Big businesses as well as SMMEs are facing a serious calamity with the Covid 19 crisis. It is serious, and major institutions from the World Bank to ratings agencies have set out the impact it is having on our economy. I was disturbed by comments yesterday in the Sunday Times that trade and industry minister Ebrahim Patel is dismissing economists’ forecasts as a “thumb suck”. I was disturbed because this trivialises the situation and how tough it is out there for business.
As we move through phase 4 and toward phase 3 of lockdown, if government continues to refuse to recognise how dire things are, then the next policy steps are going to be wrong. As important as the lockdown was to protect the country from the Covid-19 epidemic, the economic crisis is serious and requires as decisive an intervention, driven by the best evidence and policy advice available.
In the minister’s comments, I see a disregard for evidence. Of course, no economic model is perfect, but they are how economists bring together many causes to try and anticipate the effect of policy. The Reserve Bank, for example, models how interest rates affect inflation and the economy generally.
Unfortunately, the lockdown approach does not appear to reflect evidence and is not perfect either. We have not been shown the evidence that informed them, or how the health and economic trade-offs were made. While the president’s health experts have presented details on the models and other science that informed the basis for the lockdown, we have had no equivalent expert presentations on the phased lockdown relief and the economic thinking that informs it. But we also understand that this is not a perfect science, that we are in unchartered territory and are building this plane as we are flying it.
As I wrote last week, the economy is an adaptive system. It responds to the incentives and obstacles it encounters. We should be using this adaptive capability to our advantage. That means setting the goal posts clearly – a set of working protocols that keeps the infection rate low. Then we should let the economy get on with innovating and adapting within that, rather than setting out voluminous rulebooks that are often inappropriate to specific working environments. It is the principle that matters. This is the way to ensure the economic hit of the crisis is less painful than it might otherwise be. We can also support how fast it adapts by providing the basic tools to keep operating, particularly on the logistics side. We could also, as I’ve written here before, improve its adaptability by suspending certain labour regulations that currently prevent companies from switching staff to part-time work or lower salary packages if it means saving their jobs.
The president’s R500bn economic package consists of a mix of clear deliverables and some measures that depend on how well they work in implementation. This week banks should start to offer special Covid-19 loans that are part guaranteed by the government, with an aim of distributing R200bn to businesses that need bridge financing through the crisis. This is, so far, the single most important intervention for ordinary small and medium-sized businesses and it is important that it works. But we need to maximise the impact of these interventions, which means bringing the best thinking possible to the policy table. If our economy has a chance at changing its trajectory then it will require that we assume the worst-case scenarios being modelled and put drastic measures as we have done for health. Cynicism will land this economy in hot water.
The bans on cigarette and alcohol sales have dramatically boosted the fortunes of criminal syndicates and even seen gangs expanding their activities into these markets as their regular criminal activities have been disrupted by the lockdown. The concomitant loss to the fiscus as the formal traders in these sectors are barred from trading is massive and something the country can ill afford. This was the view shared with attendants at the Illicit Trade webinar organised by Business Against Crime South Africa (Bacsa) last week. Read the full report on the webinar here.
When we first moved into #lockdownSA at the end of March, it was done with much goodwill. But as the weeks passed and the economic damage unfolded, so social tensions arose. With the lockdown restrictions having been eased slightly from Friday, there’s a great responsibility being placed on business for a renewed commitment to the social contract, I wrote in my Business Report column. With an expected 1.5-million people back at work, we should remember that the lockdown restrictions aren’t being lessened because the pandemic is no longer a threat to our health; we are still in the eye of the storm.
In easing lockdown restrictions in phase 4 from last Friday, the state is placing responsibility on citizens and business to ensure there’s no explosion in cases, I wrote in Business Day. If we fail here, it’s a possible return to another hard lockdown – something that will send our economy into a coma that will require a stimulus shock much larger than the half-trillion rand raised, something the fiscus can’t afford.
Have your say.
Share your opinion