the country and its citizens from any adverse economic onslaught which may arise.
The government needs to be unwavering in its plight towards securing a reliable power supply. This is one of the cornerstones of any functioning economy. While social grants are not a perfect solution, the government must ensure that those who are destitute continue to receive their funding on time. But this is a short-term solution.
In conclusion
To decrease the high levels of unemployment, there needs to be less bureaucracy and further incentives for new and small businesses, allowing them to hire more people.
There also needs to be a huge investment in skills development and infrastructure in spaces such as manufacturing, agriculture and wholesale and retail trade, as these are the sectors with the potential to create the most jobs. Then, as more people are employed, more money circulates in the economy, staving off any prospective recession.
