JOHANNESBURG – It is hardly newsworthy anymore to state that the Covid-19 pandemic has wreaked havoc in the global economy, including South Africa.
Yet, it is unavoidable to try to understand the impact that the pandemic has had, and continues to have, on the local economy.
Needless to say, that the pandemic has indiscriminately decimated countries’ economies and the road to recovery is a treacherous one fraught with pitfalls.
A sectoral approach provides some nuanced revelations that are useful in understanding the effects of such macroeconomic exogenous shocks thus, lessons on how to fortify the economy against future shocks.
It may not be possible to avoid shocks similar to the Covid-19 pandemic in future, but it should be possible to, at least, put in place strategies that can help provide better resilience.
The current economic woes in South Africa are further compounded by the fact that the South African economy was already in a recession before Covid-19. Figures released on Tuesday by Statistics SA, reveal that the South African economy has recorded negative growth (contraction) for four consecutive quarters since the second quarter of 2019.
For the second time in a row, agriculture has been the redeeming feature of the South African economy with stellar performances in both the first and second quarters of 2020. In the second quarter of 2020 the South African gross domesticproduct (GDP) contracted by a whopping 51 percent following a 2 percent decline in the first quarter and the former decline, according to Statistics SA, this fall is attributable to Covid-19 lockdown restrictions since March 2020.
The major culprits for the dismal performance of the economy were manufacturing, trade and transport sectors. To provide more perspective, manufacturing declined by 74.9 percent and contributed -10.5 percentage point contribution to the GDP.
Agriculture was the redeeming sector of the South African economy and was the only sector that posted positive growth. Agriculture posted a 15.1 percentage growth, which accounted for 0.3 percent contribution to the GDP given that agriculture only makes up about 4 percent of the overall GDP.
The main reason for the upward trajectory in agricultural contribution were increased production in field crops (maize, wheat, soybeans, beans, etc.), horticulture (fruits and vegetables) and animal products.
The main determinants of the positive growth in the agricultural sector were favourable weather (climatic conditions), little incidents of pests and diseases and a weaker rand.
It is important to point out that these three factors, which contributed positively to agriculture’s performance, are usually the same exogenous factors that normally pull down agriculture’s performance if aligned adversely.
Given the above scenario, it may appear to be fortuitous that the agricultural sector gave stellar performance and somewhat diluted the deleterious effect of the economic downturn.
However, there are a number of fundamentals at policy level that the South African agriculture sector has done right over time. These policy interventions have led to massive investments into the sector in the last 10 years or so.
For example, 70 000 more hectares have been put under irrigation and there has been significant increase in investment into agro-processing such as the massively increased soy processing capacity.
The impressive performance of the sector buttresses the importance of continued support for the sector, especially in the areas of research and development, infrastructure and enabling policy environment.
While increased production was enabled by favourable weather conditions, it should be noted that the availability of suitable and high performing cultivars, improved agronomic practices, cutting edge technologies and pests and diseases surveillance and control, play a hugely significant role in ensuring success of the sector.
These technological advancements, productivity and efficiencies can be attributed to South Africa’s advanced agriculture research and development sector. Increased and continued investment in the enhancing and/or maintaining South Africa’s agricultural research and development capacity is an integral part of ensuring the sustainability of the sector and ensuring both economic vibrancy and food security.
Agricultural exports earn South Africa much needed foreign exchange and create the employment that the country desperately needs. Infrastructural investments and policy interventions are still required is the areas of improving South Africa’s port efficiencies and revitalising of the rail system, which has fallen apart – in terms of goods transportation.
Another area that requires urgent and concerted effort is the reliable provision of power – electricity, which is indispensable if the agricultural sector and the economy as whole is to fire on all cylinders.
The good economic performance of the agricultural sector should not lull South Africa into inertia, but should spur the sector and policy makers to continue supporting the sector, planning ahead and providing policy certainty, thus creating a conducive environment within which the private sector can flourish.
Due to the expected slow recovery of the global economy out of Covid-19, it follows that economic growth will be slowed down. Agriculture is expected to continue its positive growth trajectory, albeit at a slower pace as well.
There was great wisdom in designating agriculture as an essential service thus sparing the sector the worst of the effects of the lockdown restrictions. Furthermore, agriculture mainly produces food, and people will always demand food and the lockdown restrictions also led many to start cooking and eating at home and adopting new habits and hobbies such as baking, which assisted in the demand for agricultural products.
Dr Thulasizwe Mkhabela is an agricultural economist and is currently the Group Executive: Impact & Partnerships at the Agricultural Research Council.