SA's disappointing GDP depresses the region.
Second-quarter GDP results released by Statistics South Africa showed that the economy shrunk by 0.7% when compared with the previous quarter. And the hardest hit sectors were agriculture and manufacturing, which decreased by 7.7% and 5.9%, respectively.
Of more concern was a statement that said the size of the economy in the second quarter of 2022 was smaller than it was before the Covid-19 pandemic. The last statement was even more concerning because the prevailing narrative (when it comes to economic growth) has been centred on first returning to pre-pandemic economic levels and, after reaching this level, reconfiguring the economy to grow at a faster pace to ensure the recovery of lost jobs and creation of more opportunity for both small and big business.
Second quarter of 2020 versus that of 2019
To allay my fears, I decided to review second-quarter economic data from 2019 to 2022. If we are to compare 2020Q2 to 2019Q2 economic data, only two sectors recorded growth: the country’s agriculture, forestry, and fisheries (+18.8%) and general government services (+6.7%).
The hardest hit sectors during this period included the construction (-31.4%), manufacturing (-25.9%), transport, storage, and communication (-25.7%) and trade, catering, and accommodation (-24.6%) industries. Hard lockdowns and trade restrictions were key contributors to the double-digit contractions in the growth of the above-referenced sectors.
The other sectors to contract during this period but at a much lower rate than the aforementioned, included mining and quarrying (-8.6%), electricity, gas, and water (-6.2%) and finance, real estate and business services (-5.5%) industries.
Based on these results and from an economic restoration standpoint, most policies should have been aimed at recovering the hardest hit sectors based on contraction, including government-led initiatives and expenditure to restore the country’s construction and manufacturing sectors.
Promotions aimed at buying more locally produced goods should have been prioritised. This was not really the case considering the recent closure and auctioning of Mara Phones, the country’s only local cellular phone producer.
Second quarter of 2021 versus that of 2020
The relaxation of the Covid-19 hard lockdown restrictions improved economic activity with most of the country’s economic sectors recording double-digit growth during the second quarter of 2021 (versus 2020Q2). Coming off a low base and because of limited economic activity during the hard lockdowns, five economic sectors grew by more than 30% during 2021Q2 (versus 2020Q1).
These sectors included the country’s mining and quarrying (+83%), agriculture, forestry and fishing (+53%), trade, catering and accommodation (+47%), manufacturing (+43%) and transport, storage, and communication (+35%) industries. The increased economic activity was encouraging despite other concerns during this period, including increasing unemployment and rising inflation.
In hindsight, reducing the lending rate during this period may have been a bold but necessary decision because it contributed to most sectors trending in the desired direction from a growth standpoint. But rising costs also took away from these gains and could have stifled some of the projected growth.
Other sectors that recorded double-digit growth during this period included the construction sector (+15%) and personal services (+13%). Electricity, gas, and water (+9%) and general government services (+4%) ranked 9th and 10th.
Second quarter of 2022 versus that of 2021
Surprisingly, and considering the current energy crises (including policy transformation around self-generation), the electricity, gas and water sector grew the most in 2022Q2 when compared with 2021Q2 (+13.6%). This could be attributed to higher electricity pricing.
Other sectors to grow by more than 5% include manufacturing (+8.5%), transport, storage and communication (+8.3%), general government services (+6.8%) and finance, real estate, and business services (+6.3%) industries. The mining and quarrying (+4.2%), personal services (+3.7%), construction (+2.7%) and trade, catering and accommodation (2.4%) also witnessed growth but at a much lower scale.
Addressing backlogs across most sectors during the first and second quarter of 2021 is a factor that increased sector output. But a “normalisation” in growth occurred in 2022Q2 and was also severely affected by the floods in KwaZulu-Natal, particularly in April 2022. As a result, the country’s agriculture, forestry, and fishing sector was the only one to witness negative growth (-5.8%) in 2022Q2 (versus 2022Q1). In KwaZulu-Natal, some of the planted areas had to be replanted because of the flood, adversely affecting output and income earned.
If we restrict our comparison to the second quarters for each year, significant “economic recovery” was recorded in the mining and quarrying, agriculture, forestry and fishing, and trade, catering, and accommodation sectors during the second quarter of 2021 (versus 2020Q1).
Growth slowed down considerably during the second quarter of 2022, with the agriculture sector experiencing negative growth because of flood damage and export trade issues with the European Union (which accounts for most of the imports).
Growth for the trade, catering and accommodation industry also slowed down because international travel was put at risk by another potential pandemic, monkeypox. Mining and quarrying also slowed down as a result of strikes in the gold industry and load-shedding stoppages (peaking in April 2022).
These developments suggest that growing beyond pre-pandemic levels comes down to significant policy adjustment. The revised policies should measure growth in micro-steps with each quarter’s performance being leveraged as an input for further adjustment until a consistent upward trajectory is recorded quarter-on-quarter and in comparison to previous years.
Because of inflationary pressures, it is difficult to encourage and facilitate higher domestic investment in economic expansion. Job losses and higher living costs are leaving little savings for the average person to invest in capital-building initiatives. Consistency in economic expansion could, therefore, be reliant on foreign direct investment.
For now, attracting foreign direct investment could work as South Africa’s inflation is lower than most of its trade partners (who also tend to invest in South Africa to secure the supply of a South African-produced commodity). Increased foreign investment could, therefore, be the short-term key to unlocking economic opportunity for South Africa over the longer term and in a more consistent manner.
The views expressed are those of the author and do not necessarily reflect the official policy or position of the Mail & Guardian.