HomeIndustry SectorsBusiness and marketsDeclining GDP hits unemployed and poor the hardest

Declining GDP hits unemployed and poor the hardest

South Africa’s overall gross domestic product is expected to decline between 5.1% and 7.9% this year and recover slowly for at least the next four years.

The declining GDP will set back attempts to address poverty, unemployment and inequality according to a new United Nations Development Programme study on the socio-economic impact of COVID-19 in South Africa by at least five years.

The Socio-Economic Impact Assessment of COVID-19 in South Africa was launched last week by SA Minister of Cooperative Governance and Traditional Affairs Dr Nkosazana Dlamini-Zuma.

The minister urged that the study should be used by every district and municipality. She called for a local skills revolution accompanied by the adoption of a technology strategy and delivery of a district developed model and gender-responsive budgeting.

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The study focused on how COVID-19 will drive temporary and long-term changes in poverty levels in South Africa. It said the number of households below the poverty line will increase as households fall from the lower middle class.

Fifty-four per cent of households that have been pushed out of the permanent job market into informal or temporary contracts as businesses are affected by COVID19, are likely to fall into poverty as the country’s 6-month stimulus packages come to an end.

Thirty-four per cent of households are likely to exit the middle class into vulnerability.

UN resident coordinator Nardos Bekele-Thomas said inequalities within and among nations are being exposed and exacerbated by COVID-19 as the poor and vulnerable are unable to protect themselves.

“While government social protection grants tend to target the poorest, this study posits that care and support needs to be provided to those at the borderline of the poverty line, such as the vulnerable middle class, to reduce their likelihood of slipping into poverty,” said Bekele-Tomas.

COVID-19 trajectory and declining GDP intertwined to affect most basic services

Population sectors hit especially hardest by the declining GDP are already-impoverished female-headed households, persons with only a primary school education, those who are without social assistance, black populations and heads of households who have been pushed from permanent to informal employment.

South Africa has the highest number of COVID-19 cases on the African continent and the fifth-highest number in the world. The study further posited that economic sectors most disadvantaged by the COVID-19 outbreak include textiles, education services, catering and accommodation (including tourism), beverages, tobacco, glass products and footwear. Small and medium enterprises are most negatively affected.

When it comes to access to basic services, the report notes that only 15% of chronically poor households have access to all basic goods and services such as shelter, water, sanitation and electricity, compared to about 80% of elite households.

These basic services are essential to effectively implementing basic social distancing. Limited access to water means the chronic poor households can wash their hands as many times as recommended by the WHO, nor can they work from home without electricity.

Sanitation is also problematic with only 33% of vulnerable households having access to all basic services.

A recent judgement on the Eskom board review of South Africa energy regulator’s decision on the multi-year price determination in favour of Eskom means the power utility will be allowed to try and recover some of the R69 billion allocated to address the utility’s debt over the next three years.

This means electricity tariffs are likely to increase, though it is uncertain at this point by how much.

Eskom did state at the time of the judgement that they understand that poor residential customers and certain industrial sectors will require special consideration add they are working with the Department of Mineral Resources and Energy on proposals to target vulnerable economic sectors of target support. This remains a theory for the time being, though.

The Socio-Economic Impact Assessment of COVID-19 in South Africa analyses the impact  on the economy and examines how people with different demographics residing in different geographical areas are affected by COVID-19.

Theresa Smith
Theresa Smith is a Content Specialist for ESI Africa.