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Socio-Economic Impacts of COVID-19 in South Africa

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Socio-Economic Impacts of COVID-19 in South Africa COVID-19 IN SOUTH AFRICA SOCIOECONOMIC IMPACT ASSESSMENT UNITED NATIONS IN SOUTH AFRICA UN Socio-Economic Impact Assessment of Covid-19 1 Glossary AIDS Acquired Immunodeficiency Syndrome CGE Computable General Equilibrium COVID-19 Coronavirus disease-2019 GDP Gross Domestic Product HIV Human Immuno-deficiency Virus MSME Micro, Small & Medium Enterprises NIDS National Income Dynamics Study SAM Social Accounting Matrix SDGs Sustainable Development Goals SMEs Small to Medium Enterprises TERS Temporary Employer/Employee Relief Scheme UN United Nations UNDP United Nations Development Programme UNESCO The United Nations Educational, Scientific and Cultural Organization WHO World Health Organization UN agencies who participated in this study ILO International Labour Organization FAO Food and Agriculture Organization OHCHR Office of the United Nations High Commissioner for Human Rights UNHCR United Nations High Commissioner for Refugees 2 UN Socio-Economic Impact Assessment of Covid-19 Table of Contents Glossary 2 List of Figures 4 List of Tables 5 PART 0NE BACKGROUND ON COVID-19 & REVIEW OF LITERATURE ON COVID-19 IMPACT 9 Foreword 10 Acknowledgement 12 Preface 14 Executive Summary 16 PART TWO BACKGROUND ON COVID-19 & REVIEW OF LITERATURE ON COVID-19 IMPACT 24 Phase one recovery: economic response: 28 Recovery: (Stimulus Package) 30 1. Objective & outline of the report 31 2. PUBLIC HEALTH PANDEMIC: LITERATURE REVIEW AND PATHWAYS 31 PART THREE 3.MICRO-ECONOMIC ANALYSIS OF THE IMPACT OF COVID-19 36 3.1 Context 38 3.2 Poverty Dynamics 39 3.2.1 Characteristics of households by social class. 43 3.3 Overview of the probability of falling into poverty due to COVID-19 47 Scenario 1: One member of the household is unemployed because of COVID-19 and the head of the household is female. 47 Scenario 2: One working household member lost their job due to COVID-19; the only employed member of the household is female, but the work is not permanent, and she does not belong to a union. 47 Scenario 3: The head of the household is female, but the only work she can do is casual (informal) because of COVID-19, and they have two kids. 48 3.4 Determinants of changes in poverty 50 Other Policy Questions: 52 PART FOUR 4. MACRO AND MICRO-MACRO SIMULATION RESULTS 54 4.1 Context 56 4.2 Macro-Micro Model 56 4.0 MACRO AND MICRO-MACRO SIMULATION RESULTS 56 4.3 Simulation Scenarios 59 4.4 Impact Pathways (Short term) 61 Commodity Prices 61 Domestic Demand 64 Domestic Supply 65 4.5 Simulation Results 66 4.5.1 GDP Growth 66 4.5.2 Unemployment 70 4.5.3 Fiscal Impact 73 4.5.4 Household Incomes 76 PART FIVE 5. CONCLUSIONS 82 References 90 Appendix A – Microeconomic analysis 91 UN Socio-Economic Impact Assessment of Covid-19 3 List of Figures Figure 1: Odds ratio of the probability of falling out of the middle class. 50 Figure 2: Year-on-year growth rate of remittances in South Africa. 51 Figure 3: Projection of GDP, constant prices, national currency (Billion) 65 Figure 4: Annual GDP Growth Under Various Scenarios (Percent) 66 Figure 5: Unemployment Rate under Various Scenarios (Percent) 68 Figure 6: Number of Unemployed under Various Scenarios (Thousands) 69 Figure 7: Structure of Employment Earnings by Categorisation of Labour and Goods and Services 70 Figure 8: Structure of Income from Labour Market by Gender 70 Figure 9: Change in poverty headcount indices, COVID-19 compared to BaU Scenario (Percentage point) 76 Figure 10: Change in poverty headcount indices and the food poverty line, COVID-19 compared to BaU Scenario (Percentage point) 76 Figure 11: Headcount Poverty Index by Gender, Upper and Lower Poverty Lines, COVID Scenarios Compared to BaU Scenario, Percentage Point 77 Figure 12: Change in Gini Index, COVID-19 compared to BaU Scenario (Percentage point) 78 Figure 13: Change in income inequality, COVID-19 compared to BaU Scenario (Percentage point) 79 Figure 14: Income share by category of income quintile of expenditure group in 2017 79 4 UN Socio-Economic Impact Assessment of Covid-19 List of Tables Table 1: Confirmed cases in South Africa by Province 25 Table 2: Poverty rate in South Africa using the NIDS data. 37 Table 3: Poverty dynamics in South Africa between 2008 & 2017. All sample unbalanced 38 Table 4: Average probability and associated monetary thresholds 40 Table 5: Monthly household expenditure per capita by social class, 2008 to 2017. 40 Table 6: Average household characteristics by social class, 2008 to 2017. 42 Table 7: Characteristics of the head of the household by class 44 Table 8: Persons with a different combination of characteristics that COVID-19 can affect. 46 Table 9: COVID-19 type events that households experienced between 2008 and 2017 and associated exits out of the middle class (or elite). 