Reopening firms will battle at first

CATCH-UP: DEBTS FROM RENT, STORAGE CUT PROFITS

Some construction business may be lost in case of expired contracts.

Although today’s reopening of some key sectors of the economy under alert Level 3 may be a positive move, industries’ catch-up is not going to be smooth sailing, according to an economist.

As part of government’s gradual ramping up of production in businesses affected by the Covid-19 lockdown, President Cyril Ramaphosa recently announced the construction and liquor industries would be among those reopened under Level 3.

While applauding the decision, University of Johannesburg economics professor Peter Bauer, who described the country’s economy as “too fragile to be held back by lockdowns”, warned a full recovery of the construction and liquor industries would follow “an initial rough curve”.

Reflecting on reopening the construction industry which, he said, contributed 10% of the country’s gross domestic product, Bauer said: “The construction industry is resuming at a time when the entire value chain: manufacturers of building materials like cement, pipes, roofs and doors has already been disrupted.

“Many construction projects that had to be halted during the lockdown are now no longer on schedule. You might have a situation where companies no longer pick up the load any more because contracts they initially relied on are now null and void.

“The principle behind any contract is that it should match deliverables on an agreed date. A certain amount of buildings had to be constructed and completed, but deliverables could not be met due to the lockdown – something affecting initial contracts with clients.

“If no fresh contracts are entered, due to some people seeing an opportunity not to go ahead with projects any more, then you are likely to see post-lockdown unemployment creating a crisis.”

Turning to the liquor industry, Bauer said that despite the prospects of fresh profits for bottle stores due to people flocking to buy liquor, store owners would initially find it hard to survive.

According to experts, the liquor ban was a double-edged sword: last year alone, South Africa raked in R15 billion in tax revenue on the sale of beer, R8.3 billion on wine and other fermented beverages, with sorghum beer bringing in R4.5 billion. “Many liquor store owners are sitting on debts for rent, storage and salaries. “These challenges mean that in terms of pricing, you are probably going to have slight inflationary pressure.

“The cost of storage and challenges of liquor going off is a big challenge. As seen at SA Breweries, the company has been reporting dumping a huge amount of alcohol already, because of the expiry date.”

“We have to remember the rest of the global economy has moved on and we have to catch up.”

Global economy has moved on and we have to catch up