Economic damage of South Africa's riots could take years to repair

Early estimates from business associations estimate the upheaval has cost about $345m of damage

As business owners pick through the ruins of their establishments and thousands of workers now contemplate a bleak and jobless future, the toll of South Africa’s worst civil unrest since apartheid ended will likely be paid for years to come.

A week ago, ex-president Jacob Zuma was escorted through prison gates, following an order by the country’s highest court that he be jailed for contempt. His supporters took to the streets and protests quickly became a conflagration of rioting and looting. At least 20 malls were destroyed or badly damaged, as were many more warehouses, factories, distribution centres and even delivery vehicles.

For now, it is difficult to quantify the exact loss, but early estimates gathered from business associations indicate it might be in the range of 20 billion rand ($1.38bn). Economist Khaya Sithole says the indirect costs could be even higher.

“What remains unquantifiable, of course, is the long-term effects on people who lost jobs, or whose businesses have ceased to exist.”

The riots were confined to Gauteng, the country’s industrial heartland, and KwaZulu Natal on the coast. These two areas, however, comprise 55 per cent of the country’s economy.

The country already has an official unemployment rate of 42 per cent, and more people on government aid than those who hold jobs. State statistics show that at least 600,000 formal jobs were lost during the Covid-19 pandemic alone.

Quote
“We have 10 million young people sitting without work, not in any kind of training or life preparation. The devil finds work for idle hands.”
Bonang Mohale, chairman, Bidvest

The losses suffered by businesses will only add to the jobless rate. They will also spill over into other areas as most companies relied on an ecosystem of support businesses to operate, notes Mr Sithole. For instance, logistics companies that routinely deliver goods to retailers will lose a substantial number of routes, because many of those businesses are no longer operating.

At the same time, future investments by businesses considering expansion or opening new branches are also likely to be delayed or cancelled altogether.

“They’re going to say ‘let's wait and see’ and repair our existing business before opening up shop elsewhere,” adds Mr Sithole.

“Looking at the big picture, we are definitely a lot worse off on the basis of what’s happened over the last few days.”

For some, the events of the past week are a culmination of disastrous economic and social policies.

“This is the result of nine years of state capture,” says Bonang Mohale, chairman of South Africa’s largest freight and logistics company Bidvest, in reference to the years in which Mr Zuma was steering the country towards an oligarchy.

Forced out of office in 2018, Mr Zuma left a highly indebted economy growing at an anaemic rate of 2 per cent. Foreign investment was at a standstill, and by early 2020 the country's sovereign rating was downgraded to junk status by ratings agency S&P Global Ratings.

Then came Covid-19. “By the time the pandemic came, we were already prostate, face down and absolutely finished,” says Mr Mohale.

With the country now rocked by a third wave of the pandemic, president Cyril Ramaphosa ordered yet another lockdown. “It’s not the first blow that breaks a rock, it's the last blow,” says Mr Mohale. With youth unemployment – those aged between 18 and 32 – of more than 72 per cent, it was only a matter of time before unrest broke out.

“We have 10 million young people sitting without work, not in any kind of training or life preparation. The devil finds work for idle hands.”

For now, it is up to insurers to help mitigate the losses. This will mostly fall to the South African Special Risks Insurance Association (Sasria), a state-owned body that is also the country’s only short-term insurer that offers cover against damages and losses arising from riots.

“Insurance coverage for big business is quite high, but for small business it is very low,” says Sasria's managing director Cedric Masondo. It is likely, however, that processing claims will be slow given the sheer volume expected. The transport industry alone has already claimed 100m rand for the loss of lorries torched over the past few days, says Mr Masondo.

A long-term concern is how the unrest will play out with South Africa’s trade partners. The Richards Bay Coal Terminal, the largest facility of its kind in the world, exports some 90 million tonnes of coal a year, much of it to India. The RBCT was forced to close because of threats to its staff this week, halting the loading of ships.

Coal is South Africa’s single largest export earner, and it now risks losing clients to competitors such as Australia.

Meanwhile, the country’s largest fuel refinery in Durban, a joint venture between BP and Shell that supplies a third of South Africa’s petrol needs, has also been forced to close. Durban has borne the brunt of the troubles and is also the route of 60 per cent of all imports and exports through South Africa.

The transport corridor between Durban and Johannesburg – both highways and rail – also remain closed, state freight and logistics company Transnet says. The country is now bracing for food and fuel shortages for as long as the logistical chain is down.

Stunned at the speed and scale of the looting, the state has ordered in troops to help quell the violence. This will be the largest military deployment since apartheid ended in 1994. But even once the unrest is quelled, many businesses will have vanished, says Owen Nkomo, director and market analyst at the Inkunzi Wealth Group in Johannesburg.

‘Both provinces are very big contributors to national GDP,” he says. “Billions upon billions of rands [are] being lost. There are definitely lots of gaps being created in the economy.”

Updated: July 15th 2021, 9:21 AM
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