The Economic Impacts of COVID-19: Lessons from South Africa’s Lockdown
Amanda Betag,1Thank you to Cornelius Apungwa, Alex Conte, Dr. John Marangos, Richard Ogada, and Dr. Melissa Speight Vaughn for their comments and feedback on this paper. Research Fellow, African Political Economy Policy Lab
abetag@africacfsp.org
Introduction
COVID-19 has hit every country hard and South Africa (SA) is no exception. In anticipation of how hard hitting the pandemic would be for SA, President Cyril Ramaphosa declared a national state of disaster on March 15 alongside several restrictions a mere 10 days after the first confirmed case. Among these restrictions was a lockdown in which citizens were restricted from moving freely, except for leaving their homes for essential tasks. The resultant effect of this is unprecedented economic strains. This article will highlight the economic impact of the pandemic in SA with regards to poverty, unemployment, gross domestic product (GDP), food insecurity and violence.
Current Situation as of July 2020
Of all the countries in Africa, SA has been hit the hardest by COVID-19. Since the first confirmed case on March 5, the number of cases has increased dramatically, as seen in Figure 1 depicting the total number of confirmed cases experienced in SA by the day.
Figure 2 depicts the number of new cases each day which has also risen significantly since the beginning of March. However, some of this increase can be attributed to an increase in testing capabilities.
The number of deaths per day may more appropriately reveal how SA has been affected by the virus. This can be seen in Figure 3 which shows the trajectory of how many people have died per day from the virus, since the first reported death in the country.
Evidently, the number of deaths per day have been increasing significantly despite stringent lockdown measures taken by the government.
The number of cases may seem relatively low compared to countries such as the United States and Brazil. Statistically, SA has a population of mostly young people with only about three percent of the population being over the age of 70.2Andrew Lapping. “The economic toll of South Africa’s lockdown.” BusinessTech, May 11, 2020. https://businesstech.co.za/news/business-opinion/396879/the-economic-cost-of-south-africas-lockdown/.
A proportional population suffers from some type of ailment, such as HIV/AIDS, tuberculosis, and malnutrition, making them more susceptible to complications of the virus. Additionally, SA’s weak healthcare system causes concerns of whether SA can handle the number of patients needing hospitalization from COVID-19 complications.3Winnie T. Maphumulo and Busisiwe R. Bhengu. “Challenges of quality improvement in the healthcare of South Africa post-apartheid: A critical review.” Curationis, 42(1), e1–e9, May 29, 2019. https://doi.org/10.4102/curationis.v42i1.1901.These variables set South Africa apart from other African countries as the hardest hit economically during the COVID-19 pandemic.
The Economic Toll of the Lockdown
Most recent reports, before the pandemic, estimated that 18.6 percent of the population was living in extreme poverty and about one third of the population earned $5.50 a day or less.4The World Bank. “Poverty gap at $1.90 a day (2011 PPP) (%) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SI.POV.GAPS?locations=ZA.; The World Bank. “Poverty gap at $5.50 a day (2011 PPP) (%) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SI.POV.UMIC.GP?locations=ZA.
With so many South Africans living close to the extreme poverty line, there are many more people at risk of falling into extreme poverty and negatively impacting the economy. Those hardest hit are in the informal sector and the self-employed. This is concerning since nearly one fifth of the employed are in the informal sector.5Philippe Burger and Frederick Fourie. “The unemployed and the formal and informal sectors in South Africa: A macroeconomic analysis.” South African Journal of Economic and Management Sciences, February 25,2019. http://dx.doi.org/10.4102/sajems.v22i1.2104.
