The Impact of COVID-19 on South Africa's Maritime Economy
The novel coronavirus which causes COVID-19 first broke out in the port city of Wuhan, China, in December 2019. The economic impact of the global lockdown is harshly felt, with the global freight and shipping industry being the biggest casualties. Global shipping markets have now declined, with the collapse in demand for goods from China having an effect on everything from container ships to oil tankers. Demand has dropped across the board, including at ports, the trucking industry, and the shipping industry. The subdued global demand is also evident in the decline in oil prices, which has had a negative impact on the offshore and onshore oil and gas industry.
Due to the slowdown in demand in the shipping industry, many ports have experienced a reduction in the number of vessels calling due to the rescheduling of itineraries, as a result of the decrease in cargo volumes. Some ports are experiencing a decline in exports because of the closure of destination ports in Asia and Europe. Container ships sit idle around the world, reminiscent of the global financial crisis of 2008.
A recent survey conducted by the International Association of Ports and Harbours (IAPH) on global ports reports that over 40 percent have experienced moderate decreases (minus 5% to 25%) and in some ports significant decreases (in excess of 25%) in the number of vessel calls. With China being the first country to institute a lockdown, global demand weakened and the slump for goods from China has had a ripple effect on container ships across the globe.
Locating South Africa in the COVID-19 conundrum
The SA government announced a 21-day nationwide lockdown effective March 27, and it was later extended to the end of April 2020. This was followed by a schedule of alert and response levels introduced May 1. With this lockdown came a ban on cruise ships docking at SA sea ports and a ban on crew changes, with the restrictions on cruise shipping having a significant impact on the tourism industry. Although none of the country’s eight seaports were closed, goods coming in from high risk countries had to be sanitized at first. This called for changes in terminal operations to scale down transportation services and operations of non-essential cargo, which included closure of all automotive and multipurpose terminals at the ports of East London, Saldanha, Port Elizabeth and Maydon Wharf in Durban, with single berth for handling essential break-bulk goods and containers.
The warehousing and distribution activities at SA ports saw changes due to the fall in demand for consumer products owing to the lockdown measures. This has led to an adverse effect on total output; it is estimated that port operations have been operating at 60 percent capacity during this lockdown period.
Given that COVID-19 is likely to reduce demand and disrupt normal business operations, the SA Reserve bank projects the economy to contract by 0.2 percent in 2020, then rise by 1.0 percent in 2021 and 1.6 percent in 2022. The scope of COVID-19-induced economic disruption on the SA economy is wide. In particular, as China is South Africa's largest trading partner, SA is exposed to any disruption in China's import and export activities.
There is mounting evidence that COVID-19 has also reduced SA exports and adversely affected jobs numbers. In the initial lockdown regulations, exporting of wine was considered non-essential, which effectively placed a ban on the export of bulk and packaged wine. The unintended outcome of this ban is the unfortunate loss of income for 4,000 farmworkers across SA’s wine farms, exacerbating the already high unemployment rate.
Sector and policy response
Given the globalized nature of the pandemic, a global response is required. Thus far, global public health response to COVID-19 has been bold and commendable with the charge being led by respective governments. To minimize the economic impact of COVID-19, the SA government employed various fiscal and monetary policy measures, including increased liquidity into the domestic market to stimulate credit demand and increased fiscal reprioritization towards social security measures.
From a sector perspective, more needs to be done, especially about the restrictions on crew changes at seaports. Sector representations need to be made to the government about the necessity to ease the restrictions on crew changes. These representations will have to be coordinated to avoid duplication and overlapping, and institutions such as the SA Maritime Safety Authority might be able to lead the coordination of a sectoral response. While the need to limit social interaction and maintaining social distancing is understandable, it cannot come at the expense of seafarer crew members who are stuck onshore or at sea. Mass testing of workers currently at work and returning to work will have to be considered, especially upon the re-opening of the closed terminals in phases.
Despite the pandemic’s devastating impact, the global economy needs to keep running. The South African government will have to strike a careful balance in preserving public health without compromising the country’s capacity to participate in international maritime trade.
SAIMI (South African International Maritime Institute) is funded by the South African Department of Higher Education, Science & Technology (DHEST). SAIMI coordinates maritime skills development, education, research and innovation to support growing South Africa’s maritime economy. It has its headquarters at Nelson Mandela University in Port Elizabeth, and it works nationally with stakeholders in maritime education, industry and government.