Not many silver linings in the coronavirus playbook for SA
It is almost impossible to think that a conversation with the word coronavirus in it could contain any fragments of hope. But a phone call to Albert Louw, the marketing manager for the 90-year-old Lasher Tools, proves the exception.
As factories across China, the origin of the Covid-19 illness, closed, the world’s supply chains have frozen up and companies everywhere have scrambled to find other sources of everything from clothes to pharmaceutical ingredients.
Lasher has been at the receiving end of this scramble. The local hand-tool manufacturer, which has four factories that have been on short time, landed a multimillion-rand order from a large local retailer.
“It has reignited our factories,” he told Business Day. Other retailers have followed, Louw said, and though there is still “stock on the ground” and inventory in retailers’ distribution centres, Louw believes the pickup could continue.
Lasher has the advantage that it sources 98% of its inputs locally, says Louw, including the steel it uses to make its trowels, spades and wheelbarrows. The crisis, he believes, has forced retailers to rethink their own supply chains. But for other manufacturers, the picture is more mixed.
“No market in the entire world, including in India, Bangladesh, Sri Lanka and Vietnam, can do what China does,” said the CEO of Durban-based Kingsgate Clothing Group, Yusuf Vahed, in a recent statement.
The company, which makes most of its products in Southern Africa, is not a significant importer of ready-made garments, but it has felt the shortage of textiles to make its clothes.
According to Vahed, there is “no effective local textile industry” in SA any more, and where it does exist, local textile manufacturers cannot produce the variety of raw materials found in the Far East and Asia.
“Ever since the outbreak, our company, as well as all other companies in every industry that purchase from China, have been affected in some way or the other,” Vahed said.
These issues notwithstanding, retailers have had “no option but to review their procurement strategies and source locally”, said Vahed, and the group has experienced “significant” interest from retail customers. As long as manufacturers have access to raw materials, “manufacturing in SA can, at short notice, switch on additional production space”, he said.
Others, however, believe the prospects for SA, already plagued by recession and the intensifying of load-shedding to stage 4 this week, are bleak. With a moribund public health care system and no fiscal space to spend our way out of a deeper crisis, the coronavirus feels as if another, terrifying head has been added to the many-headed hydra threatening the economy.
Last week, Moody’s Investors Service cut SA’s growth forecast for a second time in less than a month on the back of coronavirus fears. It expects SA to grow at 0.4% in 2020, under a baseline scenario that will entail “significant global disruptions”. In a scenario where the disease causes an extended slump, it expects SA to record 0% growth this year.
DOUBLE WHAMMY
Michael Ade, chief economist at the steel and engineering industries federation of Southern Africa (Seifsa), says SA will be at the receiving end of a “two-way negative effect”.
Declining demand out of China will hit SA exporters to the Asian giant, while projects in SA are going to be negatively affected because of constraints on Chinese suppliers.
“Already, companies in China are applying for force majeure certificates because they are worried that they won’t be able to deliver on those contracts,” Ade said.
Neva Makgetla, senior economist at industrial thinktank Trade & Industrial Policy Strategies (Tips), puts it more bluntly: “There is no silver lining in a new biopandemic.” Makgetla is less concerned about the threats to SA from global trade channels than she is about China’s role in holding up the price of minerals and what this means for the mining sector.
According to Tips’s research, SA’s top 10 exports to China are dominated by minerals such as iron ore, manganese and chrome, and the top 10 items account for 86% of total exports to China. Tips also noted that while there may be other markets for SA commodities — if Covid-19 slows down — in almost every case the other market took up less than half what China did.
Another concern, and arguably the biggest, said Makgetla, is the question of what happens if the disease spreads in SA, where many people work in the informal economy, with little to no social safety net.
Given the government’s fiscal constraints, it is unclear what stimulus measures the state can put in place to address the effects of the virus. SA needs to consider tapping into surpluses in social welfare funds such as the Unemployment Insurance Fund (UIF) and workers’ compensation fund, she argued. Efforts could include extending the UIF to everyone with a doctor’s note confirming they must be quarantined, she said. Even if a person has not paid into the fund, they could be cross-subsidised, she argued.