Unemployment was also on the high side before COVID-19. SA had one of the highest unemployment rates in the world at 29% in December 2019.6CEIC. “South Africa Forecast: Unemployment Rate.” CEIC, 2020. https://www.ceicdata.com/en/indicator/south-africa/forecast-unemployment-rate. This rate will only worsen with negative economic shocks resulting from the coronavirus. In BusinessTech, Lapping estimates that the unemployment rate could peak at 50% and CEIC reported that the IMF predicts that the rate will be around 35% at the end of the year.7 Anonymous. “South Africa’s unemployment rate could hit 50%: report.” BusinessTech, May 3, 2020. https://businesstech.co.za/news/business/394654/south-africas-unemployment-rate-could-hit-50-report/.; CEIC.
Overall, SA’s GDP is expected to plummet. With the country on lockdown, income and consumption rates are lowered as well as the production of major resources that constitute the backbone of SA’s GDP.8The Central Intelligence Agency. “The World Factbook: South Africa.” The Central Intelligence Agency, July 21, 2020. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html. It is not just the direct effects, such as the forced reduction in production of goods and services that will affect the country’s GDP. Indirect effects are predicted to have an even greater impact. For example, with many businesses operating at low levels, the demand for electricity is reduced, resulting in a decrease in the demand for coal. One report estimates that the direct and indirect effects will decrease SA’s GDP by roughly one third.9 Channing Arndt, Sherwin Gabriel, and Sherman Robinson. “Assessing the toll of COVID-19 lockdown measures on the South African economy.” International Food Policy Research Institute, May 6, 2020. https://www.ifpri.org/blog/assessing-toll-covid-19-lockdown-measures-south-african-economy.
South Africans have experienced a significant increase in food insecurity from the severe shocks to income and a disruption to the food supply chain.10Ardnt, Gabriel, and Robinson.; James Thurlow. “COVID-19 lockdowns are imposing substantial economic costs on countries in Africa.” International Food Policy Research Institute, May 8, 2020. https://www.ifpri.org/blog/covid-19-lockdowns-are-imposing-substantial-economic-costs-countries-africa. The resulting malnutrition has life-long effects on children, stunting their growth and creating life-long health issues. Food shortages were common before the pandemic but have worsened since the pandemic.11Thurlow.; Dharuv Gandhi, Christina Golubski, and Payce Madden. “Africa in the news: South Africa looks to reopen; COVID-19 complicates food security, malaria response.” Brookings, April 25, 2020. https://www.brookings.edu/blog/africa-in-focus/2020/04/25/africa-in-the-news-south-africa-looks-to-open-up-covid-19-complicates-food-security-malaria-response/. The increased food insecurity has also resulted in an upsurge of violent activities. There has been an increase in robberies and vandalism, including the destruction of dozens of schools.12Elliot Smith. “South Africa’s Ramaphosa blasts ‘despicable’ crime wave during coronavirus lockdown.” CNBC, April 13, 2020. https://www.cnbc.com/2020/04/13/south-africas-ramaphosa-blasts-despicable-crime-wave-during-coronavirus-lockdown.html. Most notably, there has been an outbreak of violence between citizens and the army. In a number of incidents, the army disbanded defiant crowds using rubber bullets and tear gas. These instances bring racial issues to the fore, which were already simmering before the pandemic. There is a general feeling that white citizens who violate lockdown orders are being treated with leniency as compared to black citizens who are being handled violently for the same violations.13Kayla Arnold. “Army and police violence spurs racial tensions.” Mail & Guardian, April 29, 2020. https://mg.co.za/article/2020-04-29-army-and-police-violence-spurs-racial-tensions/.
South Africa has experienced a noticeable uptick in gender-based violence and violence against children. Research shows that a South African woman is murdered every three hours on average.14Nthusang Lefafa. “Covid-19 lockdown provides ‘perfect storm’ for SA’s GBV crisis.” Health-E News, April 29, 2020. https://health-e.org.za/2020/04/29/covid-19-lockdown-provides-perfect-storm-for-sas-gbv-crisis/. This is attributed to stress related frustrations and dwindling sources of income in most homes during the lockdown period. Women and children bear the brunt of the violence as they are isolated from resources such as friends, family, and other services normally available to them. During the first week of the lockdown alone, 2,300 cases of gender-based violence were reported to the police.15See note 14 above. Additionally, demand on emergency shelters has increased with many locations recording maximum capacity.16See note 14 above.
