The Possible Effects of the Extended Lockdown Period on the South African Economy: A CGE Analysis

Abstract

The economic effects of the lockdown period in South Africa will be devastating. We simulated the industry level capacity constraints imposed by the lockdown regulations since 27 March 2020 on all industries in South Africa by reducing the amount of capital and labour available for production. We found a decrease in real GDP to 10% below the baseline level in 2020, and recovery of all industries and macroeconomic variables towards the baseline by 2027. Industries that are suffering and would continue to suffer are the hospitality and tourism industry and all industries related to it, such as transport services, as well as beverages and tobacco. Manufacturing in general is also hard hit because they were prohibited to let large groups of labourers enter their premises. The model shows that most manufacturing will suffer throughout the forecast period, which was modelled up to 2027.

Projected spread of COVID-19’s second wave in South Africa under different levels of lockdown

“…Extended hard lockdown restrictions are not tolerable and are too expensive to be used as a standalone measure against COVID-19 transmission. Extended hard lockdowns will have a very high cost both in economic terms [26] and in the impact on health and broader society [24]. Given that reducing transmission through vaccination is many months away, such lockdowns may be best used as a tool to slow the spread of COVID-19 while strengthening the health care system, increasing efforts towards procurement and deployment of vaccines in conjunction with other measures such as mass rapid testing, and ensuring compliance with ongoing physical distancing measures and mask mandate.…”

“…Strict lockdown restriction will have to be in place from 29 of December to the end of March 2021 before cases can return to the levels observed during the period between the first and the second wave (in the absence of substantial changes to testing, tracing and other COVID-19 control measures). The impacts of such hard restrictions on the economy, inequality and the general well-being of the population are well documented [24,25,26].…”

The impact of the COVID-19 enforced lockdown and fiscal package on the South African economy and environment: a preliminary analysis

“…The database used for the CGE model is a 2015 social accounting matrix (SAM) based on that of van Seventer et al . (2019). Additional data, such as income elasticity from Burger et al .…”

A novel approach for measurement and decomposition of the economywide costs of shutting down tourism and related service sectors against COVID-19

“…Finally, Van Heerden and Roos (2021) use a 40-sector Computable General Equilibrium (CGE) model of the South African economy to simulate the effects of industry-level capacity constraints imposed by the lockdown regulations in that country. Their CGE model does not only take into account input–output transactions between sectors but also allows for endogenous adjustment of relative prices.…”