Year in review

After suffering one of its worst-ever economic slumps in 2020, with GDP growth contracting by 6.4 %, the South African economy rebounded in 2021. But it was a bumpy ride, with Covid-19 variants causing major disruptions, especially to the Cape metropole’s hospitality industry. Here we give a brief economic overview of 2021.

THE RECOVERY

A supportive global environment, which included soaring commodity prices and a revival in domestic economic activity as lockdown regulations eased and travel resumed, lifted the annual growth rate to 4.9 % last year.

According to PwC, by the end of 2021, activity levels in South Africa’s mining, manufacturing and retail sectors had recovered to levels above those seen prior to Covid-19. However, with household income under pressure from job losses and rising prices, the value of real spending in restaurants and coffee shops was estimated at just threequarters of pre-pandemic levels, while the number of nights sold in tourist accommodation was just more than half the levels seen prior to Covid-19.

WAVE UPON WAVE OF DISRUPTION

After four consecutive quarters of positive economic growth, the economic recovery was temporarily interrupted by civil unrest and a cyberattack that disrupted operations at the country’s ports in July 2021. Furthermore, a third wave of infections, driven by the rapid spread of the Delta variant, at a time when just 6 % of the national population had received at least one shot of the vaccine, prompted the country’s return to Alert Level 4 lockdown from 28 June to 25 July. As a result, economic activity contracted once more during the third quarter.

While the recovery in economic activity resumed in the final quarter of the year, it was once again disrupted by a fourth wave of Covid-19 infections towards year-end.

TOURISM HARD HIT

Even before Omicron triggered the fourth wave in December, pandemic fears and international travel restrictions had severely limited tourism in South Africa. The UK officially took South Africa – along with 46 other countries – off the “red list” in mid-October, leading to a boom in bookings ahead of the peak summer holiday season.

Southern African scientists were the first to identify the Omicron variant in November. Later that month, the World Health Organisation declared it a “variant of concern”, prompting the UK to ban travel from seven southern African countries the same day. The US announced similar travel bans the following week.

A snap survey1 among 600 member businesses of hospitality and inbound tourism industry

1 The Washington Post: https://www.washingtonpost.com/travel/2022/01/06/south-africaomicron-tourism-travel-bans/ 2 https://www.gov.za/speeches/western-cape-27-recovery-international-trips-december-202117-jan-2022-0000 3 https://www.worldbank.org/en/country/southafrica/overview#1 associations estimated that the renewed travel bans triggered by the Omicron variant resulted in cancellations valued at an estimated R1 billion from December 2021 to March 2022.

Looking back at 2021, the Western Cape government noted2 that international travel declined further in 2021 from 2020’s already subdued levels. This slump in foreign visitor numbers was, however, at least partially offset by a robust recovery

in domestic travel – providing welcome relief to the Western Cape tourism and hospitality sector. The lifting of the night-time curfew just before New Year’s Eve provided an additional boost to the hospitality and tourism sectors.

PRICE PRESSURES

While the global economy enjoyed a robust recovery in activity during 2021, the strong growth in demand was met with reduced production as a result of the pandemic. The resultant global supply chain crisis was characterised by a backlog of ships in ports, over-stocked warehouses, and a shortage of truck drivers. This led to an unexpected resurgence in consumer prices worldwide.

The prevailing view for much of 2021 was that the renewed price pressure would prove transitory, and so it was only in the final months of the year that global central banks – and the SA Reserve Bank – began to acknowledge that inflation was becoming entrenched and that interest rates needed to be normalised to pre-Covid levels. The Bank raised interest rates by 25 basis points in November, the first hike since late-2018.

ECONOMY NOT YET FULLY RECOVERED

Despite the disruptions caused by the third and fourth waves, the annual national GDP growth rate rose to 4.9 % last year. Nonetheless, real GDP continues to lag behind pre-pandemic levels and the economy is nearly 2 % smaller than it was in the first quarter of 2020. According to the World Bank3 , nearly 1.9 million fewer people were employed in South Africa by the end of 2021 compared with the quarter before the pandemic.

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