Flatten the recession curve as well as the medical one
Organised business is coming up with proposals to tackle economic revival
● Organised business is developing a series of urgent proposals to help reshape the South African economy after the Covid-19 pandemic — with the health and wellbeing of our people the no 1 priority.
Representatives from various organisations — including Business Unity SA, Business Leadership SA, the Minerals Council SA, Agriculture SA, the Black Business Council, the Banking Association of SA and the South African Chamber of Commerce and Industry — have come together under the umbrella of Business for SA (B4SA) to ensure we play a central part in making this happen.
Teams of economists and analysts have done some intensive work looking at where the economy is most vulnerable as a result of its inherent structural deficiencies, the global economic downturn and the impact of Covid-19 on people and businesses.
One of the key findings is the doubleedged sword of the national lockdown.
On the one hand, the lockdown will dramatically deepen the economic recession that SA was already experiencing before Covid-19 reached our shores. Businesses were under extreme pressure before the lockdown, and the situation now is beyond dire.
Millions of jobs are at stake: those that are heavily dependent on exports, for example, such as platinum, gold, diamonds, iron ore, manganese ore, coal, vehicles, machinery, steel and fruit.
In addition, the lockdown itself has had a massive impact on sectors such as accommodation, transport, finance and insurance — not to mention the millions of people in the informal economy.
All the research at our disposal shows that the stronger the “medical containment” approach, the safer South Africans will be, and the lower the death toll. There is a dramatic difference between countries that have acted swiftly to bring about medical containment and those that have not. We no doubt will have to keep it that way for as long as is sustainable and necessary.
As our economists put it: “Containment measures steepen the recession curve but flatten the infection curve.”
In other words, the lockdown may be slowly strangling the economy, but it is saving lives and should assist in the medium to long term with the revival of the economy.
Given that the government has opted for such a strict lockdown to keep people safe, with the accompanying impact on the economy, we have also had to focus on what steps should be taken to keep the economy on life support during the lockdown — and then successfully resuscitate it postpandemic.
But just how deep is the economic hole we are in?
We were effectively already in ICU before Covid-19 bit, but we have moved swiftly to critical care.
The impact on jobs is going to be devastating. In the formal sector, for example, we predict that unemployment could increase from preCovid-19 levels of 29% to up to 47% in the worst-case scenario — and even in the best-case scenario, up to 33% of South Africans could be without work once the pandemic has blown over.
A similar situation applies in the informal sector, where joblessness could increase from 29% to up to 44% in the worst-case scenario.
Alongside this, there can be no doubt that the government is going to have to borrow itself out of the situation — and, given our global credit ratings (which are as bleak as the economic outlook) government debt is going to be significantly increased, placing an additional burden on the state’s ability to raise the economy again.
All of which raises the question: how can we best get out of this situation?
B4SA is fine-tuning urgent policy proposals in support of government efforts to mitigate the damage and hold the South African economy together as best as is humanly possible.
These are built around five fundamentals:
● Interventions have to quickly target immediate pain points. That means, first and foremost, supporting the healthcare sector, which is at the frontline of providing care to the nation. It also means supporting workers and businesses to ensure their financial stability: emergency assistance has to be provided (grants in particular) and there has to be short-term compensation to ensure corporate liquidity and stability in the banking system.
● Interventions have to be high impact. Those with the highest returns must be prioritised, preferably in the sectors that are the most vulnerable to job losses and/or business failure, along with those that contribute the most to job creation and growth.
● During the lockdown, interventions need to be focused on the supply side of the economy — but once the lockdown is lifted, the focus will need to shift to the demand side, to stimulate recovery and growth.
● Where possible, interventions should be easily implementable — for example, requiring no change in legislation, or using existing mechanisms, and be interventions where confidence can be built that “things are working”.
● We should not lose our long-term focus. Interventions should be temporary and must have time limits, to avoid negative long-term effects or a situation where measures are difficult to reverse.
One thing that comes through starkly from the research is that the most lasting and damaging impact on the economy is likely to come from the lack of business confidence, which will result in a reduction in business investment.
Boosting business confidence and consumer confidence will therefore play a crucial role in getting out of the current economic situation. So while we’re flattening the medical curve, we have to be equally focused on flattening the “recession curve”.
Otherwise we may come out of this exercise alive but with an economy — the very thing that is needed to keep us alive beyond Covid-19 — that is itself beyond rescue.