Two sectors may be SA’s economic revivers

 

 

Mining and agriculture were among the stand-out performers during what is set to be known as the ‘pandemic quarter’.
An increase in maize exports and rising international demand for citrus fruits and pecan nuts helped the agricultural sector expand by more than 15% in Q2. Image: Shutterstock

An increase in maize exports and rising international demand for citrus fruits and pecan nuts helped the agricultural sector expand by more than 15% in Q2. Image: Shutterstock

Statistics SA predicts that the second quarter of this year will become known as the ‘pandemic quarter’. Gross domestic product (GDP) fell by just over 16% between the first and second quarters.

However, according to PwC chief economist Lulu Krugel, mining and agriculture did surprisingly well. These two sectors may well form the base from which the South African economy can rebound – if managed correctly.

Speaking at this year’s virtual South African Institute of Tax Professionals (Sait) Tax Indaba, Krugel noted that both industries appeared to be less harmed by the impact of the Covid-19 restrictions than the rest of the economy.

“It would be interesting to see the response in terms of policy. I am keeping a keen eye on these industries to see if we will be making the right policy decisions.”

An increase in maize exports, as well as rising international demand for citrus fruits and pecan nuts, helped the agricultural industry expand by 15.1% during the second quarter.

Read: Small and medium growers and innovation are key to South Africa’s citrus export growth

“Locally, the baking craze that gripped the country during the lockdown increased the demand for home cooking products,” Statistics SA said.

Mining has always been an important sector because of the foreign exchange it generates and agriculture is important for food security.

According to Invest SA the mining sector contributes around 7% to South Africa’s GDP and accounts for 25% of the country’s total export earnings. (Fact sheet 2020, Invest SA, Department of Trade, Industry and Competition).

SA gets back to business

Krugel said other industries are also bouncing back fairly quickly since the economy has been allowed to open up more. One is the retail sector where trade volumes have picked up, but not yet the value of the transactions.

She said before Covid-19 hit the country South Africans only did around 5% of their retail shopping online. “That has now drastically changed. There are companies who have seen an increase of anything from 200% to 400% in online sales.”

Read: Mr Price online sales surge 75% post lockdown

Although there will be a return to in-store shopping, she does not expect online sales to drop back to pre-Covid levels.

According to Stats SA, expenditure on communication, housing and education was up in the second quarter. “Cut off from family and friends – and having to suddenly work and study from home – many consumers increased their spending on communication services, most notably on data.”

Surprisingly, however, telecommunication companies reported revenue losses due to their inability to sell or fix mobile phones during the initial hard lockdown.

There has also been downward pressure on data costs following investigations by the competition authorities.

Krugel said the transport and finance and insurance sectors can bounce back “very quickly”, especially finance and insurance because it has been managed well and comes from a strong base.

Read: Covid-19 is shaking up the insurance sector

Francois Herbst, MD of business advisory and consulting firm House of Growth, said it is true that e-commerce picked up “dramatically” during the last few months.

Bureaucracy remains a threat

However, he added that government bureaucracy in terms of the banking sector and financial technology applications remains an issue for small and medium-sized companies.

Herbst said the three-month payment holiday offered by most commercial banks will be coming to an end, as will the Unemployment Insurance Fund’s temporary relief scheme for employers and employees.

He is concerned that the barriers to accessing funding remain high for entrepreneurs at a time they will need it to survive.

Efforts to increase tax rates to make up for the expected multi-billion-rand shortfall would not be a wise decision. Krugel said SA’s tax-to-GDP ratio is already higher than the global norm.

The increase in government spending since 2009 was partly to stimulate economic growth following the 2008 financial meltdown, but never had the desired outcome of economic growth.

Sars Commissioner Edward Kieswetter said tax collections were 20% down in August this year compared to the same time last year.

 

SOURCE:  
Moneyweb

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Amanda Visser

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