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Macroeconomic Update- Ettienne Le Roux – Chief Economist , RMB

November 19, 2020

In a presentation and discussion with Aprio IR, Ettienne Le Roux, chief economist at RMB looked at the impact of COVID-19 on the South African economy and the likely short to medium-term outcomes.


Below is a summarised overview of the discussions:


COVID-19 inflicted two macro-economic shocks:


  • Firs, a deep global recession hit South Africa particularly hard, with trade (imports + exports) accounting for 60% of GDP;
  • Second, a hard lockdown saw 55% of the SA economy non-operational at level 5 in April 2020.


With many segments of the South African economy already recovering, it is expected that the economy will recover in the second half and grow at 3% in 2021. Beyond this however, growth is expected to retreat to pre-COVID levels, projected at around 1% in 2022.


  • Mining volumes are now only 2% below January 2020 levels


Similarly, the global economy is recovering, although still vulnerable to a second wave of COVID-19 infections. A counter to this would be a vaccine. Expectations are that at least one vaccine could be approved by year-end with mass distribution available from the second quarter of 2021.


  • Historically, 85% of phase 3 infectious disease vaccines have been successful and there are currently nine vaccines in phase 3


From a corporate perspective, most businesses have responded to the crisis by focusing on efficiencies, cutting costs and preserving cash by deferring capital expenditure. Re-aligning their businesses in order to facilitate improved efficiencies has led to the sale of non-core businesses and applying proceeds to repay debt, while many are either considering or executing capital raisings to strengthen their balance sheets.


The road to recovery for the South African economy is likely to be a long grind . Already in recession pre-COVID, the pandemic coupled with the slow relaxation of lockdown measures, caused some permanent damage.


  • Unemployment will be higher, and some sectors will be smaller. Although employees with permanent employment contracts were least affected by job losses compared to those in other forms of employment, the total number of permanent employees losing their jobs still came to 480,000 in the second quarter of 2020;
  • Despite low interest rates, consumer demand for credit is likely to be tempered by factors such as rising job insecurity and depressed sentiment; and
  • Deteriorating balance sheets will constrain private sector fixed investment.


In addition, South Africa’s fiscal position is weak, with a large gap between tax revenue and government expenditure. Government debt is expected to reach 85% of GDP in 2020/21, compared to an emerging market average of 63%. Despite the negative macroeconomic outlook, the rand is expected to hold its own against the US dollar, which is a counter-cyclical currency and likely to come under pressure next year. Furthermore, the rand is cheap at current levels, with South African bond yields of 6% amongst the highest in the world.


In response, the SA government is likely to adopt a blended approach to facilitate a recovery, using measures such as fiscal austerity, improved tax collection and allowing for greater public-private partnerships and/or private sector investment in infrastructure.


Aprio IR expresses its gratitude to Ettienne for his time and for sharing his experience and insights. The presentation and discussion helped greatly with regard to the likely impact of COVID-19. It comes as no surprise that the near future will remain challenging and will require a close watch on managing costs and expenses. Companies will do more with less, and that will result in improved efficiency and productivity. As always, there will be winners (and losers) in this process and the opportunity for many companies lies in how plans and future prospects are articulated and communicated to the investor community.

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