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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