Potential Lives Lost
Health experts predict that by the end of 2020, between 40,000 and 50,000 South Africans will die as a result of the COVID-19 pandemic.17Sheetal Silal, Juliet Pulliam, Gesine Meyer-Rath, Brooke Nichols, Lise Jamieson, Zaid Kimmie, and Harry Moultrie. “Estimating cases for COVID-19 in South Africa Update: 19 May 2020.” National Institute for Communicable Disease, May 19, 2020. https://www.nicd.ac.za/diseases-a-z-index/covid-19/surveillance-reports/. However, it is a challenge to predict the number of lives that could be lost as a result of the lockdown itself. The main causes of death would likely be starvation and violence. Studies estimate that mortality rates double with job losses.18Marcus Eliason and Donald Storrie. “Does Job Loss Shorten Life?” The Journal of Human Resources, 44(2): 277-302, 2009. http://jhr.uwpress.org/content/44/2/277.short. Therefore, with an estimated death rate of 9.435 per 1,000 people in SA in 2018, the mortality rate could become close to 20 per 1,000 people or an additional 580,000 deaths.19The World Bank. “Death rate, crude (per 1,000 people) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SP.DYN.CDRT.IN?locations=ZA.
However, another study showed that mortality rate increased 15 to 20 percent.20Daniel Sullivan and Till von Watchter. “Mortality, Mass-Layoffs, and Career Outcomes: An Analysis using Administrative Data.” The National Bureau of Economics Research, working paper 13626, 2007. https://www.nber.org/papers/w13626.ack. That would result in a mortality rate of roughly 11 per 1,000 people or an additional 87,000 deaths by the end of the year, which is still significantly more than the estimated 40,000 to 50,000 lives lost to COVID-19 by 2021.
Should the Government Reopen the Economy?
The government needs to begin reopening the economy and thankfully, President Ramaphosa has begun this process. The purpose of the lockdown was to allow the government enough time to increase the capacity of health care facilities but instead, the lockdown has continued for longer than what was necessary to realize that goal. The economy should reopen if there is any chance of recovery without additional aid from developed countries and International bodies. Unlike developed countries, SA cannot afford to keep its economy closed for long.
In as much as the government needs to reopen the economy, it should do so systematically, with a reduced production capacity to safeguard the people. At the same time, members of the public should be advised to adhere to the basic safety practices not limited to wearing Personal Protective Equipment, social distancing and good hygiene practices. Thankfully, President Ramaphosa announced an ease in restrictions that began June 1, but was it done too late? According to one estimate, it will take six years for SA’s economy to return to pre-pandemic levels.21Anonymous. “It could take the SA economy at least 6 years to recover from Covid-19, according to a new estimate.” Business Insider, May 13, 2020. https://www.businessinsider.co.za/sa-covid-gdp-2020-5. Only time will tell the true impact of SA’s lockdown on its economy.
Arndt, Channing, Gabriel, Sherwin, and Robinson, Sherman. “Assessing the toll of COVID-19 lockdown measures on the South African economy.” International Food Policy Research Institute, May 6, 2020. https://www.ifpri.org/blog/assessing-toll-covid-19-lockdown-measures-south-african-economy.
Arnold, Kayla. “Army and police violence spurs racial tensions.” Mail & Guardian, April 29, 2020. https://mg.co.za/article/2020-04-29-army-and-police-violence-spurs-racial-tensions/.
Anonymous. “It could take the SA economy at least 6 years to recover from Covid-19, according to a new estimate.” Business Insider, May 13, 2020. https://www.businessinsider.co.za/sa-covid-gdp-2020-5.
Anonymous. “South Africa’s unemployment rate could hit 50%: report.” BusinessTech, May 3, 2020. https://businesstech.co.za/news/business/394654/south-africas-unemployment-rate-could-hit-50-report/.