49 Table 10: Historical Trend 2014-2019 of Selected Commodity Real Prices, Percent Annual Variation 60 Table 11: Projection 2020-2024 of Selected Commodity Prices Under COVID Optimistic Scenario, percent Annual Variation Compared to BaU 60 Table 12: Projection 2020-2024 of Selected Commodity Prices Under COVID Pessimistic Scenario, Percent Annual Variation 61 Table 13: Export and Import Prices, Average Annual Variation (Percent) 61 Table 14: Export and Import Volume, Average Annual Variation (Percent) 62 Table 15: Private Final Consumption, Average Annual Variation (Percent) 63 Table 16: Production Factor (Capital and Labour) Utilisation Compared to BaU 64 Table 17: GDP Growth Decomposition by Expenditure, Average Annual Variation (Percent) 67 Table 18: GDP Growth Decomposition by Sector, Average Annual Variation (Percent) 67 Table 19: Unemployment Rate by Labour Category, Percentage Point Variation 70 Table 20: Government Revenue and Balance, Percentage Point Variation 72 Table 21: Government Revenue and Balance, Percentage Variation 72 Table 22: Tax Revenues, Percentage Variation 73 Table 23: Household Gross Income, Percentage Variation 74 Table 24: Change in Household Employment Income, Real Terms (Percent) 75 Table 25: Challenges of achieving SDGs in South Africa and the threat of COVID-19 84 Table A1: Multivariate probit model: Poverty transitions 89 Table A2: Logit model: Probability of exit out of the middle class (or elite) 91 UN Socio-Economic Impact Assessment of Covid-19 5 COVID-19 IN SOUTH AFRICA SOCIOECONOMIC IMPACT ASSESSMENT UNITED NATIONS IN SOUTH AFRICA Any use of information, in full or in part, should be accompanied by an acknowledgement of UNDP South Africa as the source. All rights reserved. | ©UNDP South Africa 2020 For enquiries, please contact: United Nations Development Programme | UN House Level 10, Metropark Building | 351 Francis Baard Street PO Box 6541, Pretoria | Email: [email protected] | Web: www.za.undp.org Twitter: @UNDPSouthAfrica | Facebook: UNDPSouthAfrica Published for the United Nations Development Programme (UNDP) 6 UN Socio-Economic Impact Assessment of Covid-19 UN Socio-Economic Impact Assessment of Covid-19 7 8 UN Socio-Economic Impact Assessment of Covid-19 Part BACKGROUND ON COVID-19 & REVIEW One: OF LITERATURE ON COVID-19 IMPACT UN Socio-Economic Impact Assessment of Covid-19 9 Foreword Dr Nkosazana Dlamini-Zuma Ms Nardos Bekele-Thomas The COVID-19 Pandemic has changed the decline in real GDP growth by 3.6 percent world as we knew it. In the words of the in 2020 – under this report’s “optimistic Secretary General of the United Nations scenario” – resulting in an overall decline “We have been brought to our knees – by a of GDP growth by 5.1 percentage points, microscopic virus… It has laid bare risks we as compared to the economy’s projected have ignored for decades: inadequate health performance before the onset of the systems; gaps in social protection; structural COVID-19. Under this report’s “pessimistic inequalities; environmental degradation; the scenario,” GDP is likely to fall by 6.4 percent, climate crisis.” leading to a nearly 7.9 percentage point Today globally there are over 15 million decline in 2020, compared to the economic cases. The rapid spread of the virus, which performance projected before the onset of knows no borders affects every country. It the COVID-19. As a result, at least five years will challenge the global economy, al be it must pass for South Africa’s economy to not to the same intensity. return to pre-2019 levels – unless innovative South Africa ranks amongst the most infected actions are implemented. countries in the world. The virus has set back The consequences born of the COVID-19 the gains we had made in the 26 years since outbreak are likely to further exacerbate the dawn of democracy. It also came at a time poverty and inequality in South Africa. The when our economy was greatly challenged unemployment threatens to become further with pedestrian growth and limited wealth precarious – with the highest risks for informal redistribution, thus making South Africa one workers and female-headed households. The of the most unequal nations in the world. impacts of COVID-19 on gender issues are The ripple effects of the virus impacted upon very worrying and can curtail the gains made women more, with them having lost the most on advancing gender equality and women income and jobs, especially in the informal empowerment in the past few decades sector where they are in the majority. unless concerted efforts are taken to curtail The development consequences of the these consequences. As businesses change COVID-19 outbreak are likely to lead to a contract types – from permanent to temporal 10 UN Socio-Economic Impact Assessment of Covid-19 – as a financial coping mechanism, it is sectors in the economy including the arts, probable that nearly 44 percent of people sports and tourism. However key sectors will fall into poverty. In the same vein, the such as the informal and SMME sectors number of households falling from lower- have not received adequate support.
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