How the on-going civil unrest threatens economic recovery in South Africa

The recent wave of violence and looting in South Africa has raised concerns about the country's economic recovery. The Rand, currently the most shorted currency according to a report by Bloomberg, has taken a hit due to the unrest and inflation figures out of America that have strengthened the dollar. Andre Cilliers, Currency Strategist at TreasuryONE, expressed that the market's reaction to the events has been swift and exporters are holding off on selling dollars while importers are rushing to buy currency for protection. The impact of the looting and criminal activity sweeping through the country is expected to weigh on South Africa's economy, leading to increased poverty and unemployment levels. The possibility of the Rand hitting 15 to the dollar is looming, depending on how quickly the situation is brought under control. Communities like Soweto are taking steps to protect themselves, which could potentially stabilize the situation. Chief Economist at Nedbank, Nicky Weimar, highlighted the economic costs of the unrest, with significant damage to commercial property, retail stock, and factories. The closure of transport routes and the refinery has led to fuel shortages in the short term, impacting economic activity. The uncertainty surrounding the events has led to a downward adjustment in growth forecasts, with GDP expected to settle between 4% to 4.3%. The disruption to the vaccine rollout due to the riots adds another layer of uncertainty to the economic outlook. Both experts agreed that the rebuild process post-riots will depend on the scale of the damage, with estimates ranging from three months to two years. The need for stability, predictability, and resolution of pressing issues like energy shortages and the public sector wage deadlock is crucial for long-term economic recovery. Addressing underlying issues of poverty, unemployment, education, and income inequality is essential for a permanent solution to prevent future outbreaks of violence and unrest.