Burger, Philippe and Fourie, Frederick. “The unemployed and the formal and informal sectors in South Africa: A macroeconomic analysis.” South African Journal of Economic and Management Sciences, February 25, 2019. http://dx.doi.org/10.4102/sajems.v22i1.2104.
CEIC. “South Africa Forecast: Unemployment Rate.” CEIC, 2020. https://www.ceicdata.com/en/indicator/south-africa/forecast-unemployment-rate.
Central Intelligence Agency, The. “The World Factbook: South Africa.” The Central Intelligence Agency, July 21, 2020. https://www.cia.gov/library/publications/the-world-factbook/geos/sf.html.
Eliason, Marcus and Storrie, Donald. “Does Job Loss Shorten Life?” The Journal of Human Resources, 44(2): 277-302, 2009. http://jhr.uwpress.org/content/44/2/277.short.
Gandhi, Dhruv, Golubski, Christina, and Madden, Payce. “Africa in the news: South Africa looks to reopen; COVID-19 complicates food security, malaria response.” Brookings, April 25, 2020. https://www.brookings.edu/blog/africa-in-focus/2020/04/25/africa-in-the-news-south-africa-looks-to-open-up-covid-19-complicates-food-security-malaria-response/.
Lapping, Andrew. “The economic toll of South Africa’s lockdown.” BusinessTech, May 11, 2020. https://businesstech.co.za/news/business-opinion/396879/the-economic-cost-of-south-africas-lockdown/.
Lefafa, Nthusang. “Covid-19 lockdown provides ‘perfect storm’ for SA’s GBV crisis.” Health-E News, April 29, 2020. https://health-e.org.za/2020/04/29/covid-19-lockdown-provides-perfect-storm-for-sas-gbv-crisis/.
Maphumulo, Winnie T. and Bhengu, Busisiwe R. “Challenges of quality improvement in the healthcare of South Africa post-apartheid: A critical review.” Curationis, 42(1), e1–e9, May 29, 2019. https://doi.org/10.4102/curationis.v42i1.1901.
Silal, Sheetal, Pulliam, Juliet, Meyer-Rath, Gesine, Nichols, Brooke, Jamieson, Lise, Kimmie, Zaid, and Moultrie, Harry. “Estimating cases for COVID-19 in South Africa Update: 19 May 2020.” National Institute for Communicable Disease, May 19, 2020. https://www.nicd.ac.za/diseases-a-z-index/covid-19/surveillance-reports/.
Smith, Elliot. “South Africa’s Ramaphosa blasts ‘despicable’ crime wave during coronavirus lockdown.” CNBC, April 13, 2020. https://www.cnbc.com/2020/04/13/south-africas-ramaphosa-blasts-despicable-crime-wave-during-coronavirus-lockdown.html.
Sullivan, Daniel and von Watchter, Till. “Mortality, Mass-Layoffs, and Career Outcomes: An Analysis using Administrative Data.” The National Bureau of Economics Research, working paper 13626, 2007. https://www.nber.org/papers/w13626.ack.
Thurlow, James. “COVID-19 lockdowns are imposing substantial economic costs on countries in Africa.” International Food Policy Research Institute, May 8, 2020. https://www.ifpri.org/blog/covid-19-lockdowns-are-imposing-substantial-economic-costs-countries-africa.
World Bank, The. “Death rate, crude (per 1,000 people) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SP.DYN.CDRT.IN?locations=ZA.
World Bank, The. “Poverty gap at $1.90 a day (2011 PPP) (%) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SI.POV.GAPS?locations=ZA.
World Bank, The. “Poverty gap at $5.50 a day (2011 PPP) (%) – South Africa.” The World Bank, 2020. https://data.worldbank.org/indicator/SI.POV.UMIC.GP?locations=ZA.
World Health Organization, The. “Coronavirus disease (COVID-2019) situation reports.” The World Health Organization, 2020. https://www.who.int/emergencies/diseases/novel-coronavirus-2019/situation-reports.
