SA increased social unrest and looting: some discussion points

Below are some discussion points regarding the current surge in social unrest in SA and rampant looting. The discussion points are divided into three sections, namely “direct impact on society”, “indirect impact on the economy”, and “other factors to consider”. We are also in the process of arranging for a briefing by the Institute for Security Studies – further details to follow.

Direct impact

• Loss of life still modest given recent events (45 people currently), but likely to increase further. Involvement of private security and community based protection will mostly likely lead to increased loss of life if looting continues. Involvement of the SADF appears to be helping

• Very significant destruction of property (shopping malls and warehouses) as well as vehicles (trucks). Significant increase in road accidents in the unrest areas

• Direct cost of damage is already being measured in R billions (R2 billion estimated by Business Leadership on 12 July), and likely to increase further. Reports suggests around 600 stores impacted in numerous shopping malls. (Property Franchise could provide further details). Large warehouses and trucks also targeted

• Massive loss of business and consumer confidence – including a further loss of confidence in the effectiveness of the protective services

• Further job losses expected as business remains closed, adopting a “wait-and-see” approach. Destroyed business will take months to be re-established – if at all.

• Significant supply disruption (food, fuel, medicine etc) expected. This could fuel discontent and frustration, adding a layer of costs

• Negative impact on tax revenue collection in a range of areas

• Rand exchange rate under pressure. Rand has weakened by 2.6% against Dollar in less than 2 days

Indirect impact

• Downward revision to SA growth outlook for 2021, with Q2 2021 already weak and Q3 2021 GDP turning negative. Downside risks for growth in 2022

• Increased risk of SA credit rating downgrades given that all the rating agencies have flagged the risk of social unrest

• SASRIA should be responsible for most of the insurance claims, but this may require government support. Private sector insurance companies will also experience increased claims

• Destruction of warehousing and transport links could lead to problems with food security

• COVID-19 vaccine roll-out setback in many areas of the country

• Increase in costs such as transportation of goods, insurance, security, etc that could lead to higher inflation and dislodge inflation expectations from the current low levels

• Emigration of businesses away from areas considered hotspots, which could cripple local economies. Further impact on already battered tourism sector with the rise in criminality and perception of lack of safety in SA

• Fall-off in foreign investor confidence

• Countries in the region could issue advisory travel restrictions against South Africa (eg Botswana)

Other factors to consider/debate

• It is likely that the political discord within the ANC has not been fully understood. Could continue to fuel disruptions in an effort to undermine the President as well as the legal system

• Could lead to increased dependence on state support through social grants, which could divert more funds away from investment spending by government. Could lead to either higher government debt (an abandonment of fiscal consolidation) and/or higher taxes that put a strain on an already strained tax base

• High risk that economic policy lurches to the left, undermining recent attempts by government to deregulate the business environment

• SA’s level of unemployment will continue to increase given that 600 000 people (net) enter the labour market each year. The social pressures due to higher income inequality, high unemployment, and a lack of service delivery will persist unless the government is willing to significantly alter its overall policy approach. As mentioned above, the latest unrest will create pressure within government to increase social payments, as well as an increase police salaries etc.

• Higher insurance premiums for companies operating in perceived hotspots. Further contribution to SASRIA fund?

• Further degradation of service provision in affected areas

• Spending on rebuilding destroyed property and infrastructure could provide a small, positive impact on economic growth – but this will take time and will not be nearly enough to reverse the economic impact of the riots.

• Slowdown in investment in SMME development especially in townships – which are key for employment and growth

• Rise in rightwing extremism that could lead to more frequent violent protests, Could lead to a postponement of local government elections in 2021?

Warren Berriman

Managing Director - Alexander Beard RSA (Pty) Ltd. Source: Kevin Lings, Economist at Stanlib Asset Management