Unlike Australia, the South African economy shows a tendency of slow recovery. This year’s economic contraction is at 7 percent comparing to the previous year’s growth of 0.2 per cent.
However, one could not rule out that the light is at the end of the tunnel and the tunnel is not a long one.
As the successive lockdowns and further restrictions eased, SA economy started to rebound, recording a 6.3% in the fourth quarter of 2020. It had been observed that eight industries including those of manufacturing (21.1%), trade (9.8%) and transport (6.7%) handsomely contributed to the rebound.
In other sectors, the economy recorded a decline; these sectors include mining (1.4%) and finance (0.2%) during the time that SA experienced job losses in the region of 35 000 and subsequently 123 000.
Increase in household expenditure
In the fourth quarter, Household consumption expenditure grew at a rate of 7.5%, making a contribution of 4.7 percentage to the total growth. Largest contributors in this segment were restaurants and hotels (217.9%, contributing 1.8 percentage point), food and non-alcoholic beverages (6.6%, contributing 1.3 percentage points), and recreation and culture (20.9%, contributing one percentage point).
The 7 percent contraction was expected as the government locked down the country, imposing restrictions to curb and contain Corona virus spread.
Increased disparity
One of the negative trends that has been observed is that the existing economic disparity has been growing at an alarming rate, throwing 701 000 to 7.2 million peoples out of their jobs in the final quarter of 2020. It has been estimated that 11.1 million have lost their jobs and are, currently, unemployed.
However, with the rollout of vaccination the SA economy is expected to rebound over the medium term following further easing of the restrictions.
According to the February 2021 budget estimates, South Africa’s GDP growth would be at 3.3% for 2021, while recording an average of 2.2% in 2022 and 1.6% in 2023 respectively.
The sharp economic contraction was principally caused by the sharp decline in the Manufacturing Sector, contributing -1.4 percentage points based on growth of -11.6%; trade, catering and accommodation contributed -1,3 percentage points based on growth of -9.1%. Other sectors such as Transport, Storage and Communication contributed -1, 3 percentage points based on growth of -14.8%.
There were other sectors which recorded a positive growth, including the agriculture, forestry and fishing industry that recorded an increase of 13.1%, while the general government increased by 0.7%.
It is widely expected that annualized forecasts, particularly, in the period of a global pandemic are not realistic and would lead to exaggerated figures. Nevertheless, such forecasts would indicate strong sectors of the economy. The South African economy will rebound, although the pace of recovery would be slow.
Fastest growing areas
Significantly, the fastest growing industries in South Africa are marked by their high growth, high profitability, and low consolidation. Some of the fastest growing sectors of the South African economy are Communications/IT Technology, Agriculture, Mining, Manufacturing, Tourism, Textiles & Apparel, and Wholesale/Retail Trade. Besides, Real Estate and Finance & Business Services also offer lucrative opportunities for foreign investors.
The once-in-a lifetime- opportunity for prospective investors like a silver line in dark cloud is the opportunity of easy market entry and to invest in lucrative sectors of the South African economy such as Mining, Manufacturing and Transport as well as other fastest growing areas and sectors. Needless to say that such sectors have better ROIs with longer term prospective of capturing the lion shares of the market.
