Supply chain pressures now worse than during Covid-19 peak – PwC

Supply chain pressures on the local economy are now worse than at the height of the Covid-19 pandemic and the 2008 global financial crisis, says auditing and professional services giant PwC.

“Russia’s invasion of Ukraine, the Covid-19 lockdown in China, the floods in KwaZulu-Natal and load shedding are making things more dire,” PwC warns in its latest South Africa Economic Outlook Report for 2022, published on Monday.

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“Supply chain pressures are now more intense than seen during the worst of the Covid-19 pandemic and the global financial crisis of 2008-2009. This requires companies to evaluate the resilience of their supply chains to continue providing goods and services,” says PwC South Africa senior economist Christie Viljoen.

PwC chief economist Lullu Krugel tells Moneyweb the challenges companies are facing now is a result of a failure to diversify their supply chains.

“When [the] Covid-19 pandemic happened, everyone was saying we need to diversify our supply chains, and if you speak to a lot of South African businesses, they tell you that they have not done that,” she says.

“In some instances it’s because it was very difficult – the costs [were prohibitive] or they could not get alternative supply, or for some it was a matter of [focusing on] survival … I don’t think anybody anticipated that we would be sitting with the type of problems that we are dealing with today.”

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PwC forecasts real economic growth of 3.7% in South Africa’s key trading partners during 2022, down from a January projection of 4.7%.

SA GDP outlook

Its gross domestic product (GDP) forecast for the South African economy this year is much lower, at around 2%.

“South Africa’s key trading partners include some of the world’s largest economies, including China and the euro area. These economies are currently facing a multitude of headwinds, including rising interest rates, supply chain disruption, resurging Covid-19 waves, as well as producer and consumer inflation at the highest levels in decades,” says Krugel, adding that this is an indication that growth patterns are returning to sluggish pre-Covid-19 levels.

“The challenge with the kind of growth we are forecasting now – and also what National Treasury and the [South African] Reserve Bank is forecasting – is that it is going back to where we were pre-Covid-19…

“Last year was a bit of an outlier because the economy had to recover from Covid-19 – yes, it was great that the economy grew at almost 5% but we knew that would be very unlikely to continue,” she adds.

Krugel says South Africa’s economy should ideally be growing at 5%, but getting to that level seems near impossible under the current circumstances.

To turn the ship around, she says government must implement major structural changes to the economy, electricity supply challenges need to be addressed, greater effort needs to be placed on attracting the right skills, and more private sector investment needs to be secured.

Sluggish growth threat to jobs

Ahead of Statistics SA releasing the country’s latest unemployment figures on Tuesday (May 31), Krugel says that should enough not be done to curb the economic downturn, unemployment – which was at a record high of 35.3% in the fourth quarter of 2021 – could reach 40% in coming years as fewer employers feel incentivised to expand the labour market.

She notes that recent assessments of the relationship between economic growth and the growth in unemployment show the relationship has weakened, meaning that economic growth may no longer be enough to activate job growth in the country.

“The bottom line is that if we continue to grow at the rate of about 2%, we will probably see unemployment go up to above 40% in the next couple of years – it’s not going to come down if we rely [solely] on growth to help solve the problem.”

Read: ‘Economic transformation and economic growth are intertwined’ – Ramaphosa