2020q2

Regional eXplorer (ReX) update – 2nd quarter of 2020

IHS Markit is glad to announce the second quarter update for 2020 of Regional eXplorer (ReX) – the South African knowledge base of municipal level insight. Each quarter, data from a vast number of sources are incorporated into the ReX database to provide users with the most up-to-date statistics.

In this newsletter:

Main data releases incorporated in this update
Economic outlook
Special topic: Conflicting views on how to address South Africa economic challenges in post-COVID-19 period
Online key activation registration

Main data releases incorporated in the update

Although we experienced delays in some of the data sources, we are proud to present the latest updated on ReX for the second quarter of 2020. Amongst the latest data available from StatsSA (incl. QLFS and GDP), SARB, SARS and many more have been incorporated into the model. Unfortunately the General Households Survey (GHS) was not released in time to form part of this release. Topics that are heavily dependent on information from the GHS, such as household access to services, will only have 2019 data later in the year when StatsSA releases that survey.

Economic outlook

The South African economy has been on a slippery slide even before the coronavirus disease 2019 (COVID-19) pandemic reached local shores. The country’s real GDP per capita growth rate has been in negative territory since 2015 with unemployment reaching a high of 29% in 2019. Businesses once again grapple with frequent electricity disruptions, which ultimately contributed to the 2.0% quarter-on-quarter (q/q) annualized contraction in real GDP during the first quarter of 2020. Ailing and inefficient state-owned entities (SOEs) strain fiscal finances while the highly unionized labor force limits the ability of government to downsize the ballooning public-sector wage bill. The South African government’s “developmental” economic model deepened overall corruption, “rent seeking,” and inefficiencies in the economy. IHS Markit has lowered South Africa’s GDP growth rate to an 8.9% decline in 2020. The extension and severity of the lockdown period has pushed South Africa’s 2020 growth expectations lower.

Special Topic: Conflicting views on how to address South Africa economic challanges in post-COVID-19 period

A loss in trade, tourism proceeds, port disruptions, and weaker household and investment spending is expected to result from the coronavirus disease 2019 (COVID-19) crisis in South Africa. Business, government, and labor alike realize the urgency to reverse this economic trajectory but in typical South African fashion have significant different views on how to achieve this objective.

The ruling African National Congress released its post-COVID-19 policy document in July with the policy having the ultimately aim to ‘reset’ the South African economy. The focus is on state-driven infrastructural development programs, which will boost demand, employment, income, and ultimately growth. Private pension funds will be forced to contribute to the state’s development objectives through the provision of funding, with the shortfalls made up by South African Reserve Bank (SARB). The nationalization of the SARB will be once again considered. More aggressive Black Economic Empowerment Policies (BEE) will ensure the transformation of the private sector and a strong focus will be placed on the development of local supply chains.

The ANC policy document stands in stark contrast to the economic plan presented by National Treasury (NT) earlier in 2019. The NT plan focuses more on lowering the overall cost of doing business in South Africa by reducing red tape and supporting small and medium sized enterprises. A focus is placed on the facilitation of regional growth, reducing the skills deficit by attracting skilled immigrants, and reform basic education and post-school training. Support for job-creation industries such as agriculture and tourism should be frontloaded. Reforms at SOEs also form part of the plan with a focus on the finalization of the electricity plan, unbundling Eskom, modernize ports and rail infrastructure, and the licensing spectrum.

Private business in South Africa supported National Treasury’s economic plan. A strong push toward enhancing the economy’s competitiveness through digitalization, big data, artificial intelligence, and other processes are furthermore proposed while supply chains need to be restructured to focus on the security of supply.

The deepness of the economic contraction and social fallout will be hard to ignore by South African policy makers. However, changing the economy’s growth trajectory will require an economic policy overhaul by the ruling party and a stronger compact with the private sector and labor.

Ultimately a middle road could be pursued, in the view of IHS Markit, where private business makes a stronger commitment toward the transformation of the labor force and ownership structures in the economy, focus on job creation, and support small- and medium-sized businesses. The government works to stem the fiscal slide and root out corruption and inefficiencies. A business-friendly environment is prioritized by lowering red tape and setting out clear and constructive business polices while reforms at SOEs is sped up. IHS Markit considers the reforms for basic schooling and post-schooling training also essential to achieve human capital accumulation and improve labor productivity.

Different political and economic ideologies within the ruling ANC and its alliance partners could hamper such an outcome nonetheless and increases the risk of policy paralysis and a low growth rut moving forward. IHS Markit maintains its view of a potential growth rate of 1.5% in the medium term for now.

Online key activation and registration

We have added an alternative method, for users to register and access the Regional eXplorer software. The new method will streamline the current registration process by allowing users to verify their accounts via email. This will greatly speed-up access to ReX and allow for an easier user experience. If you have an internet connection and your firewall allows it to connect you will find that this method will be much quicker.