There is opportunity in a crisis

SA’s economy has the potential to overcome junk status and pandemic catastrophe

WHAT started as a virus in China, is now a global pandemic.

The coronavirus has wreaked havoc throughout the world causing serious economic and social consequences.

Stock markets have plummeted by double-digit numbers and trillions of various currencies have been wiped away.

South Africa has not been spared from the wrath of Covid-19. Just like other countries, South Africa has introduced lockdown measures to curb the spread of a virus that we still do not have a vaccination for.

To make matters worse, we were hit with a double whammy when one of the rating agencies downgraded us to sub-investment grade. Even though this was largely expected, the timing of such an announcement, could not have come at a more inopportune time.

Our currency was already under pressure, at around R17.50 to the US dollar due to the global crisis. We now sit with a situation where the rand has further plummeted to more than R18 to the dollar. Importers have no option but to pass these extra costs onto an already cash-strapped consumer.

The South African small and medium-size business sector is one of the key pillars of this economy. Communities and households alike depend on these micro and medium-size businesses to survive. With an unemployment rate of around 27%, this economic crisis can only result in this number growing exponentially.

While I have painted a portrait that illustrates doom and gloom and ultimate catastrophe, is this really the case?

Can we as South Africans draw on our resilience in order to overcome this crisis?

Can we as South Africans see this as an opportunity to remodel the economy into a more robust industrial nation?

Can we as South Africans come together as one united nation to find ways to improve the lives of everyone?

Could this be the time when political parties forget about petty politics and ideologies and focus on one goal?

Is this the time that labour, business and the government sit around a table only with one common interest at hand, building the South African economy?

To answer this question quite frankly, as Barack Obama once said, “Yes we can”. The question that you may ask is how. Before we dive into the mechanics and logistics of rebuilding, it is important for us to have a nostalgic moment and travel back into time.

I want to take you back to 1995. For those of you who can remember, I want to take you back to when the Springboks walked onto the field to play New Zealand in the final of the Rugby World Cup.

I want you also to remember the patriotism, camaraderie and unity that we had when we lifted that cup.

I then want you to reminisce and go back to one year later when Bafana Bafana lifted the Africa Cup of Nations.

There are multitudes of other nostalgic moments. However, this is not the point of the illustration.

Before we sit around a table, to execute any life-changing strategies, we need to agree on a few fundamental principles.

The process of reconstructing an economy and building a nation needs to come first. The idea of business making exorbitant profits needs to be put on hold.

Without a strong consumer and a strong economy, there can be no profit. The same patriotism and unity that was shown then needs to be revived now.

We have to accept the fact that shortterm pain will guarantee us long-term gain.

Let us start by firstly examining the sub-investment or junk status that has been bestowed upon us. While the reasoning behind the downgrade is justifiable, it has also created an opportunity for foreign investment.

A country like South Africa is still gifted with natural resources, a well-managed financial sector and is still regarded as the leader on the African continent.

The fact that we have such depreciation in the currency, should make South Africa look rather attractive to a foreign investor.

If it was so easy, I hear you ask, then why have inflows of capital not been forthcoming? It is quite simple really.

Regulations, labour legislation, corruption, crime and taxes, to name a few, are some of the fundamental reasons that we are just not attracting what is out there.

Has Covid-19 secretly provided us with an opportunity to start tackling these issues from the ground up, laying a platform for foreign investment?

As I have indicated previously, economic recovery is going to require some sacrifices.

When businesses eventually reopen and, they will reopen, a drastic change in the mindset of both employer and employee would need to happen.

Could you envisage a scenario for the next 12 months – every employee and employer arrived an hour earlier for work and left an hour later?

Let us use a factory as an example. Let us assume that this factory has 100 employees. Every one of these employees comes one hour early and leaves one hour later than normal. That is an additional 200 hours of manufacturing time per day. Obviously, something has to give here so this would go without remuneration.

A similar principle would have to apply in terms of overtime and weekend work.

Obviously, this would have to be done within the boundaries of legislation as you would get some unscrupulous employer who abuses the system.

Employers would have to find other means of compensation such as childcare, provident fund contributions, perhaps even providing transport for the majority of employees as compensation for the extra hours worked. Like I originally stated, sacrifice needs to be made from both sides.

As much as the industry has its role to play, the state is equally responsible. As a collective, it is essential that a plan is devised to subsidise essential foods for each and every South African.

For the next six months an intervention is required for basic essential food items. Meat, poultry, canned foods, milk, and bread, etc, manufacturers require subsidies and a strict regulation framework and subsidies structure to be developed and implemented.

South Africa is still in the business of importing poultry as shown by the South African Poultry Association website.

I can only speculate the reasoning for such imports. Price is the obvious one, infrastructure development possibly or a lack of farming knowledge, which I highly doubt.

If price and costs are proven to be a determining factor, can this not be addressed in the form of subsidies, local direct investment and a tax incentive for local producers?

Is it possible that we should consider taking a page out of the US book and implement hefty tariffs on imports of basic essentials?

I am confident that the South African brains trust can develop mechanisms to provide funding and direct investment into the poultry industry.

Besides job creation, we would be able to achieve sustainability in terms of food security. We have often heard and read about the strength of the South African financial system.

In terms of regulation, financial controls, and good governance, South Africa is ranked highly. The South African financial sector currently has a market capitalisation in excess of R500 billion.

Yes, you read correctly. R500bn and this is after the market correction that is currently taking place.

Now that we have established the fact that we have a solid financial system, would it not be prudent of us to consider measures taken by other developed nations in the form of easing monetary policy?

In other words, bringing down the general interest-rate. The currency will further depreciate, I hear you say. Yes it will be in the short term, but ultimately this would enable consumers and entrepreneurs to gain access to liquidity and capital that is fundamental for local investment.

We are fully aware that the banking institution’s profit margins will drop but the question would then need to be asked: is the sacrifice of large profit margins and large bonuses more important than building this economy?

If we consider the approach of local manufacturing, rather than importing, our exports will improve and with a depreciating currency will become rather attractive.

Such strategies would have to be carefully studied by leading South African economists and actuarial scientists to develop the guidelines and framework that would enable us to move forward.

In a recent State of the Nation Address, President Cyril Ramaphosa showed off a suit he was wearing proudly made in South Africa. South Africa once had a booming textile industry that unfortunately evaporated due to the ever-growing imports that literally killed the industry.

The tariffs that were spoken about previously are the answer to resolve this question.

There are a number of other economic propositions out there such as the redesign and implementation of the national fuel levy, the reduction in income tax, the deregulation of the telecommunications industry, the privatisation of state-owned assets and the incentivisation of organisations who add value to the country.

I will, however, leave this chapter open for more debate and discussion.

As a proudly South African, I truly believe we have the skills, resources and capabilities of rebuilding an economy and making a difference in the lives of all.

Naidu is a visually-impaired human resources and IT executive in the hospitality industry