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Events surrounding the recent pandemic have had far-reaching ramifications for South African corporates and individuals alike.
colin grieve

Impacts of COVID-19 on South African Economy

Published on
July 01, 2020
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After finishing 2019 at around ZAR14 to the US dollar, the South African exchange rate experienced a significant fall due to the COVID crisis and March sovereign downgrade from the Moody’s rating agency. By April 2020, the counter was trading over ZAR19 to the US dollar (it’s weakest level ever). This represented a sharp increase in the cost of buying hard currency for local South Africans diversifying their investment portfolios into international markets.


There has been a partial recovery in the exchange rate for a variety of reasons including the fact that large short-term currency swings tend to be overdone. There is also the factor of relatively high yields on SA Government bonds – attractive to short-term investors in a world of low and even negative interest rates. South Africa’s liquid and well-functioning financial markets facilitate this. So does the acknowledged independence of the Reserve Bank. The Johannesburg Stock Exchange has also attracted a lot of interest from international equity investors. South Africans who chose to sit on the side lines and wait for the exchange rate to recover were at least partially rewarded with the rate to the US dollar coming back to trade in a current range of around ZAR17.


South African corporates operating in international markets also faced a variety of challenges with dislocated logistic chains and falling demand due to lockdowns in other countries. On the domestic front, management headaches were compounded by a difficult business environment. Whilst commentators are grappling to understand the full economic impact of the crisis, there appears to be some consensus around a decline in South African GDP of between 6 – 8% for 2020. Others fear it could be worse without a strong leadership implementing fundamental reforms.


The nature of the pandemic and globally co-ordinated reaction towards limiting the spread of the virus has made this dilemma pervasive. There has literally been nowhere to hide. Thankfully, the situation seems to be improving but there were a number of sectors which took the full brunt of the impact. Airlines were grounded, gatherings at sport and entertainment venues were curtailed, even retail and office space faced restrictions. However, there are parts of the economy that fared better and should continue to do so. The healthcare industry is one example. South African pharmaceutical company Aspen recently enjoyed the spotlight after research in the UK demonstrated that one of its drugs reduced deaths in critically ill Covid-19 patients. Other sectors of the economy better placed to take advantage of our ‘new normal’ are online retail and entertainment, digital communication and events as well as cloud computing.


It is also worth considering potential secondary impacts. If the exchange rate continues to trade in a lower range there would be longer-term benefits for South Africa’s mining and tourism sectors as well as elements of domestic manufacturing. Combined with more flexible labour legislation, this could attract the investment necessary to start addressing the high unemployment rates which have plagued South Africa for many years. That would be a very welcome ‘new normal’.








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