Africa’s Most Developed Economy Is Being Attacked On 3 Critical Fronts

By  |  April 7, 2020

South Africa is doing all it can to flatten its coronavirus curve. While it is doing a fair job at it, the country’s economy is being seriously challenged on three crucial fronts.

According to a new report put together by the country’s Bureau of Economic Research (BER), South Africa’s economy is currently in the middle of a triple stop due to the fallout of the novel global pandemic.

The first of the report’s findings is that South African exports is experiencing a decline in global demand. Secondly, the 21-day lockdown imposed to contain coronavirus spread has brought about a plunge in domestic production and demand.

Data from the now-troubled Eskom mirrors the decline in productivity. The firm was previously in a day-to-day fight to meet demand, but now the power utility shows that electricity usage dropped by as much as 9,500 MW (i.e. “equal to more than a ‘stage nine’ of load shedding”).

Lastly, South Africa is experiencing a steep decline in foreign inflows. This could be attributed to the fact that other countries of the world are as well trying to battle the pandemic. Foreign markets are constrained, some of which are the biggest trading partners with South Africa.

As per capital flows (which is the third sudden stop), data from the Johannesburg Stock Exchange revealed further significant selling of South African assets last week.

“In response, the rand exchange rate had a terrible week, weakening past ZAR 19/USD late on Friday. This brings the currency’s year-to-date losses versus the US dollar to 36 percent,” the group said.

On the triple-threat to South Africa’s economy, BER said: “One of these sudden stops at a time would be bad enough, three at the same time are both rare and particularly damaging. On all three fronts, the news was bad last week”.

Before the coronavirus made its way into Africa, South Africa had already entered into a recession, the country’s second in a space of 2 years. Its GDP fell for two consecutive quarters in the second quarter of 2018, marking its third recession since 1994.

At 1,749, South Africa has the most coronavirus cases in Africa. It is currently in need of financial help to mitigate the effects of the spread on the economy. Nonetheless, the country is reticent about taking on loans that will put undue pressure on the overly indebted fiscus once the crisis has passed. 

Featured Image: Bloomberg

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