While South Africa responded swiftly to the onset of the COVID-19 pandemic, the consequent sharp drop in activity adds to the economy’s long-standing challenges and raises the urgency of structural reforms.

This is according to a new Organisation for Economic Co-operation and Development (OECD) report released on Friday 31 July.

In the latest Economic Survey of South Africa, the Paris-based global policy forum says the nationwide lockdown reduced activity in mining and industry, while bringing the tourism, entertainment and passenger transport sectors to a near-standstill.

More must be done to strengthen responses

“Growth has collapsed, unemployment is rising and more will need to be done to strengthen responses to the crisis and ensure that the recovery brings about sustainable and more inclusive development,” the OECD says.

The survey recommends a range of measures be put in place.

These measures include lowering interest rates, providing temporary financial support to households and businesses, and extending financial relief in sectors hard hit by the crisis.

Don’t rule out a double-hit virus scenario

The OECD warns that these measures will be particularly critical if there is a renewed virus outbreak later in the year.

“Under a so-called double-hit scenario, a new outbreak affecting South Africa and its trading partner countries will curtail exports, deepening the recession to -8.2% in 2020, and limiting the recovery in 2021 to GDP growth of just 0.6%,” the study says.

In the better-case ‘single-hit’ scenario, where a second wave of the virus is avoided, economic activity will still fall by 7.5% in 2020, before picking up progressively to growth of 2.5% in 2021, the OECD predicts.

We cannot afford to delay reforms

“South Africa cannot afford to delay reforms. It is essential to undertake reforms to restore long-run fiscal sustainability and growth, while continuing to support the economy in the short run,” said Alvaro Pereira, OECD Economics Department Country Studies Director.

The OECD believes macro-economic and structural policies are needed to put growth on a sound footing going forward. Bold fiscal measures are also required to curb spending pressures and restore fiscal sustainability, including taking steps to reduce the government wage bill and transfers to state-owned enterprises.

“Structural policy reforms to boost competition, restructure state-owned enterprises, improve the regulatory framework and improve public investment in transport infrastructure, skills and education are also called for,” it says.

Build an inclusive social-protection system

According to the policy body, the pandemic has demonstrated that further action is needed to build an inclusive social-protection system.

It suggests South Africa consider additional means-tested support for households below the food poverty line, better coverage for informal workers and a gradual increase to the public financing of health care through a form of public insurance.

The tourism sector was hit hard by the pandemic and resulting containment measures, yet it has good potential to contribute to the economy and future employment growth, the survey adds.

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Presh JM Reporter

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