The economic impact of Covid-19 has been devastating and wide-reaching. One country which is suffering significantly is South Africa, where going into lockdown has stifled almost all economic activity.
As South Africa, the second largest economy in Africa, slowly comes out of lockdown, the extent of the economic impact is becoming increasingly apparent.
Data released by the South African Revenue Service shows that a 55% slump in exports resulted in the largest trade deficit on record for the month of April. This was mainly due to the closure of mining activity throughout the country which accounts for over half of South African exports.
In addition to the dramatic decline in the level of exports, aggregate demand has also been sent spiralling downwards as consumption takes a hit.
Despite policy from the South African central bank to lower the cost of borrowing, credit card purchases dropped to a nine-year low from almost 40 billion Rand (£1.84 billion) in January to just above 10 billion Rand (£460 million) in April. The automotive industry has been hit particularly hard, with year-on-year sales of new vehicles down by a whopping 98.4% in April.
With millions of South Africans now unemployed, thousands of businesses on the verge of collapse, and the emergence of a huge gap in tax revenue, the government will need to act quickly and decisively to restore the broken economy.
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term trade deficit?
Q2. Explain one way that the South African central bank may have ‘lowered the cost of borrowing’.
Q3. Analyse the reasons why there is a gap (decrease) in tax revenue.
Q4. Discuss some of the measures which the South African government could take to restore their economy.
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