BLSA CEO's weekly

BLSA CEO’s weekly – 11 May


POSTED ON: May 11, 2020 IN , by Admin
BLSA CEO's weekly BLSA CEO's weekly

Government must be agile in responding to changing conditions. The risk-based framework for opening the economy allows agility to some extent by giving it tools to fine-tune.


Government must be agile in responding to changing conditions. The risk-based framework for opening the economy allows agility to some extent by giving it tools to fine-tune. The challenge is that this implies an immense bureaucracy, choosing which parts of the economy to open when, understanding how different points on the supply chain fundamentally interconnect, all while many businesses and individuals need to apply for permits to work. Red tape is bad for business at the best of times, but right now it is yet another source of pressure in the crisis. It need not be done this way.

The management of this bureaucracy now presents a great struggle for government. Moving from level four to three and on to two as soon as possible is important. Trade and industry minister Ebrahim Patel last Friday told a briefing of business leaders, organised by BLSA, that that government was determined to open as much of the economy as soon as possible. Parts of the economy, he said, and different geographical areas – even down to district level – would move to level three as soon as they were considered ready (Read a report on his comments here).

The problem is that the details for operating on level four are almost unmanageable. Some companies simply can’t open with 50% of their staff – there are complex production lines that either all operate or none at all. Others can’t function because they might be deemed able to open, but key suppliers are not, so they cannot access inputs to restart production. And then there are many features of the lockdown rules on retail that seem arbitrary – why shouldn’t retailers be allowed to sell exercise equipment, for example, given that we should be helping people function fully without leaving home? Drive-throughs also seem to be simple to operate and present lower health risks than buying food in shops. These sorts of detailed questions always arise when the approach taken is one of micromanagement. For example, retailers have asked what qualifies as “winter clothing” after they were allowed to begin selling it under level four rules, and government is now drawing up a list. This is absurd. The market already solves this problem – no retailer puts out their summer stock in May!

I wonder why we aren’t instead thinking about principles instead of rules. If the principle was to allow all economic activity that met required health protocols, much of this bureaucracy would evaporate. We would certainly need enforcement mechanisms, working alongside unions, consumers and others to identify cases of violations. We would also need clear bans on high-risk activities such as restaurants and entertainment venues – but drawing up a list of what is prohibited is infinitely less bureaucratic than trying to draw up a list of what should be allowed. Saying that factories can operate provided staff are at 50% is counterproductive if factories are able to reconfigure to meet health protocols and keep all their staff working. Banning e-commerce is another one that plenty has been said about.

Taking a “negative list” approach like this would allow the economy to adapt. It would allow businesses to figure out ways to operate safely in order to be able to increase output. It would encourage innovation. It is the best way to get as much economic activity happening as fast as possible.

The move from level four to lower levels is urgent to stem the scale of the economic fallout. But it is also urgent simply because it lifts some of the bureaucracy. Alongside the relaxation of levels, government can still show it is agile and able to change underlying principles too. Switching to a negative list approach would relieve the pressure both on government and the economy.

Minister Pravin Gordhan’s comments in parliament last week that he intends to establish a new SAA and use the Covid-19 crisis to consolidate other airlines in the industry was alarming. This would create a monopoly over airlines in South Africa. The one saving grace through the SAA crisis is that we had alternative carriers. Indeed, competition in the airline industry has been important in driving costs down for consumers.

SAA clearly plays a critical role in the economy. It is important that we have a thriving and robust airline industry again after the Covid-19 crisis. While competition has been fierce, SAA has been central to the airline industry for decades, providing the critical mass to keep airports open and many associated services that support all airlines. We need to keep this in mind as we consider the future of the industry.

Whatever the details, it is critical that the future industry should be competitive. We should want as many private sector players as can sustainably be created. It is not clear the state should play any role. I need to be convinced that there is a clear public good derived from the state owning an airline as opposed to, say, acquiring services it needs from a competitive and dynamic industry. While we work towards further unlocking competition in energy supply through the restructuring of Eskom, we mustn’t forget the abundant lessons we have learned on the importance of competition.

How we deal with Covid-19 will need much more than just bailing out troubled industries or waiting out the storm; we are going to have to reimagine the South African economy, I wrote in Business Day. We must fundamentally break with the past if we’re serious about changing things around. Promises of “overhauling” state-owned enterprises should not prove hollow. Yet with SAA, almost immediately, our government goes back to the old playbook.

SAA

This month, we’ve had a 90-year old Edgars and the 77-year old Comair decide to move into business rescue. Pressures, due to coronavirus, are only going to grow as we move into our winter, where case numbers could still explode, I wrote in my Business Report column. Lockdown was about preparing our defences; it was not a cure.

BLSA CEO's weekly


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