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Urgent talks on saving both as industry, government meet
● As SA embarks on the second phase of its 35-day lockdown, industries and economists are counting the mounting cost to the real economy — and looking at how much of it could and should be safely reopened, during and after the lockdown.
The numbers highlight, too, how urgent is the need to put policies in place to prevent even strong companies from failing during the shutdown, and to save livelihoods at the same time as saving lives.
The presidency should have data on how bad the impact of a long lockdown would be — it surveyed sectors, asking them to estimate how many firms would shut and jobs be lost in the scenarios that the lockdown lasts three weeks, five weeks or eight weeks. It also asked what proportion of the workforce could work safely and/or remotely and what safeguards could be put in place.
But though business and the government have been in extensive talks in recent weeks over a sectoral approach to lifting the lockdown, there is little sign of a coherent overall approach by the government.
And though everyone agrees saving lives is the priority, a variety of indicators suggest how catastrophic the socioeconomic impact of a prolonged shutdown would be.
Fuel sales are down 80% because nobody is travelling. Electricity demand is down by a third. An index of the transactions going through the banking system was already down in March and will fall more steeply in April. Companies and households might have managed to survive for the first three weeks of economic paralysis, but many may not make it through the next round.
Nor is the economy going to go back to anything like normal in two weeks’ time.
With latest models showing the current lockdown could simply push the peak of SA’s Covid-19 infections out to September, chances are that economic activity will have to be constrained in some form for at least the next 3-6 months.
The impact on an economy that was already in recession will keep multiplying — especially in a global economy that the International Monetary Fund now expects will shrink by 3% this year.
“Downside risks still dominate as weakness begets more weakness,” Absa economist Peter Worthington said in a report this week. Since the lockdown extension, he and others have revised their forecasts sharply downwards, with SA’s economy expected to contract by more than 6% this year, and possibly closer to 10%.
Surveys of firms small and large make it amply clear that the longer it lasts the higher the cost will be to companies and to jobs. Most vulnerable are the small and medium enterprises that account for an estimated 6.6-million jobs. In a Sasfin survey of 1,000 small and medium businesses, 53% said they would likely have to retrench staff soon; a further 7% have already started retrenching.
Only about 60% said they could survive a 21-day lockdown; almost 30% said they could not survive another month if the lockdown were extended. Within three months as many as three-quarters could go bust.
Larger employers are more robust, but the cost of longer shutdowns is also being counted in sectors that are SA’s largest export earners, and among its largest formal sector employers.
Mining, which directly accounts for about a third of SA’s exports and about 450,000 jobs (and half of all Transnet’s business), is one of the few sectors where there has been some production, in coal mines supplying Eskom and some other open-cast mining. About 30% of production has continued in the first phase of the lockdown.
Even so, the Minerals Council estimated that SA’s annual mining production would be 5% lower this year if mining operations had resumed after 21 days, and 15% lower if the lockdown were prolonged, putting at risk 10% of the workforce — 45,000 direct jobs.
That excludes jobs in the industries that supply the mines, which would also be at risk. The mining industry has been in talks with mineral & energy resources minister Gwede Mantashe and with organised labour over the past couple of weeks on how it can ramp up production, during and after the lockdown, with rigorous safeguards and testing in place.
Those talks have succeeded — as reflected in Thursday’s government announcement
Downside risks still dominate as weakness begets more weakness
Peter Worthington
Absa economist
on new lockdown extension rules.
Mantashe announced a “risk-based approach” that will allow mining operations, at a reduced capacity of 50%, during the lockdown and at increasing capacity thereafter, subject to companies providing rigorous screening and testing, and quarantine for employees who test positive, as well as safe transport for employees.
Mantashe noted in Thursday’s press conference that all mines have extensive medical testing procedures for workers who return from leave, so they simply have to add Covid-19 testing to that.
The new regulations also allow fuel refineries to operate at full capacity, along with “refineries, smelters, plants and furnaces”, Mantashe said. The details are not yet clear but it does seem that significant parts of SA’s resource-based industries might be able to open up gradually.
Less lucky are the motor manufacturers, who have also been having bilateral talks with the government and have yet to secure a re-opening of the industry, under stringent conditions. The industry, which directly and indirectly employs 467,000 people, is SA’s largest export earner after mining, exporting about 64% of its production.
Says Michael Mabasa, CEO of vehiclemakers’ association Naamsa: “We want to ensure we can honour as many of our export orders as possible to ensure we can remain competitive.”
Naamsa estimates that under the current extended lockdown up to 10% of the industry’s workforce is likely to be retrenched — and up to 10% of the SMEs in the industry will close.
The new regulations add hardware stores and trades such as plumbing to the essential services list, along with financial services call centres. The huge franchise sector, though, has been unlucky in its plea for a partial reopening.