The Macro–Micro Impact of Drought in South Africa: Evidence from a Computable General Equilibrium Analysis

This paper examines the macro–micro impact of drought in South Africa using a computable general equilibrium model calibrated to the structure of the South African economy. Drought is represented as a severe supply-side shock: a 50% decline in total factor productivity in agriculture, forestry and fishing. The analysis traces how this shock is transmitted from agricultural production to prices, trade, employment, household income, consumption and welfare. The results show that agricultural output falls by 19.5%, agricultural prices rise by 43.3%, and agricultural imports increase by 84.8% as the economy shifts towards external supply. These sectoral effects generate wider macroeconomic losses, including a 1.0% decline in real GDP, a 1.7% increase in unemployment, a 1.2% fall in household income and a 1.5% reduction in household consumption. Welfare declines for both rural and urban households, but rural households experience larger losses because of their stronger dependence on agriculture, farm income, livestock assets and food markets. The findings show that drought is not only an agricultural or hydrological event; it is an economy-wide and distributional shock transmitted through production, price, trade and labour-market channels. Although imports help to cushion domestic scarcity, they do not fully offset higher prices or welfare losses. Policy responses should therefore combine drought-resilient agricultural investment, water-resource resilience, targeted social protection, food-supply stabilisation and rural livelihood diversification.