The World Bank report is upbeat, however, on the reforms being adopted in to spur South Africa’s electricity sector.
The World Bank says it expects South Africa’s recovery from the Covid-19 pandemic to be weak relative to most other countries in sub-Saharan Africa, forecasting an economic expansion of only 2.6% in 2021 on the back of a massive 7.2% contraction this year.
In its latest ‘Africa’s Pulse’ publication, the bank attributed the sharp fall in gross domestic product (GDP) in 2020 to South Africa’s “strict national lockdown” and warned that future local lockdowns could stymie economic recovery efforts.
During the second quarter of 2020, which coincided with the peak of South Africa’s harsh lockdown, South Africa’s GDP plummeted 17.1% year-on-year, marking the fourth consecutive quarter of decline and prolonging a recession that began in the second half of 2019.
ESKOM’S REFORM ENCOURAGING
The World Bank report is upbeat, however, on the reforms being adopted in South Africa’s electricity sector, describing recent actions to address energy shortages and reduce its dependence on Eskom as “sweeping.”
“Private companies have been invited to submit bids to supply additional renewable energy to the grid while municipalities can directly procure electricity from private sector renewable energy producers, thus ending the Eskom single-buyer model. Businesses are now allowed to produce electricity for their own use.”
The bank did not make references to ongoing regulatory constraints to self-generation and municipal procurement.
The report also sees a potential “silver lining” in the way South Africa and other African countries are beginning to seize opportunities in the digital economy, including through the release of spectrum.
In addition, the opportunities associated with the implementation of the African Continental Free Trade Area (AfCFTA), which could become the largest free trade area in the world in terms of membership, were highlighted.
“The AfCFTA will cover a market of 1.3-billion people and $3.4-trillion in economic activity. By 2050, sub-Saharan Africa will account for one-third of the global labour force and the young population in the region will drive labour demand and serve as an engine of global growth in the future.”
The pandemic also exacted a heavy toll on sub-Saharan Africa, where economic activity is expected to contract by 3.3% in 2020, triggering the region’s first recession in a quarter of a century.
By the end of 2021, the region’s real GDP per capita is likely to have regressed back to its level in 2007, the bank warned, adding that the pandemic could push up to 43-million people into extreme poverty and erase at least five years of progress in fighting poverty in Africa.
“While the sharp contraction in the second quarter of 2020 is likely to mark the low point of growth this year [in South Africa], output levels will remain constrained by strict health and safety rules to stem viral transmission, while renewed local lockdowns present a further potential headwind to economic expansion.”
The Pulse predicts the region will rebound in 2021, however growth will vary across countries.
While South Africa is expected to experience a weak recovery, overall growth in Eastern and Southern Africa region is expected to average 2.7 percent, with several countries, such as Ethiopia, having already started to take advantage of the opportunity to put policy reforms in place.
The bank outlined two recovery scenarios for sub-Saharan Africa, owing to ongoing uncertainty around the spread and duration of the COVID-19 pandemic.
Its baseline scenario assumes that the first Covid-19 vaccine will successfully complete phase-three trials by early 2021, leading to vaccination roll-outs peaking in advanced economies and major emerging markets during the second half of 2022.
The roll-out in sub-Saharan Africa would be slower and lag that in advanced economies and major emerging markets by about two to three quarters.
“On this basis, regional GDP is projected to expand by 2.1% in 2021, below the 2.4% level of 2019, before rising to 3.2% in 2022, fuelled by a robust recovery of investment and domestic consumption.”
The bank stressed, however, that Nigeria and South Africa, Africa’s two biggest economies, are expected to record particularly weak recoveries.
“The road to recovery will be steep,” the report says, while urging African countries to prioritise actions that lead to the creation of more, better and inclusive jobs.