The real cost of the unrest
RESEARCH: NUMBER OF FACTORS HAVE AND WILL CONTINUE TO AFFECT SA’S ECONOMY
Rebuilding the malls that were burned down could take at least two years.
As South Africans started to breathe a little easier after the gross domestic product (GDP) started to recover from the 2020 crash, they were dealt another hefty blow last week when socioeconomic and political tensions boiled over.
Now citizens are left to worry what the fallout will be.
According to the bureau of economic research at Stellenbosch University, the shock of events over the past week, along with the Covid third wave and harsher lockdown restrictions, will put significant strain on economic activity at the start of the third quarter of 2021, with the GDP set for a large contraction.
The cost of the unrest will only be quantified in a few weeks, if not months, but the researchers say the economy has been and will be affected.
The immediate and direct impact on the GDP will be the loss of household consumption and industrial production in KwaZulu-Natal and, to a lesser extent, in Gauteng.
Many businesses from various sectors – including retail, manufacturing and even mining in parts of KZN – were forced to close. Some retail chains closed temporarily as a precaution.
Although mobility data indicates that fewer people visited food and pharmacy stores since level 4 of the lockdown was introduced,
there was a dramatic drop last week, especially in KZN.
The shock may weigh on consumer and business confidence for some time, with a negative impact on consumer spending.
The researchers say what worries them even more is the outlook for businesses directly affected by the looting, as well as the extent of the longer-term damage to production capacity, infrastructure and other facilities.
Not only will cleaning up and restocking be required, entire facilities will have to be rebuilt due to arson and other destruction.
Massmart reported looting of over 40 stores and two distribution centres, while four facilities
had significant fire damage.
Mr Price lost 7% of its total footprint, Pepkor lost almost 9% of its footprint, while Tiger Brands lost stock of more than R150 million and 200 liquor stores and warehouses were looted.
Rebuilding the malls that were burned down could take at least two years.
Thousands of people lost their jobs last week and they have little opportunity to find another job.
Supply chains are still significantly distorted and even trade with the rest of the world has been negatively affected, with harbour activity in Durban and Richard’s Bay coming to a virtual halt.
In addition, the N3 highway between Durban and Johannesburg was closed for almost a week and transport on the Natcor freight rail line linking KZN and Gauteng was also halted.
South Africa was already struggling with strained supply chains and shortages of some raw materials as a rapid pick-up in global demand resulted in global supply chain blockages.
The disruption of supply chains and temporary closures of key production facilities, as well as panic buying, has led to shortages of food, fuel and medicine in some parts of the country.
The country’s agricultural production is not concentrated in one province, but KZN is a key entry point for many imported food products, while Gauteng is a key centre for agriprocessing.
The temporary, precautionary closure of the country’s largest petroleum refinery, Sapref, and scheduled delivery disruptions caused fuel to run out in some parts of the two provinces, but the fuel supply should remain sufficient and local shortages should also be replenished relatively quickly, the researchers believe.
The looting saw large groups of people in close proximity, turning it into a Covid superspreader event, while also affecting the vaccination roll-out as many sites were forced to close.
The burning down of major generic medicine manufacturer Cipla’s factory, as well as the looting of many other medicine warehouses and distributors, will further affect the health services.
The unrest could also hurt SA’s image as an attractive investment destination as the “gateway to Africa”, the researchers say.
“Beyond the short-term impact on financial markets, with the rand initially sliding significantly last week, this could hurt foreign direct investment flows as well as international tourism to SA.
“Also, the likely adverse confidence, spending and production effects of the riots meant that we held off on the upward revision for now, leaving the GDP forecast for 2021 unchanged at 3.9%.”
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This could hurt foreign direct investment flows as well as international tourism to SA.
Bureau of economic research, Stellenbosch University