At least 20% of jobs and businesses in SA lost forever, thanks to lockdown – expert

Thanks to Covid-19 and the strict lockdown that followed, many people in South Africa lost their jobs and businesses were forced to shut their doors. Covid-19 containment restrictions also made it difficult for people to look for work, with heightened limitations on movement. The University of the Free State recently reported that all regions lost about a fifth of their jobs between February-April and half of all adults in rural areas were unemployed by June, compared with a third in the metros. More than a third of all shack dwellers (36%) lost their jobs between February and April, compared with a quarter (24%) in the townships and one in seven (14%) in suburbs. In this sobering piece, Dwaine Janse van Vuuren shows how an ill-conceived lockdown can cause permanent damage to an already struggling economy. His number-crunching suggests that 20-25% of jobs and businesses are permanently lost. – Claire Badenhorst

By Dwaine Janse van Vuuren*

Dwaine van Vuuren

The government is estimating about 10% loss of GDP to Covid-19, whilst external analysts are more realistically pessimistic, favoring economic losses in the low teens.

With two full quarters now behind the belt since the Coronavirus pandemic started, it can be confirmed that SA suffered the 9th worst cumulative GDP contraction of around 17% (and that’s just so far, the third quarter could result in more losses).

economic cost of covid

This is not far off from using workplace mobility to express economic losses, which are currently suggesting the economy is down 25%. I suspect the 8% difference between the 17% GDP and the 25% mobility can be explained in part by workplace mobility not being able to capture the effects of those fortunate few businesses that can still eke out a living remotely from home.

SA workplace mobility

Examining the response of SA economic mobility to different levels of lockdown, reveals an ever-decreasing benefit derived from relaxation, with the latest move to lockdown level 1 hardly making any improvement at all.

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Here is how economic mobility has responded to different lockdown relaxation levels. It appears the benefits are halved with each lockdown relaxation, with not much left to be gained moving forward. This ship has sailed I am afraid and we need to look elsewhere to boost the economy:

Changes in workplace mobility

Workplace mobility and its depleted benefits from further lockdown relaxations suggests the “new-normal” baseline for economy is 20-25% below pre-lockdown levels. Giving work-from-home ability of a narrow section of the economy a not-unrealistic 5% benefit as implied by the difference in current cumulative GDP losses and mobility losses, means 15-20% of jobs and business are not coming back and likely are permanently lost.

That is the direct economic consequence of an ill-conceived lockdown that caused permanent damage.

A 15-20% reduction in the economy. Assuming a SA GDP of $385bn (based on 2019 estimates), this means coronavirus has cost us $77bn (R1.2 trillion) in loss of economic output.

Add to this the $30Bn (R500bn) bailout puts the total economic costs north of $107Bn (R1.7 trillion)

Its going to take over a decade or two to recover lost output, given the government’s glacial track record on much needed reforms, and propensity to lean on debt rather than make hard political decisions. And even then, we would have accumulated debt that is going to burden an entire future generation and quite possibly trigger a sovereign debt crisis within five years.

  • Dwaine van Vuuren has a Bachelor of Science Honours degree majoring in mathematics, computer science and statistics and is a full-time trader, investor and quantitative analyst. His passion for numbers and keen research and analytic ability has helped grow RecessionALERT into a company used by hundreds of hedge funds, brokerage firms and financial advisers around the world.